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

Fraud Prevention and Transparency

Because the revenues that can be generated from the extraction of minerals are very significant, this sector has been a frequent target of fraud and corruption in many jurisdictions, especially in developing countries. Rigged lease auctions, diversion of the resource before production measurement points, false production declaration, and misappropriation of revenues are some of the most common frauds observed in the sector.

It has been shown that transparency is the primary means of reducing fraud and corruption in the natural resources sector. For this reason, international initiatives have been undertaken to increase transparency (for example, the Extractive Industries Transparency Initiative). In many countries, new laws and regulations require leaseholders to disclose all their payments (above a defined threshold) to government. Where such provisions exist, auditors can look at compliance with the applicable requirements and assess whether transparency is sufficient. Auditors can also look at other systems and practices intended to reduce the incidence of fraud and corruption, including codes of ethics and policies on conflicts of interest.

Table 8 includes examples of knowledge of business questions about fraud prevention and transparency that auditors can ask during the planning phase. Examples of related audit objectives and criteria are provided in later sections of the Practice Guide.

Table 8 – Fraud Prevention and Transparency: Examples of Knowledge Business Questions


Knowledge of Business Questions

Policies and controls

  • Has the responsible organization assessed the risk of fraud in the collection of revenues from the extraction of minerals?
  • Is there a code of values and ethics?
  • Is there a policy on conflicts of interest and a requirement for staff to provide an annual independence declaration?
  • Are there controls in place to manage the risk of fraud and corruption in relation to the collection of revenues from natural resource extraction?
  • Is there a mechanism in place for personnel to report suspected instances of wrongdoing without fear of reprisal?
  • Are the responsibilities for facilitating investments in natural resources extraction industries segregated from responsibilities for regulating these industries and collecting royalties?
  • Are the responsibilities for assessing royalties due segregated from responsibilities for collecting payments?
  • Are there unexplained or unclear differences between the information reported for royalty calculation and information reported elsewhere by mining companies?

Transparency and reporting

  • Is there a legal requirement for governments to report all the payments they receive from mining companies? If so, what is the source of this requirement and what form does the reporting take?
  • Is information on the process used for auctioning mining exploration rights, and the results of auctions (number of bids received, winning bid), disclosed to the public?

Once auditors have obtained answers to their knowledge of business questions, they can better assess the risks related to fraud and transparency.

Auditors should consider including fraud prevention and/or transparency in their audit plan if their preliminary audit work indicates the following:

  • Responsible organizations have not assessed the risk of fraud in relation to the collection of mining revenues.
  • Responsible organizations have failed to adopt basic policies on ethics and independence.
  • Responsibilities for assessing royalties and collecting payments have not been segregated, creating a risk of fraud with regard to the collection of royalties.
  • A government has committed to publish the payments it receives from mining companies but has taken no concrete steps to make this happen.
  • Legislation requiring a government to publish the payments it receives from mining companies is not being complied with.
  • There are potential conflicts of interest or inappropriate relationships among key decision makers.

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 fraud prevention and transparency in their audit plan.