The case for collaboration between Supreme Audit Institutions and the Extractive Industries Transparency Initiative (EITI)

The EITI International Secretariat welcomes the opportunity to present the Extractive Industries Transparency Initiative (EITI) in the newsletter of INTOSAI’s Working Group on Audit of Extractive Industries (WGEI). This article provides a brief introduction to the EITI, the reporting process in the 49 implementing countries, and the common interests and opportunities for collaboration with Supreme Audit Institutions.

The goal of the EITI is to promote the good use of natural resources for the benefit of a country’s citizens. The EITI Principles – agreed by government, industry and civil society stakeholders in 2003 – emphasize the importance of transparency by governments and companies in the extractive industries and the need to enhance public financial management and accountability. To achieve this, countries that implement the EITI Standard are required to publish timely EITI reports that reconcile government disclosures on revenues with companies’ disclosures on tax payments. The process is overseen at the national level by a multi-stakeholder group comprising government, industry and civil society representatives. While these stakeholders are often at odds, there is a shared commitment that “a public understanding of government revenues and expenditure over time can enhance public debate and inform choice of appropriate and realistic options for sustainable development”.

A broader Standard that covers the governance value chain of extractive revenues

The EITI’s practices and procedures have evolved in several steps to the current EITI Standard (2013), which goes well beyond the EITI’s original focus on revenue transparency. EITI Reports now include details on licensing, license allocation, production and exports. There are disclosures on oil sales by National Oil Companies (NOCs), voluntary and mandatory social payments by oil, gas and mining companies, and details on budgetary allocations and transfers. EITI countries are also encouraged to adopt contract transparency and disclose beneficial ownership information. As a result, EITI Reports have become more comprehensive, dynamic and influential. 49 countries are implementing the EITI, from across the developing, middle income, emerging market, and OECD countries. EITI Reports as a whole have already covered over US $1.7 trillion of government revenues, accompanied by increasingly rich contextual information on the extractive sector.

Embedding the EITI in government systems instead of replicating them

Achieving compliance with the EITI Standard often hinges on the quality of the information disclosed by implementing countries. In the past, poor quality assurance of government and government data has been one of the main causes of non-compliance with the EITI requirements.

Well-functioning oversight institutions, such as Supreme Audit Institutions, play a key role in holding both companies and government agencies accountable. The EITI builds on existing audit and assurance systems in government and industry and promotes adherence to international standards.

The EITI Standard makes a direct reference to INTOSAI: “The multi-stakeholder group, in consultation with the Independent Administrator, is required to examine the audit and assurance procedures in companies and government entities participating in the EITI reporting process, including the relevant laws and regulations, any reforms that are planned or underway, and whether these procedures are in line with international standards….for public entities: the International Standards of Supreme Audit Institutions (ISSAI) issued by the International Organization of Supreme Audit Institutions (INTOSAI).”

EITI as a diagnostic tool

In many cases, the EITI acts as a diagnostic tool that identifies weakness in audit and assurance standards and compliance. The EITI can help identify areas of risks where further investigation is needed. In Albania, Azerbaijan, Côte d’Ivoire, DRC, Ghana, Mali, Mauritania, Mongolia, Nigeria and the Philippines EITI reports identified weaknesses in the quality assurance of government data and made recommendations how these weaknesses can be addressed.

But there are greater opportunities. A key area of debate on the EITI community is the question of “mainstreaming”. Ideally, extractive industry transparency should not be confined to EITI Reports, but rather become an integral part of how governments manage their sector. Rather than simply relying on the EITI reporting mechanism to bring about transparency, governments implementing the EITI could to a greater extent make the information required by the EITI Standard available through government and corporate reporting systems such as databases, websites, annual reports, portals etc. In Burkina Faso, Ghana, Kazakhstan, and Zambia, for example, SAIs certify accounts and reporting templates of government agencies disclosing information in EITI reports.

Looking ahead

A mutual understanding of requirements and constraints should be the beginning of a process of harmonising accounting, reporting and auditing schedules. In addition to contributing in the reliability of data disclosed in EITI Reports, SAIs could also use these reports to identify areas of risk and conduct further investigations. It is recognized that the availability of audited government accounts depends not only on the SAI concerned but also involves the government accountant and the parliamentary body, which reviews SAI’s audit reports. In a collaborative effort, based on mutual understanding, it should be possible to work toward a progressive harmonization of schedules for the auditing of government accounts and the production of EITI Reports. The EITI International Secretariat is presently working with interested countries on mainstreaming EITI reporting in this manner. This will no doubt afford additional opportunities for collaboration between the EITI and INTOSAI, especially its Working Group on Audit of Extractive Industries.

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