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Oil and Natural Gas Corporation Limited

Internal Audit Manual - Volume IIAudit Programs-Joint Venture Non-Operator Audit

S.NoControl ObjectivesAudit StepsSAP system or ManualReport RefWP ReviewCompleted By/ DateReviewed By/ Date

JVOG GROUP

1.To verify whether the Operator has adhered to the relevant provisions of Production Sharing Contracts (PSC) / Joint Operating Agreements (JOA), as regards to the preparation and submissions of the work programs and budgets

To verify whether the Operator has provided with adequate and detailed budget break up / schedules, with appropriate assumptions and explanations thereof

To verify that the budget document has been adequately questioned under all budget line items before granting approval

To verify whether the internal approval process of the budget is in order

To verify whether the "Review and Amendment" of budgets are in order, and whether is as per the PSC / JOA provisions Check whether the budget has been drawn under the guidance laid down in the JOA /PSC. Check whether the budget has been categorized in accordance with the JOA / PSC. Check whether the Authorization for Expenditure Request's covering specific categories mentioned in the JOA have been complied with. Check whether adequate internal control exists while approving Joint Venture budgets. Examine the structuring and grouping of budget line items. Check whether the budget is in sync with the operational requirements. To verify whether cumulative total of all over-expenditures for a financial year have not exceeded the provision as per the JOA/PSCManual

2.To verify whether the Operator has submitted the list of qualified bidders with whom they propose to contract with, as per JOA provisions

To verify whether the Operator has submitted the Comparative cost analysis, with appropriate techno economic considerations

To verify whether adequate queries have been raised in connection with the comparative bid analysis made by the Operator

To verify whether the Operator has adhered to the relevant provisions of the JOA, with respect to procurement of services Verify whether the ONGC have been provided with a list of entities from whom operator proposes to invite tender of contracts, as per the JOA. Examine the amendments / addendum to the above list. Examine the Operating Committee (OC) approval on the final list produced. Check whether the procurements are in compliance with the procedure outlined in the JOA/PSC Check on the adequacy of the contractual clauses and whether the structuring is wholesome.

Manual

3.To verify whether:

a) the detailing and cost break up in the AER (Authorization Expenditure Requests) is adequate

b) the activity under which the AER is prepared is under the ambit of approved budget and within the amount specified under the budget

c) timely communication and approval is sent to the Operator within the PSC guidelines Verify whether the detailing and cost break up given in the AER is adequate and in line with the provisions of the JOA/PSC. Verify the availability of budget for the AER being raised or amended

Verify whether timely communication and approval is sent to the Operator within the PSC guidelines

Verify whether the AER is being tracked on its utilization thereofManualManual

4To check the Internal controls existing within the JVOG group. Check whether an Authority Responsibility matrix and execution time lines exists as a part of systems and procedures to deal with Operators and have adequately been adhered to.

Check whether Non-operator audits have been regularly conducted as per the respective PSC's and the Audit issues / disputes have been resolved

Check whether a dispute resolution and an escalation process exist to address unresolved Joint Venture issues and examine its working.Manual

5To review the clauses on Transfer of Operatorship in JOA/PSC To check whether any transfer of Operatorship clause exists in JOA/PSC and the same has been complied with.Manual

6.To verify that the Insurance coverage obtained. To ensure that the insurance has been obtained as per the terms of JOA/PSC. To check whether the premium payment has been made regularly and applicable discounts have been availed.

OPERATOR AUDIT

1.To verify whether:

a) Information requirement in the billing statements is as per the details specified under the JOA

b) Monthly partner billings are generated with adequate account schedule Verify whether the monthly JIBs (Joint Interest Billings) are raised with adequate information.

The reporting format of the JIB is as per the relevant JOA.

Verify whether there is linkage exists between Cash Call and JIBs

Manual

2.To verify that the cash calls made by the Operator are as per the provisions of JOA/PSC

To verify that the Cash Call is made on time

To verify that the time allowed for payment is adhered to by all parties. To verify whether previous cash calls made are adjusted. To check the reconciliation between the amount of cash called and used is performed by the Operator

To analyse excess Cash Call received and non-utilisation of the same, interest on pending amounts etc.

To ensure that the information requirement in the cash call statements is as per the details specified under the JOA To check all parties are depositing their portion of cash call in the joint bank account in time.Manual

3.To ensure that the minutes of Operating Committee (OC) and Management Committee(MC) are adhered to. To obtain the minutes of all the OC and MC meetings held. To ensure that the decisions approved in the OC and MC meetings are being adhered to.Manual

4.To ensure the fulfillment of Minimum Work Programme by the Operator. To check whether the minimum work obligation as provided in the PSC/JOA has been fulfilled by the Operator.Manual

5.To check contractual payments and payment for procurement of goods and services.

To ensure that due diligence is exercised in verification of invoice and supporting documents for payment with respect to admissibility of expenditure as per contract clause.

To verify whether liquidated damages have been deducted for late delivery.

To verify that all procurement related expenditure is properly allocated between JV and NJV.

To ensure that the expenditure is within the approved limits of AER.

To verify that the contractor has complied with all terms and conditions of Contract.

Manual

6.To ensure that all employee related costs are properly allocated as per the terms of the JOA/PSC To verify whether Time writing of Employees of Operator is done for allocation of expenses to JV & NJV. (for National and Expat employees) To obtain the method of time writing being followed by the Operator. To review the time writing rates and any revisions thereof.

To check whether all employee related expenditure (including travel, Retirement benefits, housing, loans and advances etc.) are allocated to JV & NJV as per Time writing.

To check the provision related to allocation of Top management costs of the Operator to JV activity and ensure that the same has been adhered to.

Manual

7.To audit the JOA provisions regarding the allocation of Parent Company overheads. To ascertain whether there is a ceiling on the expenditure reimbursable to parent company as per JOA/PSC. To verify whether the head office expenses of Operator have been properly allocated to JV. To review the fee/overhead, if any, to be paid to Parent Company for its Operatorship and ensure that the payment is as per the provisions of JOA/PSC.

To verify the cost allocation and apportionment of common overheads is based on sound principle when the Operator has common office for more than one block/JV.Manual

8.To verify that the Insurance coverage obtained by the Operator is as per the provisions of JOA/PSC: To verify the insurance coverage has been taken by the Operator for materials as per the provisions of JOA/PSC.

To check whether the premium payment has been made regularly and applicable discounts have been availed.

To obtain a list of Assets where non operator had not agreed to pay premium and ensure that the premium has not been charged to JV.

Manual

9.To review and scrutinize the Accounts of JV operations

To review the trial balance of JV operations.

To review all the major accounts of the JV operations.

To review the compliance of the procedure for monthly accounts closure.

To ensure that the expenditures are properly allocated to exploratory and development Wells

To ensure that proper classification has been done for capital and revenue expenditure.

To review the accounting of sales and debtors.

To check that proper accounting/calculation has been done for impairment, depreciation, depletion and abandonment costs.

To verify whether the Joint venture expenditure have been booked with accuracy and properly allocated to JV and NJV(non-JV)

To check that the expenditure prior to the joining of ONGC in the block is not charged to ONGC

To ensure that if ONGC had no/reduced Participating Interest (PI) during the exploration phase, then the exploration expenditure is not charged or is charged as per the PI of ONGC.

To review the accounting procedure for Foreign Exchange conversion method and ensure that it is as per the JOA/PSC.

To ensure that the prior-period expenses are paid after proper due-diligence.Manual

10.To Audit the management of Inventory by the Operator. To verify if the inventory is not piling up and the inventory turnover is reasonable. To ensure that the provisions in respect of non-moving inventory, and valuation of inventories is as per generally accepted accounting principles. To ensure that Material verification is done as per the provision of JOA and discrepancies are settled.Manual

11.To Audit the services provided by the Affiliates of the Operator and ensure that they are as per the provisions of the JOA/PSC. To check whether approval is required from Non Operator for services provided by Affiliates of Operator as per JOA and the same has been taken.

To ensure that only the cost of services provided for the Joint Venture are being booked to JV accounts

Manual

12.To ensure that the payments made to consultants hired by the Operator are only for their services rendered to the Joint Operations. To obtain a list of consultants hired by the Operator for the JV operations.

To verify that all the payments made to the consultants are in relation to their services to the JV. In case, the consultant has worked on any non-JV assignment, ensure that the equivalent cost has not been booked to JVManual

13.To ensure that the cost of any exclusive operations being done by any one or more of the partners is not being booked to the JV account. To check whether JOA provides for exclusive operation in case of non acceptance of certain job by one or more JV partner. If yes, to ensure that the costs of exclusive operations are not allocated to JV.Manual

14To review the Audit report of External auditors and Government auditors for any adverse comments. To verify that the financial statements of the Joint Venture have been audited regularly by External Auditor as per the provisions of JOA/PSC.

Check for adverse comments in the audit report issued on trial balance of JV by external auditors and government auditors as provided in JOA.Manual

15.To verify whether the Operator has complied with the important regulations and provisions relating to HSE.

Verify whether the operator has a check list covering the important provisions of QHSE and check whether the Operator has complied with them.Manual

16To verify the calculation and payment of all statutory payments To check the calculation of all statutory payments like royalty, cess, excise duty, PEL fee, ML fee etc.

To ensure that all the statutory payments are made on time.

To scrutinize the various statutory penalties paid due to the failure on the part of Operator.Manual

17To verify the allocation of production quantities and provision regarding the sales to various parties as per the terms of PSC/JOA. To review the Oil production, Gas production and condensate production statements and tally the opening and closing balances.

To check the allocation of quantities to various JV partners/Government.

To check the sales of the products is being made as per the provisions of JOA/PSC or any other agreement between the parties.

To ensure that the relevant terms of COSA/GSA are being adhered to.Manual

18To verify the calculation of cost recovery/cost petroleum/Profit petroleum as per the JOA/PSC. To verify the calculation of cost petroleum/Profit petroleum as per the JOA/PSC.

To ensure that the cost petroleum/profit petroleum is allocated to the parties as per the terms of JOA/PSC.Manual

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