Summary

SAI Mongolia completed an audit of companies operating under production-sharing agreements in the oil industry. The audit identified a number of deficiencies, most of which were not addressed during the audit period due to the lack of clear deadlines for the companies to submit cost reimbursement reports. SAI identified a violation by the Department of Mineral Resources and Oil (Ашигт малтмал, газрын тосны газар) of certain provisions of the Law on Oil (Газрын тосны тухай), according to which the Department was obliged to develop, approve and monitor the implementation of standards, rules and instructions for oil production activities. For example, the auditors discovered that the Department failed to develop criteria for classifying cost recovery expenses. Furthermore, it failed to submit fixed asset inventory results for the audited period to the Ministry of Mineral Resources and Oil. These violations impacted the accuracy of the financial statements of oil producing companies. In this regard, the auditors recommended that the Department reconcile the records of the movement of oil assets and resources of Donshen Oil Mongolia LLC (Доншен газрын тос Монгол) in the financial statements so that they are in accordance with current legislation. SAI recommended that the Ministry of Mineral Resources and Oil together with the Department define criteria and provide recommendations for recognizing the costs of oil production companies; amend the Procedure for Registration and Settlement of Oil and Gas Operations; and strengthen oversight of the implementation of production sharing agreements.