OT19590 - PRT: Appendices

Appendix 11: A Guide to Accounting Systems Reviews

Introduction

As Oil companies’ PRT returns and claims for expenditure are not subject to audit OTO needs to have confidence in the integrity of the systems used by companies for accounting and preparation of returns and expenditure claims.

OTO therefore needs to obtain details of companies’ accounting systems and to update this information when changes occur. Where a company is an operator of a taxable field OTO will normally undertake a full review of the company’s accounting systems as part of a first claims audit or in the event of a change of accounting system. For non-operators OTO will normally review the accounting systems relevant to particular aspects of a participator’s returns and claims either when a particular item first arises or as part of the risk assessment process.

This guide is designed to help Inspectors in the examination of accounting systems.

The guide covers common checks and areas of enquiry. It is not exhaustive. Each accounting system will need to be reviewed on an individual basis as each system will be designed or adapted to the needs of a particular group or company.

OTO Aberdeen input should be obtained in all reviews involving Royalty paying fields.

Inspectors should consider the involvement of the Computer Audit Team (CAT) in their review of automatic stages in the accounting process.

Basic Overview

A typical accounting system will have more than one software application associated with it. In addition to the core system that deals with the main bulk of transactions and the production of accounts there will be specialist software packages. These are designed to run payrolls, prepare documents and returns for internal and external use etc.

Some of these ancillary systems will feed data in - e.g. payroll. Others will manipulate data produced by the core system - e.g. for PRT returns.

Many oil companies base their accounting systems around a proprietary software system known as SAP. This is a complex modular system with tremendous flexibility. SAP needs to be supported by ancillary software to produce PRT returns.

The process resulting in the presentation of returns and expenditure claims can be broken down into five broad elements.

Production of Raw data - invoices, JV billings, hydrocarbon returns etc

Input of raw data into the accounting system

Sorting, ordering and allocation of the data by the system

Adjustment of the processed data for specific needs

Presentation of claims and returns to OTO

A full review of the accounting system will involve examining each stage of the process in detail and will cover the core accounting system and all other systems used to convert and produce data for returns and claims.

General Overview of the Accounting Systems

The purpose of the review is for OTO to obtain a detailed understanding of the way that the accounting systems convert raw data into the final return and claim figures. The areas to be looked at are:

Raw data - invoices, JV billings, hydrocarbon returns etc

• Who has financial authority for various levels of expenditure incurred and income receivable
• How is financial approval given
• When is expenditure treated as incurred
• When are receipts treated as receivable
• When are non-sterling amounts converted to sterling and what method is used to do this
• How are exceptional items which do not go through the core system identified and how are these dealt with
• What is the basis of staff time-writing

• Copies of the accounting personnel structure, internal manuals and instructions etc relevant to the accounting policy and full details of training (in relation to cost code allocation) given to the relevant personnel should be obtained
• What controls and checks are in place to ensure that procedures are followed and when do these occur

Input of raw data into the accounting system

• Who inputs the data - company staff or sub-contractor
• If sub-contracted what access does the company have to the system
• When and how is data categorised
• When and how is data identified as being attributable to a particular asset/field
• What basis is used to allocate data (to ring fence, between fields etc)
• How is expenditure not allocated to particular projects dealt with
• How is ineligible expenditure identified

• A complete list of all cost centres, project, accounts, AFE and sub-codes, should be obtained (this should include exceptional items such as miscellaneous receipts)
• Copies of internal manuals and instructions etc relevant to the use of the accounting systems and full details of training given to the relevant personnel should be obtained
• What controls and checks are in place to ensure that data has been correctly input and procedures properly followed and when do these occur

Sorting, ordering and allocation of the data by the system

• What system is used
• What version is it
• Where is it located
• What does the system do to the raw data which has been input
• What ancillary systems feed data in
• What is the purpose of this additional information
• Where is ancillary data derived from and how is its integrity verified
• Do any of the systems at this stage rely on keys that require updating - e.g. throughputs
• What happens to the data once it has been processed
• What are the administration and accounting arrangements with co-venturers
• What checks are made that the system is operating correctly and what is the procedure if an error is discovered
• If there has been a change of system what were the transitional arrangements and did any problems arise due to the transition

• OTO will normally expect a detailed presentation on the functions of the core system and that the appropriate personnel will be present to answer questions

Adjustment of the processed data for specific needs

• What adjustments are made to the processed data
• Are there separate software applications for this purpose
• What are these, which versions, where located
• Who operates these systems and what do these do
• Is there any manual adjustment required
• Does the application use periodic data (e.g. throughputs)
• Who updates these and when

• Copies of the relevant internal manuals, instructions etc and full details of training given to the relevant personnel should be obtained
• What controls and checks are in place to ensure that procedures are followed and when do these occur

Presentation of claims and returns to OTO

• What final adjustments are made prior to sending returns and claims to OTO (eg self to self, agreed disallowances, qualifying or non-qualifying, SCB, TRA, etc)
• Do final adjustments flow from further systems, software applications or manual input
• How are final adjustments verified or authorised
• What additional supporting information is provided

Specific Topics for Review

A review to establish how the accounting system processes specific types of income or expenditure will be required:

• directly following on from the general overview of the accounting system when the information provided should be tested by checking specific aspects - usually a number of topics should be checked following a general overview but in all cases at least one topic must be reviewed
• where a specific topic has been selected for an in-depth review as part of the risk assessment process. The overview gives OTO a general understanding of the company’s treatment of specific topics. A more detailed review will be required where a specific topic has been identified as a potential risk in relation to a particular company
• where particular concerns arise as a result of an error in a return or claim

The areas to be looked at will depend on the topic under review but normally the review should follow the pattern of the general overview and establish in detail how the accounting system converts the raw data into the final return or claim figures by looking at each stage of the process.

Some suggested topics for review are listed below. The lists are not exhaustive and Inspectors should consider other areas for review where appropriate.

PRT Reconciliation Procedures

OTO should review the procedures used in the production of reconciliations. Methods of producing reconciliations vary considerably from company to company. The review should be sufficient to enable OTO to understand how the procedures interact with the accounting systems.

Audits

In addition to the audit for accounts purposes the company may be subject to various other forms of audit, for example Joint Venture audits, Internal audits. Depending on the type of audit and the work undertaken these can provide additional support as to the integrity of the accounting systems. If companies wish to offer sight of these reports as evidence of assurance you should obtain full details of the type and frequency of audits and establish how the company deals with errors identified from audits.