THE IMPACT OF INTERNAL CONTROL SYSTEMS ON THE PERFORMANCE OF OIL AND GAS INDUSTRY A CASE STUDY OF EXXONMOBIL UPSTREAM NIGERIA

CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND OF THE STUDY

Oil and gas institutions occupy a vital position in the nations’ economic system and are essential agents in the development process of the economy. By intermediating between the surplus and deficit spending units, oil companies increase the quantum of National savings and investments and hence national output. By granting credits, oil companies create money thus influencing the level of money supply which is an essential item in the growth of national income as it determines the level of economic activities in the country. Oil companies are central to the payments system by facilitating economic transactions between various national and international economic units and by so doing encourage and promote trade, commerce and industry. For oil companies to be able to function effectively and contribute meaningfully to the development of a country, the industry must be stable, safe and sound and for these conditions to be obtained there must be a sound accounting system, which is occasioned by an internal control system. In view of the economic growth in companies’ size and complexities, proper management of modern business undertakings are not possible unless they have an effective system of internal control.

A system of effective internal controls is a critical component of oil company management and a foundation for the safe and sound operation of oil and gas organizations. A system of strong internal controls can help to ensure that the goals and objectives of a oil and gas organization will be met, that the oil company will achieve long-term profitability targets and maintain reliable financial and managerial reporting. Such a system can also help to ensure that the oil and gas industry will comply with laws and regulations as well as policies, plans, internal rules and procedures, and decrease the risk of unexpected losses or damage to the Oil companies reputation. Effective internal control, the strength of every organization, has become of critical importance today in the Nigerian oil and gas industry. The reason being that the control systems in any organization is a pillar for an efficient accounting system.