Challenges Involved in Auditing Mining Revenues
In 2012, the International Organization of Supreme Audit Institutions (INTOSAI) surveyed supreme audit institutions’ experience in auditing extractive industries. The survey identified many challenges in auditing extractive industries, including:
- the technical complexity of extractive industries,
- lack of knowledge of business about processes in the extractive industries,
- the need for capacity building and retention of specialized staff within audit offices, and
- mandate limitations.
These and other challenges are discussed below, and include:
- site visits, and
- access to information.
The INTOSAI Working Group on the Audit of Extractive Industries
The mining industry is a complex, often heavily regulated sector. Auditors who intend to audit revenues from the extraction of minerals may need access to specialized knowledge and expertise to conduct their audit. Depending on the audit focus, a team may need the help of a tax or data-mining expert, an IT specialist, a lawyer, or an engineer.
However, finding an expert for an audit engagement may be difficult, especially if the field of expertise is very technical and if the sector is undergoing a period of rapid growth. The necessity for experts to be independent from mining companies is challenging because most active experts have links with the industry. For this reason, auditors may consider hiring a retired expert as a consultant. (In such a case, an independence check should include inquiring whether the expert owns shares in mining companies.) It may also be possible to rely on a specialist employed by the government in cases where independence requirements are met.
Another option is for an audit office to have one or more individuals with in-depth knowledge of mining business processes on staff (or to train an individual to become a specialist in this field). The problem with this option is that these specialists will often be able to find better-paying jobs in the mining industry. As a result, it may be difficult for an audit office to retain sufficient expertise on the mining sector in-house.
Performance auditors often develop their knowledge of business of a new area by conducting site visits to see relevant business activities first-hand and to meet knowledgeable staff and managers on the ground. With mineral extraction, there may be cases where this would be very costly or would involve complex logistics because mines are often in remote areas, far from cities and transportation hubs. There may also be security concerns or seasons in which weather conditions would make travel even more difficult.
Access to information
There may be some situations where auditors will have difficulty obtaining the required information to reach a conclusion on an audit criterion.
External auditors will not usually need to access the records and data of private mining companies to conduct their audit, but should this need arise (for example, if auditors are seeking to assess the transfer pricing risk), they should not assume that private companies will collaborate with their audit, especially if the audit office does not have a clear legal mandate to access such information.
Another potential challenge related to access to information is when auditors decide to assess whether the decision to adopt a particular revenue framework or royalty regime was evidence-based. In such a case, it is possible that the required information will not be provided because it is considered to be subject to Cabinet confidence (meaning information for the members of the governing council of ministers only).
Finally, auditors may have trouble accessing information from other jurisdictions for benchmarking purposes. Indeed, it is possible that the extent of information they can obtain in their own jurisdiction because of their office’s legal mandate will prove unattainable for other jurisdictions where their mandate does not apply. Because a fair benchmarking process requires comparing similar information from all selected jurisdictions, disparity in information quality and quantity may mean that no useful results can be drawn from the exercise.