PetroSA, South Africa’s national oil company, has fallen under investigation by its parent company, Central Security Fund and South Africa’s department of energy for a series of ongoing inappropriate procurement procedures. Though a full investigation is underway and few details have been released to date about the indiscretions, here’s what’s clear from the information known.
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What Executives of PetroSA Did
The heart of PetroSA’s problems lies in senior executives who inappropriately overrode the internal control systems. Chief financial officer Nkosemntu Nita and vice president of operations Michael Nene were suspended in May 2012, and in early 2013 chief executive officer Sipho Mkhize was fired immediately following an investigation by Gobodo Forensic and Investigative Accounting.
The improper procedures by executives were related to how they handled tenders and contracts. Their actions involved rigging of tenders and mismanagement of the company’s finances. Apparently, there are some former executives of the company who are also under investigation.
What It Cost
Of PetroSA’s R7.1 billion annual revenue, the indiscretions cost the company a reported R5 million. CEO Mkhize lost his job, and the allegations might hinder the company’s future abilities to secure contracts with the government. As of now, the South African government wants PetroSA to provide 30 percent of the company’s needs for crude oil, in addition to increasing their refining capabilities and investing in more liquid fuels logistical infrastructure.
PetroSA is trying to meet government requests by building a new oil refinery in Coega, which is expected to produce 400,000 barrels of oil per day. In light of the Oilgate scandal in December 2003, Mkhize and his fellow senior executives were already under suspicion. At the time, money that was supposed to be paid to a supplier, Glencore International, actually went to the African National Congress. Mkhize was eventually cleared of wrongdoing in the Oilgate scandal because he was apparently on leave when the transaction took place.
What Could Have Been Done?
Is there any way PetroSA’s parent company, Central Security Fund, could have prevented what ended up being a costly series of malpractices by its executives? There are several ways to help stop executives from abusing their authority and putting the company in legal or financial jeopardy.
- Checks and balances: people at all levels need to be able to sound the alarm if the company’s policies and procedures aren’t being followed.
- Accountability: people directly responsible for high level decisions need to be held personally responsible for their actions, whether it be ill intent or simple indifference to the regulations.
- Integrity: companies should never assume that a high level of authority constitutes a high degree of integrity. People at all levels of business are susceptible to temptations when it comes to wrongdoing.
- Frequent audits: companies should invest in regular audits by third party organizations to detect any discrepancies, malpractices, negligence, or wrongdoing before the issue gets out of hand.
While the latest scandal at PetroSA may not mean a death sentence to the company, there’s no disputing the scandals have marred their reputation and could hurt their abilities to garner new contracts in the future. Taking care to avoid these malpractices before they become an international issue is the only way to protect a company’s finances and reputation. [/show_to]
