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Practice Guide to Auditing Mining Revenues and Financial Assurances for Site Remediation

Auditing Remediation Funds

Financial assurance programs are one way to manage the liabilities associated with decommissioned mines. Another way is to establish a general remediation fund to which mining companies contribute and that is used to clean up abandoned sites, both legacy sites and any site that becomes orphaned due to a company going bankrupt. (Payment into a remediation fund does not absolve a mining company from performing a complete remediation of its sites to the level required by regulations.)

There are some key differences between remediation funds and financial assurance programs:

  • The contributions to a remediation fund are not linked to any particular site. (For example, the contribution of one company may be used to clean up the site of another company.)
  • There is no need to return contributions to companies once sites have been remediated. (By definition, the sites being remediated with fund money are abandoned and have become the government’s responsibility.)
  • The financial risks do not rest at the same level. In a financial assurance program, the risk is not having sufficient guarantee to ensure that a specific site will be properly remediated, whereas in a remediation fund, the risk is at the aggregate level of all sites. (That is, there is a risk of not collecting enough funds to remediate all abandoned sites.)

These differences imply that an audit of a remediation fund will not have the same focus as an audit of a financial assurance program. Questions on the design of the remediation funds will be important because how a government determines how much companies should contribute to a fund is a crucial factor in ensuring that enough funds are collected to clean up abandoned sites. The assessment of liabilities at the aggregate industry level will therefore be a key process to look at during the audit (as opposed to the assessment of each specific site, which matters more in a financial assurance program). Accordingly, auditors should consider including a criterion in their audit plan to cover this issue.

Once a government has determined how much money mining companies should contribute to a remediation fund, collecting contributions is rather simple compared with collecting financial assurances. This is because there is less need for a regular case-by-case review of remediation costs for each site and there is no need to check that financial assurances are still valid and up to date.

Performance auditors who decide to audit the design and implementation of a remediation fund for mining sites can use the guidance provided for financial assurances in the previous sections. They can select the questions and criteria that are also relevant for remediation funds and modify them or add to them as needed to better fit the characteristics of remediation funds.