Malone Petroleum Consulting



Oil and Gas Vendor Audits are Sensitive, but a Necessary Deterrent

Vendor Audits and Service Company Audits

Besides joint venture audits and joint interest audits, we do conductor audits and vendor audits; however, we consider them to be very, very sensitive and they should be handled with due care since service companies are critical to the operator's future needs. Vendor audits and service company audits are very important simply because they are a very effective deterrent. If it is not done, it is begging for trouble since it can get out of hand. I was on one vendor audit which sadly resulted in the entire district being fired since one rotten apple had infected all the other apples. When you think about it, most people are honest; however, when everyone around them is getting rich from stealing and they have bills to pay, the temptation can be overwhelming. I've always had a motto that it is only 25% of the thief's fault something is stolen; the other 75% goes to the victim who openly tempted the thief. We once had a coding department that got behind; so, they brought in temporary help to approve, stamp and pay invoices - if the vendors had known it, they could have had a field day. One trick is that if a company changes names or is bought out, the vendor sends and invoice to both confused companies. Also, a vendor can have a buddy down the street that he tells him the drilling well's information so he can send in an invoice and maybe get it paid for work not done. The list is endless. Also, there are times when there is a dispute between an oil company and a vendor or service company who will have to come to us for their rescue when they feel an operator is not being reasonable or has made an unreasonable claim or when the operator's accounting for a claim makes absolutely no sense at all to them.

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