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

Internal Review and Auditing of Payments

This area includes all the systems and processes to ensure the accuracy and completeness of all royalty payments made by leaseholders. This can include inspections, data validation, recalculations, and audits of payments. While these controls are not necessarily applied to all payments and usually require specialized expertise for their execution, they complement the routine controls over the processing of payments and together they form an integrated system.

Royalty payments are usually based on production and/or profit data provided by leaseholders. Many factors can enter into the calculations of royalties payable, such as production volumes, market prices, exchange rates, and various deductions. Governments have an incentive to ensure that this data is complete and accurate in order to receive the full amounts they are entitled to. For this purpose, governments may regulate measurement equipment and practices to ensure accuracy and consistency in production measurement. They may also conduct regular inspections to ensure requirements are met and reduce the risk of fraud (for example, diversion of minerals before measurement points or false declaration of production numbers).

The assessment of royalties can therefore be complex. In the absence of robust internal controls, there is a risk that governments will not receive all the amounts they are entitled to for the extraction of minerals in their jurisdiction.

Table 7 includes examples of knowledge of business questions about the review and internal audit of payments that performance auditors can ask during the planning phase. Examples of related audit objectives and criteria are provided in later sections of the Practice Guide.

Table 7 – Review and Auditing of Payments: Examples of Knowledge of Business Questions


Knowledge of Business Questions

Data validation

  • Are mining companies required to provide supporting evidence or independent verification of their royalty returns?
  • Is there guidance for staff on how to validate data provided by companies?
  • Is there a list of indicators staff can use to assess the accuracy and completeness of information provided in received returns? Is this list used to identify cases that warrant further verification?
  • Is the responsible organization making use of revenue stream models to forecast revenues and analyze declared revenues against predictions?
  • Is the data provided by mining companies reviewed and validated (for example, exchange rate, mineral prices, royalty rate, production data, and exports)? Are royalties recalculated based on data provided? Are those reviews documented?
  • Are there electronic systems to facilitate the review, recalculations, and analysis of production data and royalties provided by resource extraction companies?
  • Are there timeliness standards for completing reviews and data validation?
  • Is there a backlog of reviews and reconciliations to complete?

Audits of payments

  • Are compliance audits conducted to validate that payments made by companies are accurate? If so, are returns audited every year or only in some years?
  • Is there a risk-based audit strategy?
  • Are audits conducted to assess whether transfer mispricing is practised to reduce declared profits?
  • Are planned audits conducted? Are audits completed in a timely manner?
  • Is there up-to-date audit guidance and documented audit procedures (including on how to audit transfer pricing)?
  • Have recent audits indicated the existence of systemic risks affecting the completeness of revenues?
  • Is the entity obtaining all the evidence it is entitled to from the audited companies?
  • Is the information requested by auditors provided in a timely manner?
  • Are the access rights of public sector entities to private sector financial information for royalty audit purposes clearly set out in laws, regulations, or special agreements?

Inspections of production measurement equipment

  • Are inspections required by regulation to provide assurance on production data provided by resource extraction companies?
  • Is the frequency and coverage of inspections fixed by regulation?
  • Is there a risk-based inspection strategy?
  • Are all planned inspections conducted? Is there an inspection backlog?
  • Are the results of inspections documented?

Quality management system

  • Is the data validation/audit/inspection process subject to a periodic performance assessment?
  • Are adjustments made based on findings?

Staffing and training

  • Are all auditor/inspector positions staffed?
  • Are there sufficient qualified auditors/inspectors to conduct all planned audits/inspections?
  • Is specialized training provided to auditors and inspectors? Is there a record of training provided?
  • Is there a hiring and retention strategy for auditors and inspectors?
  • Are there clear independence requirements for auditors and inspectors? Have these requirements been communicated to staff?
  • Are annual independence declarations required from auditors and inspectors? Are all required declarations on file?


  • Where more than one organization is auditing a private sector company, are there coordination arrangements in place to share information and reduce duplication of efforts?

Once auditors have obtained answers to their knowledge of business questions, they can better assess the risks related to the completeness and accuracy of payments made by mining companies for the extraction of publicly owned natural resources. Performance auditors can also benefit by considering the results of the work done by financial auditors as part of the audit of the Public Accounts in making their assessment on completeness and accuracy of payments.

Auditors should consider including the completeness of revenues from the extraction of minerals in their audit plan if their preliminary audit work indicates the following:

  • The data provided by mining companies is not validated by the responsible organization or by an independent third party. (i.e. there is significant reliance on self-reported data from the private sector.)
  • There are significant data validation, audit, or inspection backlogs.
  • Audits and inspections are not conducted on a timely basis because of staffing issues (for example, high turnover, long recruitment processes).
  • Auditors in responsible organizations are not receiving all the information from mining companies they are entitled to.
  • The site inspection strategy is not risk-based.

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 completeness of mining revenues in their audit plan.