The role of Supreme Audit Institutions (SAIs) in the Oil and Gas Sector (Integrating the EI value chain with the Oil and Gas activity chain)

Building strong Institutions is vital to Natural Resource Management. Citizens are excited about the benefits that come along with oil discoveries at the same time elites are worried about the so called resource curse as it has been witnessed in some resource rich countries. This article, therefore demonstrates the role of the Supreme Audit institutions basing on the Extractive Industry Value Chain (EIVC) and the Oil Activity Chain as a basis for auditing.

Many studies put emphasis on good governance that entails transparency and accountability as the solution to the oil curse. However, few experts examine the role of SAIs yet a SAI has a critical role to play in the entire Oil and Gas value chain. They go beyond assessing resource revenues, Specifically, SAIs, aid in promoting sound financial management thereby enabling an accountable and transparent governments which give priority to service delivery for their citizens.

This can also be achieved if SAIs exercises properly their mandates of assessing public institutions operations through carrying out financial, performance, compliance and environmental audits. This will finally give ultimate assurance that extractive industry related activities have been carried out as planned.

In that regard, to assess transparency and accountability, SAIs make use of the World Bank illustrated  model of the EIVC which includes; Award of contracts and licences, regulation and monitoring of operations, collection of taxes and royalties, revenue management and allocation and implementation of sustainable development policies.

SAIs are cautioned to take note of the type of fiscal regime in place when planning for an extractive industry audit. Cost recovery and compliance audits would be very vital under a Production Sharing Agreements regime and service contracts, whereas, Value for money and financial audits may be critical under the concessionary arrangements. Environmental audits should be cross cutting through the entire value chain.

Often SAIs wait until the end of the petroleum cycle i.e. the termination stage to carry out an  environmental audit however this should be done at all stages especially regarding waste management, pollution and the process of Environmental Impact Assessments. This may be explored along with issues like occupational health and safety. Similarly, when auditing the value chains all the key players should be involved, For example while auditing the volumes of oil produced and revenue, the ministry responsible for the resource, Revenue Authority and Ministry of Finance should form part of the audited entities. Correspondingly, SAIs are challenged with the capacity and capability issues to carry out these audits in addition to the confidentiality clauses which are common in extractive industry sector.

By Lindah Nalubanga

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