Triton Energy Ltd. / Case 3.

Brief Description:
The auditing case investigated involved Triton Energy Ltd., the successor of
Triton Energy Corporation which was founded in 1962 by L.R. Wiley. In the early 1960’s
Bill Lee joined Triton and was promoted to chief executive officer (CEO) in 1966. Under
Lee, Triton competed in the rough-and-tumble business of oil and gas exploration by
employing a rough-and-tumble business strategy. Lee recognized that the large
domestic oil firms in the United States had already identified the prime drilling sites in
this country. So Lee decided that Triton should focus its exploration efforts in other oil-
producing countries, particularly those over looked by “Big Oil”. During Lee’s tenure with
Triton, the company launched exploration ventures in Argentina, Australia, Canada,
Colombia, France, Indonesia, Malaysia, New Zealand and Thailand.
Although adept at finding oil, Triton’s small size hampered the company’s efforts
to exploit oil and gas properties. Major oil firms, large metropolitan banks, and other well-
heeled investors often refused to participate in the development of promising oil and gas
properties discovered by Triton. To compensate for Triton’s limited access to deep-
pocketed financiers, Lee resorted to less conventional strategies to achieve the firm’s
financial objectives. Lee and Triton established close relationships with various foreign
governments and agencies. Triton’s policy of working closely with government agencies
and bureaucrats landed the company in trouble with the U.S authorities during the
1990’s. Charges that Triton bribed foreign officials to obtain favorable treatment from
governmental agencies led to the investigation of the company’s, overseas operations
by the U.S. Justice Department and the Securities and Exchange Commission (SEC).
These investigations centered on alleged violations of the Foreign Corrupt Practices Act
of1977, including the accounting and internal control stipulations of that federal statue.

Facts and Related Statement of Auditing Standards:

Periodically two Indonesian audit teams periodically examined Triton Indonesia’s
accounting and tax records. The audit revealed that the unit owned approximately
$618,000 of additional taxes. Of this total $385,000 involved taxes levied by Pertamina
auditors, while the remaining $233,000 were taxes assessed by BPKP auditors. Roland
Siouffi an employee of Triton arranged to pay $160,000 to two key members of the
Pertamina audit team to eliminate the additional tax assessment of $385,000 and
arranged with the auditor from BPKP to pay him $20,000 to reduce the $233,000 tax bill
to $155,000. The nature of these payments violated auditing standards:
• Statement of Auditing Standards 54 Illegal Acts by Clients
This states that the auditor considers laws and regulations that are generally recognized
by auditors to have a direct and material effect on the determination of financial
statement amounts.
• Statement of Auditing Standard No. 69, The Meaning of “Present Fairly in
Conformity With Generally Accepted Accounting Principles” in the Independent
Auditor’s Report
• SAS 99, Consideration of Fraud in a Financial Statement Audit
• SAS 1, Responsibilities and Functions of the Independent Auditor,
 Which states that “the auditor has a responsibility to plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether caused by error or fraud. This section establishes
standards and provides guidance to auditors in fulfilling that responsibility, as it
relates to fraud, in an audit of financial statements conducted in accordance with
generally accepted auditing standards (GAAS).
• Statement of Auditing Standard No. 107, Audit Risk and Materiality in
Conducting an Audit
which states that "an illegal payment of an otherwise immaterial amount could be
material if there is a reasonable possibility that it could lead to a material contingent
liability or a material loss of revenue."

Issues:

This case involves the focus on the provisions of the foreign corrupt practices,
act, auditor independence, misrepresentation of financials, and poor internal
controls

Discussion and Analysis:

Each year, additional U.S. companies attempt to establish footholds in emerging
markets. Funneling unlawful payments to officials of foreign countries is often the most
effective method of breaking down entry barriers to those markets. The growing
sophistication of illicit foreign payment schemes complicates the SEC’s efforts to more
rigorously enforce the FCPA. In fact critics of the FCPA suggest that it is practically
unenforceable except in the most blatant cases.
Many corporations’ executives have lobbied against the enforcement of the
FCPA. These executives maintain that the federal law places U.S. multinational
companies at a significant competitive disadvantage relative to other multinational firms.
A member of Presidents Clintons administration supported this point of view when he
observed that the U>S. is the only country that has “criminalized bribery of foreign
officials.”

Conclusion and Recommendations:

Bill Lee was never directly implicated in the Indonesian payments scandal and
retired as Triton’s Energy CEO in January 1993 after leading the Dallas based oil and
gas exploration firm through three turbulent decades. The SEC sanctioned the Triton
executives involved in that Scandal. All of those executives subsequently resigned their
positions with the company. A few years later, in the summer of 2001, Triton Energy’s
tumultuous history as an independent firm ended when Amerada Hess purchased the
company for a reported $2.7 billion.
I would recommend that the company establish the following guidelines in the
future:
1. Have a code of conduct across the business relating to bribes. With a zero tolerance
that would result in immediate termination.
2. Have a strong internal audit function and audit committee, and act to rectify any
relevant internal control weaknesses identified and reported to the board by external
auditors.
3. Require the accounting staff to maintain adequate records of the sums of money
received and expended by the company, identifying the matters in respect of which the
receipt and expenditure takes place.
4. Prohibit staff from making off-the-books transactions or keeping off-the-books
accounts.
5. Have adequate standards to ensure the independence of external auditors which
permits them to provide an objective assessment of company accounts, financial
statements and internal controls.
6. Require the auditor who discovers indications of a possible illegal act of bribery to
report this discovery to management and, as appropriate, to corporate monitoring
bodies.
7. Require the auditor to report indications of a possible illegal act of bribery to
competent authorities.
8. Created monitoring bodies of, independent of management, such as audit committees
of boards of directors or of supervisory boards.
9. Provide channels for communication by and protection for, persons not willing to
violate professional standards or ethics under instructions or pressure from hierarchical
superiors

Relation to the week’s learning outcomes:

This case relates to learning outcomes regarding the audit implications of client
control policies and procedures as well as the factors that complicate the audits of
multinational firms.