Uganda is endowed with a variety of natural resources that include copper, cobalt, gold, tin, and most recently petroleum. This article will concentrate on audit of petroleum activities conducted by the international oil companies (IOCs). Ever since the first commercial discovery in 2006, exploration work in Uganda has increased to the point of having over 116wells drilled with over 80% success rate. Currently, 6.5 billion barrels of stock tank oil initially in place (STOIIP) have been discovered. The increased exploration activity goes yardarm to yardarm with a rise in the exploration costs.

Uganda adopted the Production Sharing Agreement (PSA) system which requires the (IOC) to invest in the exploration, development and production and later recover their costs from the proceeds of the oil and gas produced. This is done through a series of sliding scales and R factor formulas applied as stipulated in the PSAs.

It is the role of the Government to undertake audits to ensure that all the amounts that are to be recovered were necessary, appropriate and incurred in accordance to the applicable laws and regulations. The role of undertaking the above audits is a responsibility of the Office of the Auditor General as mandated by the 1995 Constitutions of Uganda (as amended) and the National Audit Act 2008. The audit provides government with the assurance that the costs incurred were necessary appropriate and in accordance to the applicable regulations.

The Budget Review/Approval Process

Cost control in Uganda starts at the budget review process. While this is not part of the audit process, it is important as a cost control mechanism. Before the start of the year, the companies submit detailed work programs and budgets to the Petroleum Authority of Uganda formerly the Petroleum Exploration and Production Department for approval. During this process, a number of meetings are held where discussions are held on the work programs and budgets. This in itself is a process of cost control before the activities are undertaken. It is important that before any work is undertaken, the budget is approved.

The audit review Process

The audit is not a financial audit and the standard that has been applied during the audit is ISSAI 4100. This standard deals with compliance audits with its objectives being;

• Gather sufficient appropriate audit evidence to conclude whether the information on a particular subject matter is in compliance, in all material respects, with a particular set of criteria, and

• Report the findings and conclusions to the legislature and/or other bodies as appropriate

As a result of the above, no opinion is given however a conclusion is made based on the audit findings. Initially, the OAG was outsourcing the audits . Currently they are being undertaken by a dedicated team within the Office of the Auditor General. The team is composed of multi-disciplinary staff including; accountants, lawyers geologists. Due to the fact the costs involved are large and the supporting documentations are voluminous, the sampling method to be applied has to be appropriately representative.

The recovery expenditure is typically made up of 3 parts. These include the following; exploration and production costs, general and administrative costs and geological/geophysical/geochemical costs. License costs are costs incurred as stipulated in the law. General and administrative costs include the operator’s day to day operational costs. Geological and geophysical involve costs to do with studies and the costs related to exploration and drilling. Each of these parts has different procedures and tests carried out at the transaction level. Currently the audit team in collaboration with the Office of the Auditor General of Norway is in the process of developing a customised audit manual to be used in the audits of petroleum.

Currently 11 audits have been completed by the Office of the Auditor General. While 8 were outsourced earlier, 3 have been completed in-house.

Challenges

• Need for additional technical expertise (Transfer Pricing reviews, oil refinery operations, geological data analysis, specialized accounting software).
• Need for technical capacity for the Oversight committees.

By SAI Uganda