Session 4, Group 2: Data completeness and reliability - the role of Supreme Audit Institutions (SAIs) in auditing the extractive industries and how to rely on their work Trygve Christiansen, Office of the Auditor General of Norway 28 November 2017

Supreme Audit Institutions The highest Audit Institution of a country Oversees the management of public finances, including government revenue from extractive industries Independent and professional

The accountability chain

Three types of audit Financial audit Compliance audit Performance audit

Audits along the value chain – some examples

Contracts and licenses Tanzania, National Audit Office 2017 2017 performance audit on process of issuing licenses for natural gas exploration: Findings: Outdated legislation does not cover the process of issuing exploration blocks to oil and gas companies No written procedures or guidelines

Production Loss of revenue due to incorrect measurement A real risk! USA Audit Office (2008) India Audit Office (2004) Failure to control production facilities and metering equipment = 10,4 mill USD (from one pipeline!) Source: Office of the Auditor General India Audit Report 2004

Revenue collection Example, Niger (2010): «- de faire les rapprochements périodiques entre les différents acteurs d’exécution des recettes minières et pétrolières » Failure to reconcile government revenue figures between the revenue authority and the Ministry of Mines and Energy

Revenue collection Revenue collection Zambia: Mineral royalty tax calculation: production volume*copper price*royalty tax % Risk: Under-reporting of production volumes results in less mineral royalty tax Audit result (2016 audit report): - Ministry of Mines does not receive production returns from all companies - Mineral royalty tax calculated based on mining companies self-declaration - Ministry of Mines does not share production volume reports with Zambia Revenue Authority - Ministry of Mines does not carry out inspection on exit points

Revenue collection Kenya: IT Audit of the accounting system, IFMIS Used to record government revenue, including extractive industries revenue http://www.nation.co.ke/news/State-audit-finds-serious-loopholes-in-Ifmis-system/1056-3509548-uu8xr1z/index.html

Revenue allocation Example: Ghana Audit Service Ghana stabilization fund Because of drop in oil prices the fund is being emptied Government’s projected revenue reduced by 64 %

Social and economic contribution Example, Uganda (2015) Audit of local content Failure to use local suppliers Lack of policy and plans to include Ugandans in managerial positions and as key staff

Lesson learned? SAIs are in a unique position to audit the whole extractive industries value chain Access to information Independent Cour de Comptes vs Inspection generale des finances

Learn more by visiting: INTOSAI Working Group on Audit of Extractive Industries SAIs working together to increase transparency and accountability in the EI sector www.wgei.org Many examples of audit reports on the value chain

International standards of Supreme Audit Institutions (ISSAIs) Internationally recognized auditing standards for public auditing Developed and maintained by the International Organisation for Supreme Audit Institutions (INTOSAI) Applying the ISSAIs is the best way to ensure quality of audits

How to rely on the work of SAIs - measure how SAIs are complying with the international standards Sources of verification: Supreme Audit Institution Performance Measurement Framework (SAI PMF) Public Expenditure and Financial Accountability (PEFA) Indicators 30 and 31

SAI PMF assessment SAIs are assessed on a number of indicators Quality of audit work is assessed and scored; 0-4 The framework also includes cour de comptes Domain A SAI Reporting Score SAI-1 Financial Audit Results 1 SAI-2 Compliance Audit Results SAI-3 Performance Audit Results 2 SAI-4 Judgment Results 3 Applying the framework enables you to have an opinion on whether the independent assessor (the SAI) conforms with the requirements in 4.9 of the EITI standard

Challenges facing SAIs Lack of independence: 27 July 2017 Former finance minister says: «Its a political decision. Chiri has been causing pain in government» https://news.pindula.co.zw/2017/07/27/auditor-general-mildred-chiri-fired-president-mugabe/

Challenges facing SAIs Poor financial record management in government Lack of funding of SAIs

What is the situation in Francophone Africa What is the situation in Francophone Africa? How can we rely on the work of SAIs in the EITI reconciliation process?