Selecting Audit Criteria

Establishing the revenue framework and setting rates

• The royalty regime or revenue framework was established after potential options were evaluated using evidence-based methods.
• The government has established clear, documented objectives for the oil and gas revenue framework.
• The revenue framework reflects current legislative, regulatory, and policy requirements.
• Industry and other stakeholders were consulted as part of the policy-making process.
• The rationale for final decisions has been documented.
• The revenue framework and applicable rates guarantee that the government receives revenue from oil and gas extraction that is consistent with its objectives, while maintaining the industry’s competitiveness in the jurisdiction.
• Roles and responsibilities for setting rates and collecting royalties and other resource revenues are clearly defined and documented.

Clear rules and guidance

• Regulations, policies, and directives clearly set out requirements on how companies should measure and report their oil and gas production, and pay the associated royalties.
• The organization has provided guidance, including clear definitions and standard forms, to the industry on how companies should calculate and transmit their royalty payments.
• The organization regularly keeps companies informed of changes to the revenue framework and related processes.
• The revenue framework’s design includes a provision describing the access right to the records of private companies that the government requires for audit purposes.
• The organization has systems and processes for promoting the consistent application of the resource revenue framework, including providing information to oil and gas companies on the interpretation of legislation and regulation, and the results of recent judgments.

Framework reviews and rate updates

• Royalty rates and other fees are reviewed regularly to ensure they still reflect fair market value, policy, or other factors.
• The resource revenue framework, including relevant regulations, is reviewed periodically and modified as needed to take into account the result of performance assessments and other relevant factors (for example, evolution of resource markets, legislative or policy changes, economic circumstances, industry development, relevant court decisions).
• The results of periodic reviews and the rationale for significant changes are documented.
• Controls are regularly tested to assess their effectiveness and corrective actions are taken where needed.

Controls over receipt of payments

• The organization ensures that all companies comply with reporting requirements and follows up on outstanding items in a timely manner.
• The organization has a complete database of all oil and gas wells in its jurisdiction and keeps this database up to date.
• The organization knows which companies should be paying royalties for oil and gas extraction.
• The entity uses predictive analytics to estimate expected revenues and follows up on deviations from expected results in a timely manner.
• Automated systems are in place to:
  • enable the transmission and filing of royalty returns by oil and gas companies and
  • track expected and received royalty returns.
• The organization ensures that companies submit their royalty returns and related data in a timely manner and follows up on late submissions.
• To encourage compliance, the organization penalizes leaseholders that continually make late or inaccurate returns.
• Penalties for late payments or inaccurate payments are sufficiently high to promote behaviour change.
• The organization has a process in place to communicate deficiencies found in royalty returns or related data, corrective action to be taken, and the expected timelines for completing corrective action.

Staffing and training

• The organization has determined the skills it needs its personnel to have in order to effectively process royalty returns and has ensured that it has sufficient qualified personnel to do so.
• Staff receive adequate training in a timely manner to ensure they can perform their duties effectively.
• Strategies are in place to reduce staff turnover and retain skilled staff in order to ensure that there is always sufficient staff to process royalty returns.

Coordination

• Responsible organizations have clearly defined and communicated their respective roles and responsibilities.
• Responsible organizations have clearly identified what information they need to share with each other.

Completeness of revenues

• The organization has designed and implemented controls to identify potential errors in submitted royalty or production tax returns.
• Automated systems are in place to help staff recalculate royalties payable.
• The organization verifies data submitted by oil and gas companies and ensures that it is reliable.
• The organization conducts inspections and does in-depth, risk-based audits in a timely manner to ensure it collects all royalties payable.
• The organization has a process in place to communicate deficiencies found, corrective actions to be taken, and the expected timelines for corrective actions.
• The organization ensures that follow-up on recommended corrective actions is done in a timely manner.
• The organization receives requested information in a timely manner and uses all the legal  and administrative means at its disposal to obtain requested information when required.
• IT systems are kept up to date and reflect changes to the revenue framework.

Staffing and training

• The organization has identified its staffing requirements and ensured that it has sufficient qualified personnel to conduct all reviews, audits, and inspections in a timely manner.
• Staff receive adequate training in a timely manner to ensure they can perform their duties effectively.
• Strategies are in place to reduce staff turnover and retain skilled staff in order to ensure that there is always sufficient staff to conduct required inspections and audits.

Coordination

• The responsible organizations coordinate their activities to ensure an effective and efficient oversight.
• The responsible organizations ensure that follow-up on recommended corrective actions is done in a timely manner.

Policies and controls

• The organization has assessed the risks of fraud and corruption in its operating environment.
• The organization has policies and controls in place to manage the fraud and corruption risks.
• Responsibilities for assessing amounts due and for collecting payments are segregated.
• Policies and controls are in place to ensure that auditors, inspectors, compliance enforcement staff, and consultants are independent from oil and gas companies.

Transparency and reporting

• Information on the revenue framework and current rates, fees, and formulas is readily available to the public.
• The government complies with legislative or policy requirements related to the publication of all the payments it receives from oil and gas companies.