The Impact Of Financial Control On Survival And Growth Of Oil Companies In Kenya

ABSTRACT

The failure of several large corporations at the global stage has been attributed to weak or ineffective financial control. ,.D., recent example is the large United States of America (US) insurance organization, American International Group (AIG), which in May 2005, reduced its 2004 profits by $2.7 billion due to accounting errors over the period 2001 to 2004. In the energy industry, some of the big corporations that have suffered huge losses attributed to failure in their accounting and financial control mechanisms include Enron Corporation of the US and Yukos of Russia. investigations on the root causes of Enron failure led to what is now popularly known as the Sarbanes-Oxley law in the US, requiring higher standards from all those responsible for corporations i.e. higher standards for corporate governance. The boards of directors, external auditors, internal auditors and management can now be held liable for corporate failure following the Sarbanes-Oxley law. Oil marketing companies in Kenya operate under similar situations marked with both risk and uncertainty. Risks and uncertainty cannot be avoided so the business enterprises need to take the necessary steps to enhance controls thus minimizing risk of corporate failure. Many categorize risks as financial but the reality is that risks also emerge from legal, environmental, health and safety obligations and other sources. The sources of risks are people, assets, liabilities, equipment and management styles. As an example, British Petroleum (BP) and ExxonMobil sold their interests in Kenya thereby exiting the Kenyan oil market in 2005 and 2006 respectively. While not necessarily driven by control failures, strategic exit from markets implies that control and other risks associated with such a market are high. This study sought to establish the impact of financial control on survival and growth of oil marketing companies in Kenya. The study adopted both primary and secondary data collection methods. Research Primary data was collected through a questionnaire with both open and close ended questions on a drop and pick later basis. Email communication was used as well.