Overview of the Federal Compliance Program

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1 Office of Natural Resources Revenue Overview of the Federal Compliance Program Presented by: Faye Stewart Petroleum Accountants Society of Oklahoma February 6,

2 Overview Organization Audit and Compliance Partnerships Audit & Compliance Process Audits & Compliance Reviews Accomplishments Future Goals and Activities 2

3 ONRR s Audit and Compliance Management (ACM) Organization Director Greg Gould Deputy Director Debbie Gibbs Tschudy Audit and Compliance Management Audit Program Management Roman Geissel Theresa Bayani Business Systems & Budget Craig Sechrest Risk & Work Planning Kathy Sager Texas Audit & Compliance Faye Stewart Central Audit & Compliance Vacant Western Audit & Compliance Judith Clark Houston A Sheila Bowman Houston B Cindy Nguyen Houston C Carol Green Dallas Allen McDaniel Allowances & Gas Plants Linda Shishido- Sheahan Tulsa Alan Claybaker Oklahoma City Vacant Denver Lydia Barder Denver A Vacant Denver B John Barder Solid Minerals & Geothermal Karen Garza 3

4 Audit and Compliance Partnerships 4

5 Audit and Compliance Partnerships States Alaska California Colorado Montana New Mexico North Dakota Oklahoma Texas Utah Wyoming FOGRMA Sections 202 and 205 authorizes ONRR to contract with States and Tribes to conduct audits of leases within their State/Reservation. Currently there are agreements with 10 states and 6 Indian Tribes States and Tribes are fully reimbursed for their costs ONRR works in partnership with the States and Tribes to meet compliance goals and provide support and guidance in their audit programs Expanded 205 delegated authority to Wyoming they now have the authority to issue Order letters Tribes Blackfeet Navajo Nation Shoshone/Arapaho Southern Ute Ute Ute Mountain Ute 5

6 Current Audit and Compliance Strategy: Personnel Strong commitment to auditing and compliance Currently, there are 235 ACM compliance personnel including 162 auditors and we have around 40 vacancies to fill. There are 106 State and Tribal auditors with delegated audit authorities Auditors FY2010 FY2012 ONRR State/Tribe

7 Audit & Compliance Processes Time Sequence Who performs the reviews Strategy Audits and Compliance Reviews 7

8 Audit and Review Time Sequence Payor Submits 2014 s / OGORs CONTINUOUS COORDINATION EFFORTS October - October End of the First Month After Production - EDITS DATA MINING Six to Nine Months After Filing Reports - OFFICE OF ENFORCEMENT ACTIVITIES - COMPLIANCE REVIEWS AND AUDITS Traditionally Two or Three Years after Filing Reports New Up - Front System Edits - Data Mining - Compliance Reviews - Audits Transportation / Processing Limit APOP with PC 04 Missing API # s on Southern Ute Multiple Royalty Rates Price below Indian Index Pricing Edit Agreement # not related to lease Missing Reports Adjustment Monitoring Adjustments to Completed Cases Net Negative Production Comparisons Full Review Limited Scope Some Source Documents Typically One Year or Less Company Property Special Terms Source Documents for Sample Multiple Years 8

9 Audit and Compliance Strategy Who performs Audits and Compliance Reviews? Residency Teams Mobile Teams Integrated Approach Team Other Auditors & Compliance Staff 9

10 Audit and Compliance Strategy Annual Compliance Strategy Utilize a comprehensive process in developing our annual workplan which includes: A risk tool that targets properties and companies for review Required reviews/audits Auditor knowledge and feedback Review of properties previously in-kind Indian Trust responsibilities Prevailing market factors Coordinate work with Data Mining, State and Tribes, and other entities 10

11 Audit and Compliance Risk Strategy The Risk Based Approach Stratifies the entire universe of companies and properties Identifies company and property risk indicators to assess the risk of non compliance of all companies Compliance Reviews and Audits are typically determined from risk data Risk tool is maturing. Feedback from completed audits/reviews is very useful in identifying risk factors 11

12 COMPLIANCE ACTIVITIES ACM performs two types of compliance activities: Audits Compliance Reviews 12

13 Audit - Definition Audit - formal examination of company records on Federal and Indian mineral properties to ensure the accuracy of reporting and payment in accordance with applicable laws, regulations, and lease terms 13

14 Audit Standards Audits conducted are governed by standards developed and published by the Government Accountability Office (GAO). These standards, often referred to as the Generally Accepted Government Auditing Standards (GAGAS) provide an overall framework for ensuring that auditors have the competence, integrity, objectivity, and independence in planning, conducting, and reporting on their work. The Audit Manual sets the minimum standards that ONRR, state, and tribal auditors must follow in completing audits. 14

15 Types of Audits COMPANY PROPERTY ISSUE SPECIAL TERM 15

16 Compliance Reviews Compliance Reviews: Typically use reported volumes and expected values to determine if variances exist. Full Scope - compares all elements (volume, value, royalty rate, and allowances) of the royalty equation to determine the accuracy of reporting and payment. Limited-Scope - compares three or less elements of the royalty equation to determine if variances exist. 16

17 Compliance Review Standards The Compliance Review Manual sets the minimum standards for completing both full and limited-scope compliance reviews. 17

18 How Are Compliance Reviews Different From Audits? Audits have a higher standard of verification in the form of evidence from company source documents and records resulting in certainty After a formal engagement, the companies provide requested records applicable to the planned audit scope and objective Longer, formal process Compliance Reviews supplement our audit program and provide reasonable assurance that all or part of the royalty equation are paid and reported correctly Comparison is based on company-reported data. Companies provide additional documentation if needed Typically a shorter process 18

19 Audit and Compliance Accomplishments Assured reasonable compliance on 41% of total offshore and onshore royalties paid for CY2009 ONRR covered 59% of unique companies (1,025) and 22% of unique properties (5,434) FY2010 FY2012 Covered 84% of significant/high risk companies and 25% of significant/high risk properties in FY2012 Completed and Projected Reviews: FY2010 FY2011 FY2012 FY2013 Compliance Reviews 1,233 1, Audits Since 1982, as a result of audit and compliance activities, we have collected $3.9 billion 19

20 Future Goals and Activities Expanding the review of companies and properties Improving reporting and compliance Review of allowances and gas plants Working closely with BLM, BIA and BSEE and BOEM to ensure overall compliance on properties, transportation systems and gas plants Implementing OIG, GAO, and RPC recommendations Significant emphasis on internal coordination of workloads 20

21 Office of Natural Resources Revenue QUESTIONS?

Overview and Updates

Industry Compliance Accurate Revenues and Data Professionalism & Integrity U.S. Department of the Interior Office of Natural Resources Revenue Overview and Updates National Ocean Industries Association