Add auditors or risk missing oil royalties

Ashley Fitzpatrick
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Auditor general, Liberals, NDP call for new hires to do reviews

Auditor general (AG) Terry Paddon is warning delayed reviews of oil royalty payments has the potential to result in millions of dollars lost from the public purse.

Newfoundland and Labrador auditor general Terry Paddon issues his latest report on government departments Thursday. — Photo by Rhonda Hayward/The Telegram

Oil royalties are a complex calculation, first self-determined by the producing oil companies under strict guidelines. Monthly and annual reports on royalties are submitted to the government and audited to assure the numbers are in compliance.

A number of auditors within the Department of Natural Resources are specifically tasked with that review work. However, according to the AG, staff vacancies, staff turnover and transfers have resulted in not enough auditors being available.

Auditing deadlines are being met, but with little time for any subsequent review and with the help of a paid consultant.

According to a report from the AG detailing the issue, from April 1, 2011 to March 31, 2013 the Department of Natural Resources paid a consultant auditor $507,334 to assist in the review work.

“Clearly, we need more auditors,” said Liberal Leader Dwight Ball, speaking with reporters Thursday after the AG’s report was released.

“We need to make sure that we’re prudent and get those audits done as efficiently and as fast as possible.”


NDP Leader Lorraine Michael also said she feels more auditors are needed for provincial oil royalty reviews. “If we want to get the money more quickly, I think we do need more auditors,” she said.

“I think the auditor general is concerned that we’re just sort of meeting the mark all the time.”

The “mark” is the allotted time wherein audits must be completed. The deadline varies depending on the offshore oil project in question.

In the past, the provincial government’s audits and secondary reviews have provided millions of dollars in added oil revenue to the province.

An auditing of Hibernia’s numbers for 1997 to 2005, for example, led to $2.9 million in additional royalty payments. Similar review of numbers for four years of the Terra Nova project led to $45.4 million in added royalties.

Paddon said delayed audits risk lost documentation and rushed results, with an inability to then dig into accounting issues with potential for a favourable outcome for the provincial government.

“We would think that this is a fairly significant activity, for government to assure the integrity of the royalty system is maintained,” he said, when presenting his report at his office in Mount Pearl. Oil royalty audits were covered in just one section of the report.

At $1.83-billion total, oil royalties accounted for 25 per cent of provincial revenue in 2013.

As with the Liberals and NDP, Paddon is recommending more auditors be dedicated to royalty audit work within government.

Between now and 2018, the government employees tasked with reviewing oil revenue numbers have 159 audits yet to be completed. The majority, 143, are annual royalty audits, with others specific to the accounting eligibility of various oil company development and transportation costs.

The provincial government has set out a schedule for the completion of all of the audit work.

In all, 120 audits to be finished over the next four years have yet to be started.

In a written response to the AG, a representative for the Department of Natural Resources stated royalty audits should be started earlier and given more time, but added it is also important not to focus solely on reducing audit numbers, so as not to encourage exactly the kind of missed opportunities Paddon and his staff are warning against.

It was noted four new positions were added to the auditing team in the last provincial budget, bringing the total to 12. “The department currently has a position complement necessary for the annual audit cycle,” the government response states.

It separately notes government will continue efforts to keep a full complement of staff in those positions.



Organizations: Department of Natural, NDP, Hibernia

Geographic location: Terra Nova, Mount Pearl

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Recent comments

  • Herry
    January 24, 2014 - 09:25

    Dunderdale left for a reason. First, she's a tory. That should tell you something right there. The problem here is CORRUPTION, CORRUPTION, CORRUPTION...