Key Considerations When Auditing EI

Selecting and determining the scope of EI audits can be a challenge for SAIs. There are many ways of examining EI activities, depending on the type of extractive industry, the stage of a resource’s development, and the government’s relationship to EI within your country, among other factors.These pages provide information to help guide the audit scoping process for auditors who are new to EI, through four key steps, identified by INTOSAI’s Working Group on Environmental Auditing:

Figure: Four Key Steps for Scoping EI Audits

Figure source: Summarized from INTOSAI’s Working Group on Environmental Auditing, Auditing Mining: Guidance for Supreme Audit Institutions, 2010.

Identify extractive industries and related effects

As a first step to developing an audit approach, it is important to understand the scope of extractive industries within the country. For example, SAIs should determine which minerals are mined, the geographic extent of mining activities, the type of mining performed (e.g., artisanal or commercial), and the extent to which mining contributes to the national economy. Additionally, it is important to consider any short- and long-term economic, environmental, and societal effects related to the EI activity. There are several resources available to help auditors determine which extractive industries may be operating in their country:

EITI: The Extractive Industries Transparency Initiative is a global standard to promote the open and accountable management of oil, gas and mineral resources. 52 countries participate in EITI and provide data on EI activities within their borders. These data may include information on EI company operations, geographic region of operations, revenue generated, and the type of material extracted (e.g. gas, oil, gold).
NRGI: The Natural Resource Governance Institute helps people to realize the benefits of their countries’ endowments of oil, gas, and minerals. Resource Projects is a clearinghouse of information collected by the Natural Resources Governance Institute on over 2,200 individual resource projects across the world. These data may include information on the EI company involved, the type of material extracted (e.g. oil), the status of the project, recent payments to governments, and production statistics.
OpenOil: OpenOil is an open source data repository of over three million compliance documents related to the oil, gas, and mining industries. Information includes EI concession agreements and contracts in about 70 countries.

Identify the government’s relationship to these activities

Governments play an important role in regulating extractive industries and its social, economic, and environmental effects. Specifically, governments have a variety of legal authority and tools that they use to oversee extractive industry activities. To develop an audit approach, it is important to understand the scope of the government’s authority and regulation of extractive industries within the country. There are several resources available to help auditors determine the government’s response to EI in their country:

Choose the appropriate audit type and topic

According to the International Standards of Supreme Audit Institutions, public-sector auditing is essential because it provides independent and objective assessments concerning the stewardship and performance of government policies, programs or operations. SAI roles in auditing EI vary by country and depend on the SAI’s legislative mandate.

Generally, there are three types of audits: financial, compliance, and performance, as described in the figure to the right.

Figure: Three types of audits

Figure sources: Summarized from INTOSAI’s Working Group on Environmental Auditing, Auditing Mining: Guidance for Supreme Audit Institutions, 2010

When choosing an audit topic, SAIs should assess how their work will be used and where it could have the greatest impact on improving the oversight of EI. Key questions to consider are:

  • How will the audit be used and will it have an impact?
  • Does the SAI have jurisdiction over the topic or entities involved and access to the necessary information?
  • Is evidence available and are there suitable sources of criteria to compare efforts against?

Determine the audit approach

According to the International Standards of Supreme Audit Institutions, the overall audit approach is a central element of any audit. It determines the nature of the examination to be made and defines the necessary information and data and the audit procedures needed to obtain and analyze them.

The design process explores the variety of options available for collecting and analyzing information and can help auditors determine an audit approach that will best address the audit objective within available resources. A design matrix is one tool to help auditors identify the necessary information for each research question, as shown below.

Table: Using a design matrix to determine audit approach

Audit objective: What do we wish to achieve through the audit?
Audit risk: Internal or external factors that may affect the audit
Research questionsCriteria  and information sourcesScope and MethodologyLimitationsPotential Findings
What do you want to know?What information do you need to answer the question?How do you plan to obtain the information and what will you do with it?What is not possible?What do you expect to find?
Questions should be:   Clear
Specific
ObjectiveMeasurable
Doable.
Identify the evaluation standard and evidence needed:   PhysicalDocumentaryTestimonialAnalytical  Establish the boundaries of the audit (e.g., organizations, timeframes).   Describe the plan to gather and evaluate the information in the second column and otherwise conduct the work.Try to anticipate any conditions that might limit your ability to answer the questions, obtain the information, or conduct the analyses described in the third column.   Describe potential findings and how the audit may affect stakeholders.

Sources: Content summarized from the ISSAI Standard 300 and Appendix to ISSAI 5520.[Note: ISSAI Framework is migrating to IFPP]