INTOSAI WORKIN ROUP ON AU IT O XTRA TIV IN USTRI S … · learning in the domain of Extractive Industries audit. ... Sensitization on SAIs' role in ... This toolkit includes an Instructors

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INTOSAI WORKING GROUP ON AUDIT OF EXTRACTIVE INDUSTRIES

Annual report 2014 - 2015

This report covers a selection of activities undertaken by the INTOSAI WGEI Secretariat, Working

Group members and partners over the course of the past year. It is intended to inform members on

the variety of work ongoing and to highlight opportunities that exist for mutual exchange and

learning in the domain of Extractive Industries audit. Please note that the report does not represent a

complete overview of all activities ongoing in this domain, and that the report includes updates on

activities and audits initiated without the direct engagement of the WGEI.

If you have audit reports, resources or tools you believe could be of use to other WGEI members,

please share them with the Working Group by emailing [email protected] or the WGEI Community of

Practice coordinator on [email protected]

mailto:[email protected]

mailto:[email protected]

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Table of Contents

Secretariat update ................................................................................................................................... 2

Community of Practice (CoP) .................................................................................................................. 3

Selected activities and events 2014-2015 ............................................................................................... 4

1. Knowledge Enhancement ............................................................................................................ 4

2. Sensitization on SAIs' role in Extractive Industries ...................................................................... 7

3. Examples of EI-related audit reports produced .......................................................................... 7

Annex: EXAMPLES OF SAI ACTIVITIES ON EXTRACTIVE INDUSTRIES ....................................................... 9

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Secretariat update

Since 2014, substantial achievements were made in establishing the WGEI and convening group

members. The established working group now counts 34 member SAIs and 3 observers. The first

WGEI meeting was held in Kampala, Uganda in August 2014. The Terms of Reference and 3 year

activity plan was approved, and a Steering Committee was established, consisting of SAI Uganda,

Brazil, South Africa, Iraq and Norway. A Steering Committee meeting was held in May 2015,

approving relevant planning documents and discussing the priority tasks for the WGEI in the year to

come.

At the Kampala meeting, a decision was also made to move forward with a WGEI Community of

Practice, a platform for SAI colleagues and partners to share best practices, resources and contacts

aimed at strengthening audit of the extractive industries.

The WGEI website www.wgei.org was approved and established at the first WGEI meeting in

Kampala in August 2014. After some technical challenges an updated website was finally launched 15

July 2015, with a facelift and a number of new resources.

The first WGEI newsletter was sent out in August 2015 with valuable contributions from several

countries, and a second newsletter was shared in September 2015.

Community of Practice (CoP) It was clear from the first WGEI meeting and Steering Committee discussion that the Community of

Practice (CoP), at least in the early phases, requires full time staffing. However, it proved challenging

to identify and recruit a coordinator for this function. In August 2015, a person was seconded from

the Norwegian Refugee Council's (NRC) roster of experts NORCAP to fill the function for an interim

period of 3 months. The secondment is financed by the OAGN, whilst a more sustainable solution is

sought for this key function.

Since August 9 new audit reports have been uploaded to the WGEI webpage. There are now a total

of 23 audit reports on the page, up from 14. The “tools and Resources” section of the page has also

been changed so that reports from now on can be viewed by value-chain segment instead of by year.

All reports have therefore also been reviewed and categorized by value-chain. The SAI of India is the

most frequent source of reports with 9 uploaded and the dominating value-chain segments are

“implementation of sustainable policies” (with 11 uploads) and “Collection of revenue” (with 7

uploads).

A new matrix has also been developed to illustrate country audit experience by value-chain and audit

type, and added to the WGEI web page. This tool will make it easier to identify relevant SAIs for

changing of experiences. For this purpose the information from the audit survey has been coupled

with existing audit reports and information collected during a GIZ workshop in September 2015.

A base of SAI human resources with EI audit experience by country is also about to be established

based on the information collected during the GIZ workshop.

http://www.wgei.org/

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Selected activities and events 2014-2015

1. Knowledge Enhancement

1.1 WGEI Secretariat mapping of audit Reports

The secretariat has during the last year made an effort to generate an overview of the audit work

that has been conducted in this area in the various countries. A mapping has been carried out to

identify previously conducted audits and existing audit reports pertaining to the Extractive Industries.

Many EI-related audits were identified, and 23 reports have been made available on the WGEI

website www.wgei.org , categorized by value chain segment.

The secretariat has also distributed a small survey to request the SAIs to report on the audits and

activities undertaken in this area. The survey also disclosed several audits and Extractive Industry

audits that have been undertaken and reported since the establishment of the WGEI (see section 3

for details)

1.2 Product development

1.2.1 AFROSAI development of a toolkit for overall risk assessment of the EI sector, based on

AFROSAI-E Audit considerations for EI audit.

This toolkit includes an Instructors' guide on how to facilitate SAI risk assessments and selection of EI

audit topics.

1.2.2 Netherlands Court of Audit (NCA) Mapping of Value Chain stakeholders

The Netherlands Court of Audit started mapping the stakeholders in the Dutch gas value chain,

separating between executive, consulting and supervising entities. NCA's conclusion was that there

are two gaps: no entity really watches over earthquake safety and has the responsibility for

developing and implementing after-mining policies. Recently both issues have been addressed in

parliamentarian debates. Consequently NCA monitor progress on this topic very closely and might

decide in the future to audit these issues.

Further, NCA mapped the risks of national extractive industries for each resource type separately.

NCA also asked other European SAIs to complement the risk assessment. NCA will present the results

at the second WGEI meeting.

1.2.3 OAGN basic training material for transfer pricing and TP audit (under development)

Based on various workshops and trainings held with partner SAIs on the issue of transfer pricing,

basic material has been developed. Existing presentations and draft material is available from OAGN,

and the complete document will be shared on the WGEI web site when ready.

1.3 SAI trainings and audit seminars (internal)

1.3.1 OAG Zambia EI audit seminar with focus on mining sector

http://www.wgei.org/

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In March 2015, AFROSAI-E conducted a seminar on Extractive industries in Zambia, assisted by OAG Norway. The purpose of the seminar was to build sector competence and establish a common understanding through a mapping of the risks in the sector. The workshop focused on the mining sector, and several external presentations were held. The actors in the sector were identified along with their roles and responsibilities; the risks were mapped and potential audits were identified. One of the identified audits was on how the Ministry of Mines controls the Mining companies.

1.3.2 OAG Tanzania sector and risk mapping

As part of the tripartite collaboration between NAOT, NCA and OAGN, a seminar was conducted in

April 2015 in Dar-es Salaam. The seminar brought together both financial and performance auditors

from NAOT and facilitators from NCA and OAGN. Through a thorough mapping of the petroleum

sector and role of government in Tanzania, several actors, key transactions, risks and possible audit

topics were identified. In addition, the group collectively gathered and documented sector

knowledge. The seminar laid the grounds for future organization of petroleum audits in NAOT.

1.3.3 OAG Uganda environnemental audit seminar:

An environmental audit seminar was conducted in Kampala, Uganda in April 2015. Facilitators from

OAG Norway contributed in the execution of this seminar. The purpose of the seminar was to equip

participants with a general understanding of basic environmental concepts and the environment

sector in Uganda, to equip participants with criteria and methods to audit environmental risks and to

enable participants to identify and assess environmental risks through systematic risk profiling.

The four-day long seminar included several presentations related to different environment issues,

such as:

- Possible ways to audit issues of biodiversity;

- Possible ways to audit issues of air pollution and climate change;

- Good example of an environmental audit;

- Designing a VFM Audit to address environment-related risks.

The output of the seminar was a completed risk assessment and development of project proposals

for VFM audits in the environment sector in Uganda.

1.4 External and Regional seminars

1.4.1 AFROSAI-E and IDI Collaborative audit on Local Content - final feedback and review meeting

The IDI/AFROSAI-E Cooperative Audit Project on Extractive Industries has conducted a series of

parallel performance audits on the topic of National Content in the oil and gas sector. The

participating Supreme Audit Institutions (SAI) were Ghana, Kenya, Nigeria, South Africa, South Sudan,

Tanzania and Uganda.

The original purpose of the project was to help SAIs identify risk areas in the Extractive Industries

area and help them formulate an audit approach that they could execute on. The ultimate goal was

that each SAI should complete an audit on a topic related to public sector management of the

extractive industries sector.

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In order to start and complete the projects IDI and AFROSAI-E organized three workshops: a topic

selection meeting in February 2014, an audit planning meeting in April 2014 and a report revenue

event in November 2014.

The group collectively had 40 unique findings that they presented in their reports. Common findings

included the following:

4 SAIs found that there was a clear potential for greater local employment in the oil and gas

sector in their countries;

4 SAIs found that national suppliers of goods and services were being used, but that there

was a potential for greater use;

All the SAIs identified weaknesses of the legal and regulatory framework related to local

content. In three countries the regulation was not finalized;

4 SAIs found that responsibility for managing local content implementation had not been

established by their government;

4 SAIs found that the stakeholders involved in local content were not well-coordinated;

5 SAIs found that there were insufficient Monitoring and Evaluation of EI activities.

Lessons learned from this exercise that would be useful to consider for other parties embarking on a

cooperative audit include:

Using facilitation techniques around a structured framework is an effective way to identify

different audit topics;

Participants should not just bring knowledge of the sector but examples of observed risk in

their own countries when gathering together to identify audit topics;

A cooperative audit on a specific common topic should only be initiated if the topic is

observed as high risk in all participating countries;

Establishing common audit questions and a joint understanding of what type of data must be

collected to answer the audit questions is critical for developing common findings.

Development of similar data collection templates and support during data collection must be

considered, especially if collection of similar data is considered complicated.

1.4.2 GIZ Regional training and workshop on Enhancing SAIs capacity for auditing the extractive

industry sector

In 2014, GIZ developed a seminar for key stakeholders from francophone countries in Africa

responsible for budget/finance control with a special focus on the extractive industries sector. Apart

from SAI colleagues, participants included representatives of parliamentary committees, the

executive level of external and internal budget oversight agencies, the ministry of finance or the

ministry of mines/energy.

Based on the experiences from the francophone pilot, GIZ developed an integrated capacity building

approach to enhance the capacity of 7 SAIs (Ghana, Kenya, Malawi, Mozambique, Tanzania, Uganda

and Zambia) to audit the Extractive Industry Sector. As a first step, GIZ conducted an 8-day training

in Germany in June 2015, where the SAIs extended their knowledge on sector characteristics like the

EI value chain, licensing and contracting processes, specific monitoring needs of the sector and the

application of different audit methodologies and audit types. The next step was a regional workshop

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in Uganda in September 2015, where the participants of the training came together to build on the

knowledge acquired and the conclusions drawn from the training in a regional setting and discussed

common factors and strategies for improving the oversight of the EI sector in their countries. As an

outcome, each country designed the framework for a road map to further develop EI audit based on

the SAI’s individual starting point and prioritized objectives in their countries context. Most road

maps focused on increasing the capacity of the respective SAI to audit EI including the development

of a sector strategy, whilst others targeted more specific issues such as reprioritizing engagement in

already existing work streams. The follow-up workshop included contributors from OAG Norway,

sector experts and participating SAI colleagues.

This initiative was intended to underpin and complement regional and global initiatives in audit of

Extractive industries, such as the work of AFROSAI-E and the INTOSAI Working Group on Audit

Extractive Industries and was further coordinated with the bilateral partnership programs established

between the SAIs in Uganda, Ghana, Zambia and the SAI of Norway to strengthen the audit of the

sector. Further exchange will be brought into the WGEI community of practice created in Kampala in

2014.

2. Sensitization on SAIs' role in Extractive Industries

Outreach and networking with stakeholders outside the SAI community is identified as a priority in

the WGEI work plan. In the first year, the WGEI Secretariat, OAG Uganda and OAG Norway have

maintained dialogue with colleagues in the World Bank, OECD, Norad Oil for Development, the

Extractive Industries Transparency Initiative and Publish What You Pay Norway. It is also assumed

that outreach to external stakeholders is undertaken by SAIs in respective countries. However, this is

an area of work that may become more important and systematic as the Working Group starts to

consolidate information. It is suggested that the work plan for 2015-2016 highlights key tools and

resources to be developed for this purpose, including presentations and fact sheet on the role of SAIs

in audit of the extractive industries.

3. Examples of EI-related audit reports produced

It has been challenging to get a complete overview of audit reports produced. This section thus lists

both recent and more dated audit reports published in the EI area. Examples of more recent audits

conducted include the following: The Australian National Audit Office completed an audit on Administration of the Petroleum

Resource Rent Tax (2015);

Brazil, Colombia and Peru has conducted a cooperative audit on Oversight of public revenues

from oil and natural gas production (2014);

The Federal Court of Accounts of Brazil has through its regular audits of Brazil's state owned

company in the oil sector, Petrobras, identified irregularities, and is, alongside other public

institutions, involved in supervision of the company;

The National Audit office of Estonia has completed performance audits on Activities of the

state in organizing treatment of oil shale mining and processing waste (2015) and the state's

role in development of the oil shale exploitation (2014);

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The Netherlands Court of Audit has published a report on the revenues generated from the Groningen natural gas fields since 1960 and how the money was spent. The report concluded that the precise use of natural gas revenues cannot be identified. (2014);

The Office of the Auditor General of Norway published a report covering an investigation of

the authorities' effort to improve oil recovery from mature areas on the Norwegian

continental shelf

(2015)https://www.riksrevisjonen.no/rapporter/Sider/OljeutvinningKontinentalsokkel.aspx;

The National Audit Office of Tanzania completed a performance audit on Enforcement of Environmental Control Systems in the mining sector in Tanzania and has also audited Local Content and Recoverable Costs;

The Auditor General of South-Africa completed an audit on the Petroleum Oil And Gas

Corporation of South Africa (2014);

The Office of the Auditor General of Uganda has conducted a performance audit on Local Content (2015) and one on Waste management (2014). Several audits on PSA/recoverable costs were also completed;

The US Government Accountability Office has conducted several audits on the area of coal, hardrock, oil and gas;

The Office of the Auditor General of Zambia conducted an audit on Management of Environmental Degradation related to mining (2014);

The State Audit Office of Vietnam has conducted financial audits on entities which are responsible for managing extractive industries, and on state owned companies and groups which are responsible for mining and extracting resources. They have also done an audit of managing, extracting and trading Mineral resources of some state-owned groups, corporations and companies.

A survey undertaken in the member countries also revealed several more dated audits on the area,

amongst others:

The Australian National Audit Office finalized in 2009 an audit on Administration of the Petroleum Resource Rent Tax;

The National Audit office of Estonia has carried out performance audits on the areas of

National arrangement of mining mineral resourced used in construction (2009) and on

Exploitation of peat resources (2005);

The Comptroller and Auditor General's office of India finalized a performance audit in 2011

on hydrocarbon exploration efforts of Oil and Natural Gas Corporation Limited (ONGC)

The Netherlands Courts of Audit did an investigation on gas hub benefits, needs and risks (2012);

The office of the Auditor General of Norway has published several performance audit reports on the area:

o Management of Hazardous Waste (2012), o Target Achievement in Climate Policy (2010), o The authorities’ efforts to clean up polluted ground and sediments caused by

polluting activities in bygone years (2003) and o Norway's compliance with the OSPAR Convention within industry, waste water

management and agriculture (2001)

The US Government Accountability Office conducted an audit in 2008 on Mineral Revenues:

“Data Management Problems and Reliance on Self-Reported Data for Compliance Efforts

Put MMS Royalty Collections at Risk”;

https://www.riksrevisjonen.no/rapporter/Sider/OljeutvinningKontinentalsokkel.aspx

http://www.wgei.org/wp-content/uploads/2015/06/A-gas-hub-benefits-need-and-risks.pdf

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The Office of the Auditor General of Uganda published a Performance Audit on Regulation

and Monitoring of Drilling Waste Management in the Albertine Graben (2013);

The State Audit Office of Vietnam conducted an audit on the issuing of mining licenses and

governmental management of extractive mineral resources in the period from 2009-2012.

Annex: EXAMPLES OF SAI ACTIVITIES ON EXTRACTIVE INDUSTRIES

BRAZIL

1) Conducted audits of extractive industries:

Audits on Petrobras – recently, Brazil´s State Owned Company in the oil sector (Petrobras) has been

in the center of various denounces of corruption. SAI Brazil had already identified some irregularities

and misconducts in the past few years and is presently working together with other public

institutions, such as the Public Prosecutor Office, the Executive Internal Control, the National

Congress, the Federal Police etc., to share information and enhance the reach of the ongoing

investigations. The level of human resources involved in the supervision of Petrobras has been

increased.

In addition, SAI Brazil oversees all concession bid rounds for oil and gas exploration blocks as well as

the first Pre-Salt bid round (Production Sharing Agreement) in Brazil.

2) Participation in joint/collaborative audits on the EI area:

Cooperative audit on extractive industries – oversight of public revenues from oil and natural gas

production in Brazil, Colombia and Peru, coordinated by SAI Brazil.

The audit on the effectiveness of control mechanisms used to ensure public revenues from oil and gas production, supported by GIZ and carried out by the Supreme Audit Institutions of Brazil, Colombia and Peru, fits into a context of international cooperation and capacity building among

OLACEFS member countries. The main outputs of this collaborative work are institutional integration, knowledge and experience sharing, methodological development and the ac-complishment of coordinated audits on objects of common interest. This audit represents an innovative path in OLACEFS way of acting, as it promotes the role of coordinated audits as an important tool for technical cooperation and institutional improvement.

ESTONIA


- Performance audit of activities of the state in organizing treatment of oil shale mining and

processing waste (2015);

- Performance audit of the state's role in development of the oil shale exploitation (2014);

- Performance audit of national arrangement of mining mineral resources used in construction

(2009);

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- Performance audit of exploitation of peat resources (2005).

2) Internal training conducted/participation in training or training provided on the topic of EI:

A representative from the office has been participating as one of two trainers in two trainings

organized by Deutschen Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

- Seminar for SAI of Colombia, "Audit methods of the Supreme Audit Institution with regard to

revenue from mining and environmental impact " in May 2014;

- Seminar on the role of Supreme Audit Institutions (SAIs) along the Extractive Industries Value

Chain. Participants were from Ghana, Kenya, Malawi, Mozambique, Tanzania, Uganda and

Zambia, 15.06-24.06.2015.

3) Engagement with stakeholders on SAIs role in EI (creating awareness, sharing knowledge and

experience, disseminating information on the web etc.)

During the EI audits, the SAI communicated with many stakeholders (including companies) from the

EI sector. Training for the Environmental Inspectorate was organized for improvement of the

monitoring of mining activities

MONGOLIA


MNAO has conducted both financial, compliance and performance audits on the area of mining and

oil.


Auditors from MNAO have participated in training on oil and gas audit organized by the Stat Audit of

Kuwait on 15-19 March 2015

NIGERIA


SAI Nigeria took part in the collaborative audit of Local Content implementation, a performance audit

supported by AFROSAI-E and INTOSAI IDI.

NORWAY

Conducted audits of extractive industries:

- 2014-2015: An investigation of the authorities' effort to improve oil recovery from mature areas on the Norwegian continental shelf (2015);

- 2011-2012 The Office of the Auditor General’s investigation into the management of hazardous waste;

- 2009-2010 The Office of the Auditor General's investigation into target achievement in climate policy;

- 2002-2003 The Office of the Auditor General’s study of the authorities’ efforts to clean up polluted ground and sediments caused by polluting activities in bygone years;

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- 2000-2001 The Office of the Auditor General’s investigation of Norway's compliance with the OSPAR Convention within industry, waste water management and agriculture.

SOUTH-AFRICA


Statutory audit of the National Oil Company – The Petroleum Oil and Gas Corporation of South Africa SOC Limited. The audit was completed by 31 July 2015.

Participation in joint/collaborative audits on the EI area:

The AGSA has been a participant in the INTOSAI Development Initiative (IDI) joint project with AFROSAI-E to conduct a Cooperative Pilot Audit on Extractive Industries in seven African Countries.

The representatives from the seven participating countries were hosted by the AGSA in November 2014 for an audit review meeting where each SAI presented their audit outcomes based on the agreed audit plan. The session enabled the subject matter experts from the IDI, AFROSAI-E, SAI Brazil and SAI Uganda to provide feedback on the draft reports and make recommendations for improvements.

While each of the countries were conducting audits in their own selected environments, the process and outcomes was shared within the cooperative group in order to learn from each other’s experiences. The AGSA team decided to conduct an audit on the performance against predetermined objectives set by the Department of Mineral Resources, Department of Energy, CEF SOC Ltd and Petroleum Agency SA SOC Ltd.

The AGSA approach was adopted mainly due to the commercial oil and gas industry being in its early

development stages in South Africa. In the end, this audit aims to identify the gap between the

expectation of the laws and regulations in place and that of the workforce and local suppliers

specifically in the oil and gas industry of South Africa.

Internal training conducted/participation in training or training provided on the topic of EI:

One of the staff attended the “Reversing the resource curse: Theory and Practice 2015” training course in April 2015 which was recommended by SAI Uganda.

Engagement with stakeholders on SAIs role in EI (creating awareness, sharing knowledge and


AGSA have signed a memorandum of agreement with the Ghana Audit Service in 2014. One of the

collaborations is to enhance the understanding of the South African SAI’s approach to auditing its

National Oil Companies. SAI Ghana will send some of their staff for an educational tour to South

Africa for this purpose.

TANZANIA


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The National Audit office of Tanzania (NAOT) has conducted Performance audits on the following

areas:

- Local Content and Recoverable Costs

- Environmental audit of Mining


Auditors have participated in training organized by IDI, along with collaborative audits on Local

Content and Recoverable Costs.



NAOT has had discussions with subject matter experts as part of Quality Control Review of the draft

report

UGANDA


Audit of Production Sharing Agreements, specifically verification of recoverable costs claimed

different on blocks

Participation in joint/collaborative audits on the EI area:

Second Value for Money Audit conducted by the office; the IDI-AFROSAI-E Collborative audit on Local

Content. Publicized May 2015


During the ear staffs have participated in studies in Scotland, local trainings, participation in GIZ

events and on the job exchange with OAG Norway.



During the year staffs have participated in an environmental seminar and held various meetings with

key stakeholders such as NEMA and URA.

VIETNAM


Both financial and compliance audits have been conducted:

(1) The financial audit of entities which are responsible for managing extractive industries:

- Ministry of natural resources and Environment of Vietnam, including:

- General Department of Geology and Minerals of Vietnam;

- Department of Survey and Mapping of Vietnam;

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- Vietnam Institute of Geosciences and Mineral Resources;

- Hanoi University of Natural Resources and Environment

(2) The financial audit of state-owned companies and groups which are responsible for mining

and extracting resources:

- Vietnam National Coal and Mineral Industries Holding Corporation Limited

- Vietnam National Oil and Gas Group;

- Other state-owned companies operating in this area.

(3) Other audit projects related to EI:

- The audit project of managing, extracting and trading Mineral Resources of some state-

owned groups, corporation and companies;

- The audit project of issuing mining license and governmental management of extractive

mineral resources in period from 2009-2012.


(1) Internal training: Conduct training for staffs before each audit.

(2) Training on the topic of EI: Participation in much training on topics related to the EI, such as

performance audit; constructions industries and so on.



SAV has been engaging with stakeholders in audits related to extractive industries via different

methods such as meeting with stakeholders in order to inform/report audit results and

recommendations; sharing knowledge and experience of audit results with other government

entities, e.g. Ministry of Finance; Financial and Budget Committee of National Assembly

USA


Performance audits on the area of Coal, Oil and Gas as well as Hardrock

Documents

INTOSAI WORKIN ROUP ON AU IT O XTRA TIV IN USTRI S … · learning in the domain of Extractive Industries audit. ... Sensitization on SAIs' role in ... This toolkit includes an Instructors