Evidence Sources and Audit Tests

Documentary, testimonial, physical, and analytical evidence can all play a role in audits of oil and gas revenues. The main sources of evidence that will be useful in this context are:

• a review of relevant documents,
• interviews,
• testing of controls and IT systems, and
• site visits.

Review of Relevant Documents

By their nature, performance audits rely heavily on documentary evidence, and audits of oil and gas revenues are no exception. Auditors need to consider everything from evidence of the rules that government organizations and oil and gas companies have to meet to evidence that controls have been put in place and are functioning as intended. Documentation needs to be gathered, reviewed, and analyzed by auditors, then added to the audit file if it is deemed relevant to support audit observations and conclusions.

Table 13 provides many examples of documents that may prove useful as audit evidence in an audit of oil and gas revenues.

Table 13 – Example of Documentary Evidence that May Be Useful in an Audit of Oil and Gas Revenues

Interviews

Interviews with key managers and staff in the organization(s) responsible for collecting oil and gas revenues can be valuable testimonial evidence in an audit of oil and gas revenues. Interviews of industry association members, relevant stakeholders, and representatives of other jurisdictions may also be useful, depending on the specific audit focus.

While testimonial evidence is usually considered weaker than documentary evidence, interviews can be useful to:

• confirm information obtained from other sources of evidence (thus strengthening the support for audit observations and conclusions),
• confirm the absence of something that was expected to exist,
• place documentary evidence in its proper context, and
• open new leads in an audit and identify further sources of evidence.

When testimonial evidence from an interview is to be used to support audit observations and conclusions, it is good practice to document the interview and to have the interviewee either approve the minutes or confirm in writing (by email or letter) the accuracy of the key statements intended to be used as evidence.

Testing of Controls and IT Systems

As explained in the Planning Phase section, public sector organizations must rely on a number of controls to ensure that the payments they receive from oil and gas companies for the extraction of oil and gas resources are accurate and complete. Given the importance of these controls to achieve this objective, it is likely that auditors will test a selection of controls during the examination phase of their audit of oil and gas revenues.

By doing a walkthrough of selected controls, auditors can document that controls have been put in place, but they generally need to do more testing to ascertain whether the controls are effective. This type of testing will often involve selecting a sample of transactions or using data mining and analysis techniques to detect anomalies in a large number of transactions. Testing the quality of datasets can also be a necessary audit procedure.

Depending on the nature and complexity of the IT systems used by responsible departments and agencies, audit teams may need the help of an IT expert to complete their audit procedures. This may be particularly useful when there is a highly automated royalty process in place. In such a case, an IT expert can review IT general controls and validate application controls for the calculation of royalties. A review of audit trail functions may also help auditors to identify higher risk areas.

Whatever control testing auditors decide to conduct, they should document all the steps they took as part of the process so that another auditor could replicate their work and arrive at the same conclusion.

Site Visits

Site visits are key to understanding how things work in a jurisdiction. They give auditors a chance to meet many individuals who have direct knowledge of key processes and to observe first-hand the workings of important systems. Site visits can be even more valuable if an audit team is accompanied by an independent expert.

In terms of evidence, site visits can help auditors to map out processes in detail. They may also provide opportunities to test key controls and perform substantive tests of details. Finally, they are a good way to obtain testimonial and documentary evidence.

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