WorkflowHydrocarbon Accounting, Joint Ventures & Land

Cost Recovery Audit

Cost recovery audit that tests each claimed cost line against the production sharing contract, and shows what each ruling does to the split.

See the demo Book a demo

Follow one overhead item from finding to signature ↓

The problem

An interim overhead rate nobody replaced, still running when the state arrives

Finance pulls the statements by year, and the oldest years come out of a closed system as an export. Auditors sample lines in spreadsheets, because nobody can test millions of them by hand. Someone reads the contract, its accounting annex and years of ministry letters, and a letter that ended a rule is easy to miss.

Overhead gets recomputed if anyone remembers the scale. Affiliate charges are chased by email and old proof sits in boxes off site. The exceptions land in a list, and what each one does to cost oil and profit oil waits for one modeler, late, while the reason for each ruling lives in somebody's inbox.

Built forCost recovery auditorsAudit leadsFinancial controllersContract counselInternal auditors

The Problem Today

Costs sit for years before audit, and each disallowed dollar moves value between the state and the contractor.

12.8%: of one other offshore block's cost balance open to dispute our estimate

Tested by hand today

Overhead
Affiliates
Allocations
Old records

Interim rates that never endA stand-in rate can outlive the letter that allowed it
Judgment hides in totalsHard calls sit buried under millions of lines

The Solution

Each line testedEvery cost line read against the contract, its annexes and letters
Charges recomputedOverhead and affiliate bills redone on the contract's own terms
Proof found or flaggedInvoices, tickets and boxes traced across the old and new systems
The split moves in draftRule on an item and see each side's take change before anyone signs

Built-in controls

A second person signs each ruling
Agents never rule, sign or change a source
Judgment calls stay with people

What You Get

Auditors meet the state's audit knowing each exception, its proof and what it does to the split.

The claim as one waterfallAll years at once, with exceptions peeling off by family
An evidence pack per exceptionClause, records, ruling and both signatures in one file
Ready for the state's requestsEach request tied to its items, with a clock

One item, ruled and countersigned

A cost recovery audit of one overhead item, from finding to the state

The contractor's own audit team tests sixteen years of claims before the state's audit opens. The largest exception is head office overhead charged at a flat rate the contract never set. Here it goes from finding to signature, and into the split.

demoThe block, its people, the contract, its letters and its money are sample data.

01Morning
$146.7M of $1,240.0M peels away in eleven families
Audit lead
The claimed years rise as one waterfall, and the questioned slice is zoomed out beside it, family by family, with overhead at the top. A balance beside it holds the state and the contractor as filed, with signed and draft moves kept apart. The panel below names her next step: the overhead item, due in two days.
02Morning
Flat 5% for sixteen years, where the contract sets 3%, 2% and 1%
Audit lead
The agent's view is marked as a view, not a ruling. It traces the flat rate to a ledger set-up note that took it as interim until the scale was loaded, which never happened. It says the rule itself is no judgment call, because a waiver must be in writing and state its period. Then it lists what stays open.
03Morning
The waiver the ledger kept using covered nine months
Audit lead
She opens the ministry letter herself. It accepts a flat charge for one drilling campaign, from April to December of one year, and says the accounting procedure otherwise stands. A finance memo then kept the flat rate in the ledger until further notice. That memo is why 132 monthly lines sit above the scale after the letter ran out.
04Morning
Above the scale, year by year: $38,200K
Cost recovery auditor
The auditor who prepared the item can defend each row. Direct cost, the flat charge, what the three bands allow and the gap between them, for each year. The first year waits on a question to counsel. The letter's year counts only January to March, and the item itself names that straight quarter as a soft spot.
0509:26
Disallow $33.0M, with the first year held for counsel
Audit lead
She disallows the item with the reason that the contract rule is clear. The first year's $5.24M stays out of the ruling until counsel says whether that year is still open. The balance tips at once, and the screen marks the move as a draft until the controller signs. She cannot check her own ruling.
06Before 09:30
Both sources turn green before the sign button wakes
Financial controller
The controller opens the scale and the ministry letter himself, and each turns green under his name; the audit lead's clicks are hers alone. Only then can he sign, send the ruling back, or disagree and send it to counsel. An open question with counsel would stop all three.
0709:30
Signed, and the move lands in the years that recovered the cost
Financial controller
Signed rulings now run through the full entitlement, year by year: value, the cost ceiling, cost recovered, carry-forward and the state's share by tranche. Against the statements as filed, signed rulings move $22.4M to the state. State plus contractor still equals value in each year, so anyone can check the sum.
08Late morning
Five questions with counsel, and each one freezes its item
Contract counsel
The agent shows the words and the dates, and gives a reading marked as no advice. On whether the first year is still open, it will not answer at all: the notice holding it open came four days late. Until counsel answers, nobody can rule on or sign the items behind a question.
09Afternoon
37 days to the reply, and the overhead request is ready
Audit lead
The state's notice lists 14 requests. Each is tied to the items behind it, and the overhead request now reads 1 of 1 signed. Nothing goes to the state until counsel releases it, and the reply carries no counsel note and no doubt. The internal evidence pack keeps both, for the team.

Where the $38.2M of overhead above the sliding scale came from

One rate, three stretches. Only the letter's nine months had anything in writing behind them.

Stretch	Monthly lines	Above the scale
Interim rate, before the letter took effect	51	$18.1M
The letter's nine months	None questioned	Stays as claimed
Kept by a finance memo, after the letter ended	132	$20.1M
The item	183	$38.2M

demoSample data, from the working solution. The first year's $5.24M sits inside the first stretch and waits on counsel, so the ruling moves $33.0M.

What is questioned, and how much of it is judgment

The agents give a view and state a doubt on each item. On judgment items they refuse to rule.

Contract rule items	$59.6M
Judgment items, 17 of themA rate card sent with a budget, a minute that notes a forecast, a paid invoice with no field ticket	$87.1M
Questioned	$146.7M
Not questionedA person accepted the sample that stands for these lines	$1,093.3M
Claimed	$1,240.0M

demoSample data, from the working solution.

Around the audit

Judgment calls, affiliate bills, old records and the passed-line sample

The rest of the audit team's screens on the same claim.

Items filtered to judgment calls: 17 items worth $87.1M, each with the agent's view, where it is, who has it and the due date — **Judgment calls**17 items, $87.1M, where the agents give a view and a doubt and people decide. Each shows who has it and when it is due.

Affiliate charges: billed amount against cost shown for four charges, with the amount questioned and the records held for each — **Affiliate charges**Billed against the cost an affiliate can show, under a clause that allows no profit. Four charges fail, and one waits on timesheets with no reply.

Recoverable costs audit records: old finance system, off-site boxes, the ERP and documents, with five recalled boxes not yet returned — **Records**Four stores, from the one-time export of the old system to the boxes off site. Five recalled boxes are not back, so the item behind them cannot be ruled on.

Passed lines: 1,250 drawn at random, 1,243 agreed, 0.56% error against a 1.00% limit, and the seven lines that moved into items — **Passed lines**1,250 lines drawn at random, 1,243 agreed, 7 moved into items: 0.56% against a 1.00% limit. The audit lead accepted the sample by name.

Restated cost statement by family: questioned, signed out, signed allowed, draft and open, with the three people who must agree — **Restated statement**Only signed rulings go in, family by family, with drafts and open items listed apart. The audit lead proposes, counsel clears and the controller countersigns.

Audit trail with the overhead ruling and its countersignature at the top, and earlier rulings, answers and box recalls below — **Audit trail**Each agent step and each human ruling, newest first, with the second signature named. Entries cannot be edited, and the trail exports.

demoSample data, from the working solution.

The agents

The line tester never disallows, and the exception writer never rules

They read, test, find and write. A person rules on each item.

Statement reader

Reads statements into lines and ties them to the ledger.

Never changes a source
Holds unreadable lines

Contract reader

Turns the contract and its letters into tests with clauses and years.

Never treats silence as approval
Never reads a disputed clause alone

Line tester

Tests every cost line.

Never disallows
Never drops a line

Overhead and affiliate tester

Recomputes the overhead scale and compares affiliate bills with cost.

Never estimates an affiliate's cost without saying so

Records finder

Finds proof across four stores and recalls boxes.

Calls a record lost only when a person agrees
Says not found, never that it never existed

Exception writer

Writes each item and its evidence pack.

Never rules
States the doubt on each item

Split calculator

Runs the entitlement as filed, signed and in draft.

Never calls a draft final
Must tie to value

Rulings on cost oil that stay with named people

The agents test and propose. These stay with the audit team and counsel.

Whether a cost is recoverableThe auditor rules on small items and the audit lead on large ones. The controller countersigns large items, and nobody checks their own ruling.

What the contract meansCounsel answers contract questions. While one is open, its item can be neither ruled nor signed, and a ruling against her answer goes back to her.

Whether a record is lostThe records finder reports not found. Calling a record lost takes a person.

What goes to the stateCounsel releases each reply. It holds clause, lines, records and the agreed position, with no doubt and no counsel note.

What controllers and audit leads ask about a cost recovery audit

What is a cost recovery audit?

A cost recovery audit tests the costs a contractor claims under a production sharing contract against that contract, its accounting procedure and the letters that changed it. Here agents test each line, group what fails into items with a clause and a stated doubt, and people rule. Each ruling shows what it does to cost oil, profit oil and each side's take.

Who runs it, the contractor or the state?

Either. The working sample shows a contractor's own audit team testing its claims before the state's audit opens. The same work fits a state audit unit or a national oil company testing a contractor. It applies only where a production sharing contract applies, since royalty and tax concessions have no cost oil.

How does it read the PSA accounting procedure and the ministry letters?

The contract reader turns the contract, its annexes and the letters into tests, each with its clause and the years it covers. It looks for the letter that changed a rule and the date that change ended, and it treats silence from the ministry as no approval.

What does a disallowance do to cost oil and profit oil?

A disallowed cost leaves cost oil and joins profit oil, so value moves from the contractor to the state at the state's profit oil share. The split calculator runs the full entitlement for each ruling, with the cost ceiling and carry-forward, so the effect lands in the year it belongs to.

Do you test every line or a sample?

Every line is tested by the agents. The lines that pass stand as one population, and a person tests a random sample of them and accepts the result by name, against a limit set in advance.

Can the agents rule on the hard calls?

No. On judgment items, such as whether a rate card sent with a budget was approved, the agents give a view and say what they doubt. The audit lead or auditor decides, and the controller's signature makes the move in the split real.

Hydrocarbon Accounting, Joint Ventures & Land

Test one year of claims
before the state does.

Send us one year's statement and its ledger, and see each line tested against your contract.

Book a demo Browse solutions

Cost Recovery Audit

An interim overhead rate nobody replaced, still running when the state arrives

The Problem Today

The Solution

What You Get

A cost recovery audit of one overhead item, from finding to the state

$146.7M of $1,240.0M peels away in eleven families

Flat 5% for sixteen years, where the contract sets 3%, 2% and 1%

The waiver the ledger kept using covered nine months

Above the scale, year by year: $38,200K

Disallow $33.0M, with the first year held for counsel

Both sources turn green before the sign button wakes

Signed, and the move lands in the years that recovered the cost

Five questions with counsel, and each one freezes its item

37 days to the reply, and the overhead request is ready