One of the key statutory functions of NEITI is conduct of regular audits of the extractive sector. The Audit is necessary because information about revenue flows in the extractive sector has remained a secret in Nigeria. This created mistrust, mutual suspicion, hostility and conflict. Majority of Nigerians do not know how much money companies pay to government in the form of royalty, profit tax, bonuses etc. Nigerians also do not know how much the government receives and how the revenue has supported provision of social amenities, to make their lives better.
NEITI audit is therefore a thorough examination, process or assessment of audited accounts and activities of all stakeholders in the extractive sector toward the efficient/effective revenue flow management of the industry. NEITI audit is not an exercise to witch-hunt any person or organization but designed to maximize the benefits accruing to the people of Nigeria from the natural resources in their land.
This type of audit reconciles financial flows following the chain of custody for finances derived from the sector over a period of time with a view to establishing what was paid and what was received and identify specific agencies that can be held accountable for any discrepancies. For instance, financial audit reconciles company payments with receipts of the government’s banker, the Central Bank of Nigeria, and with the records of the FIRS, the department responsible for PPT assessments, and the DPR. Then it samples some companies’ tax returns and royalty statements to verify the calculations, and the assessments of FIRS and DPR.
The physical audit tracks the sector’s oil and gas and refined product flows. It checks if the extracted volumes are accurately reported and if each company’s reported production tallies with the numbers the government uses for tax and royalty calculations. This takes the audit into some highly technical areas featuring metering, temperature and pressure measurements, as well as the more controversial area of oil theft.
Process audit examines how key agencies run the business. It explores how the regulator auctions and sells oil blocks. For instance how does DPR conduct upstream licensing rounds? It assesses whether NNPC’s Crude Oil Marketing Department (COMD) prices the government’s share of equity crude accurately, and how and why other companies are contracted to export this crude. The audit also examines NNPC’s upstream division, the National Petroleum Investment Management.
Scope of Industry Reports
The Structure of NEITI Audit Report depends largely on the decisions of the NSWG, the NEITI Work – Plan for the Audit and the Terms of Reference given to the Auditors specifically appointed to conduct the exercise. However, a typical NEITI Audit Report seeks to provide the following basic information:
- Material Revenues and Payments – The report makes disclosures on material revenues, lists all government entities and companies covered and the basis of definition of materiality for revenue streams for covered entities and government agencies.
- Discrepancies-The Audit must reveal the discrepancies between what companies reported they paid and what government entities reported they received. It should also identify and publish list of companies that failed to comply.
- Recommendations-The Report must contain recommendations on ways to improve on the NEITI Audit, integrity of financial systems, record keeping, accounting practice and other legal issues that can enhance the process.
The audit is usually presented in aggregated and disaggregated formats for easy understanding and analysis. Disaggregated format shows what each of the companies paid to government; this means separately identifying payments made by individual companies and the types of payments made by them.
NEITI requires companies to provide disaggregated statements for its audits to enable the report explain clearly and accurately, individual company payments with government receipts. Aggregated format on the other hand collates the same information but without delineating or separating them on the basis of individual receipts or payments. It presents a wholesome picture of total payments and receipts.