Production Sharing Contract Audit
The Establishment of PSC Audit
PSC audit was set up in January 1999 to enable the Minister of Energy & Energy Affairs to fulfil his responsibility under Article 17.6 of the Production Sharing Contract which states
“ The following procedure shall be implemented with respect to each Calendar Quarter to verify and establish promptly Contractor’s costs that qualify for cost recovery under Article 18 and expenses in respect of Petroleum Operations:
- Contractor shall submit a statement of expenditure in accordance with the procedure detailed in Annex “C” to the Minister who shall verify:
- that claimed costs are not disqualified for cost recovery under Article 6 of the Accounting Procedure; and
- that the claimed amount of a qualifying cost is correct based on documentation made available at the Contractor’s office in Trinidad & Tobago. …”
Statements to be Submitted by the Contractor to the Minister
Under Article 1.3 of Annex “C” of the Accounting Procedure, the Contractor is required to submit to the Minister:
- Within 60 days from the end of each calendar quarter :
- a Statement of Expenditure classified in accordance with Articles 2, 3 and 5 containing the information required by Article 10; and
- an Inventory Statement containing the information required by Article 7.
- commencing with the calendar quarter in which commercial production of petroleum is initiated in the contract area Contractor shall also supply the Minister within sixty (60) days from the end of each calendar quarter:
- a Statement of Receipts in accordance with Article 5;
- a Cost Recovery statement in accordance with Article 9; and
- a Production Statement in accordance with Article 8.
PSC Audit Objective
The principal objective of PSC Audit is to provide assurance to the Minister that Contractors are in compliance with the Production Sharing Contracts. Specifically, this includes ensuring:
- Contractors maintain adequate accounting records in accordance with generally accepted accounting practices in the international petroleum industry;
- Contractors have satisfied their financial obligations, to the Minister, under the Contracts;
Claimed costs are not disqualified for cost recovery and the claimed amounts are supported by adequate audit evidence and are properly classified.
- All sales of petroleum products by the Contractors are made at arms length prices (in accordance with sales agreements) and that all amounts are brought to account.
- That cost recovery amounts and the Minister’s share are calculated and accounted for in accordance with the PSCs.
Audit Findings and Value Added
Some examples of the findings of the audit team include:
- Overstatement of expenses
- Value added tax included in cost recovery amounts
- Duplicate payments
- Inclusion of withholding tax in cost recovery expenses
- Understatement of the Minister’s share of profit petroleum.