Internal Controls Over Financial Assurances
The value of the financial assurances that need to be provided by leaseholders to cover the costs of future remediation activities for an extraction site will vary over time for a number of reasons, which may include the following:
- Early remediation work has already started, reducing future liabilities.
- New remediation technologies and techniques become available or the costs of current technologies and techniques change.
- Evolving environmental standards and evolving land claim decisions may affect the required level of remediation.
- Significant changes are made to decommissioning plans.
- The mineral reserve estimate has been revised, changing revenue expectation and the expected capacity of a leaseholder to pay for remediation costs.
To ensure that governments hold sufficient financial assurances for site remediation, the responsible organizations need to review all the decommissioning plans they receive from leaseholders and to verify the amounts that should be provided as guarantee.
For further assurance, governments can monitor leaseholders and their mining sites to ensure that site information provided by mining companies is still accurate and up to date. (A company’s operational plans may have changed significantly over time.) However, there can be thousands of mining sites in a jurisdiction and it is unlikely that government inspectors (or hired consultants) can visit each site every year. For this reason, governments need to have risk-based inspection strategies to target their limited resources at higher risk sites.
Once a leaseholder remediates a site, the government can return the financial guarantee to the leaseholder. However, there should be controls in place to ensure that sites have been remediated in accordance with applicable standards. Review of remediation reports and site inspections are two control mechanisms that can be relied on. In the absence of such controls, there is a risk that governments may end up being liable for the costs of cleaning up sites that were not adequately remediated.
Auditors working on an audit of financial assurances for the remediation of mining sites can therefore audit whether governments:
- have established adequate controls to ensure they are holding sufficient financial assurances to cover expected remediation costs in the future and
- have adequate controls to ensure that they release financial assurances only when mining sites have met all applicable remediation standards.
Table 16 includes examples of knowledge of business questions that auditors can ask about internal controls over financial assurances during the planning phase. Examples of related audit objectives and criteria are provided in later sections of the Practice Guide.
Table 16 – Internal Controls Over Financial Assurances: Examples of Knowledge of Business Questions
Sub-topic |
Knowledge of Business Questions |
---|---|
Completeness of information and accuracy of cost estimates |
Remediation plan validation
Site inspections
Audits
|
Staffing and training |
|
Coordination |
|
Once auditors have obtained answers to their knowledge of business questions, they can better assess the risks related to the internal controls over the financial assurance program.
Auditors should consider including the internal controls over the financial assurance program in their audit plan if their preliminary audit work indicates the following:
- Remediation plans submitted by mining companies are not reviewed by an internal or independent specialist.
- There is no guidance to explain to staff how to validate the remediation cost estimates provided by mining companies.
- Site visits are not conducted periodically to assess whether remediation plans still reflect the reality of activities at mining sites.
- Site inspections are not conducted in a timely manner and there is an inspection backlog.
- No internal or external audits of the financial assurance program and internal controls have been conducted.
This list of potential audit issues is indicative, not exhaustive. It is the responsibility of audit teams to review and analyze the information they collect in the planning phase in order to identify and assess significant risk areas. Only after conducting this work will auditors be able to decide whether to include the internal controls over the financial assurance program in their audit plan.