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Preventative audit: Cost recovery is a huge risk to the bottom line that remains poorly understood and under addressed. Some believe cost recovery is not relevant until production commences. The truth is that wherever you are in the lifecycle if expenditure is ever to be cost recovered at some point in the future then the rules need to have been followed and evidenced. Too often companies don't seriously get into the detail of cost recovery risk until a discovery is made or production starts or worse still when an audit notice is received.
The problem is that the rules for cost recovery within licence agreements are often vague and subject to interpretation. In new producing countries there is no precedent on how to apply the rules and as governments have little expertise they struggle to advise. In established producers the rules of cost recovery have gone through cycles. There are numerous contract types, side agreements, legislative changes that have followed the fashion of the day and often the mood of the government. Politics plays a role as elation over first tax or production in kind receipts recedes and doubts set in as to whether the government is getting its fair share, usually spurred on by a voter population who aren't feeling the benefits. At this point the substance of the contract is scrutinised for legal form such as prior approvals, translation errors, alternative readings and audits take a hostile turn.
We are able to help because we know all the typical risk areas and the best way to actively mitigate against claims. By reviewing your contracts and evaluating the circumstances in country we are able to provide the guidance that is missing. Remember that non-recoverable claims come out of the operator's share or margin. This means the pain is magnified, for instance a 1% loss of recoverable expenditure might be a 20% hit against bottom line profits! Acting early protects long term value and pays for itself.
Pre audit preparation: This relates to understanding the type of audit method that you will be subjected to and getting your records in shape and readily available for inspection. Not all audits are the same, some focus on the ledgers, some on invoices, others use sampling and some want to see everything with full reconciliations, purchasing history, expenditure approvals etc... We are able guide, assist record preparation and help you discover ways of working to do this better as part of your monthly process.