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Federal and Indian Royalty Audits

F. David Loomis, William L. Stone, Gary L. Johnson, Federal and Indian Oil & Gas Royalty Valuation and Management II (1998)

For many years various audit activities have been undertaken on revenues from mineral leases on Federal, Indian, and Outer Continental Shelf lands. These audits have covered the verification of revenues related to the leasing, production, or sale of oil, gas, and other minerals. Through years of experience in conducting and undergoing such audits it has been determined that at times companies selected for audit did not fully understand the audit process and their responsibilities related to the process. On the other hand, from a company perspective, the audit process as designed and regulated, sometimes breaks down and should be periodically examined for improvements and efficiencies that will benefit both the auditors and those being audited. Misunderstandings about the process and what is expected result in difficulties for both the auditors and the companies and cause inefficiencies and delays during the course of an audit.

The purpose of this paper is to discuss and/or explain the audit process with particular focus on:

•How is it decided who to audit?

•How are audits conducted?

•What should a company do to prepare for and support an audit?

•What's new in auditing?

Clarification of the audit process and company responsibilities during audits should improve the efficiency and accomplishment of audit goals and objectives.