Utilizing our experience with joint venture audits, JVSA tailored a two-tiered, risk-based audit program, which focused first on the expenditures with the highest likelihood of having a material over charge to our client, and secondly on areas that were mutually agreed to be lower risk. This customized approach allowed the fund to have certainty that if the audit period expired, the highest risk areas had been covered first. A preliminary audit was conducted on these expenditures, which identified large cost over-charges to the fund. Based on the results of the preliminary audit, the second audit was conducted on remaining expenditures and further over-charges were identified.

Beyond the financial benefits of conducting the joint venture audit (which were close to ten times the cost of the audits), the client also was able to report back to shareholders that proper procedures were being followed and due diligence was being performed. Furthermore, the client was able to approach its partner about its concerns and have open and informed communication, which increased the mutual trust between the two parties moving forward.

The investors in the fund expressed a desire for management to audit and analyze these costs as part of their due diligence on making the investment. However, management did not have the resources or expertise in-house to conduct such an audit and reached out to JVSA for assistance in both designing and executing the audit.

The drilling program, which the fund had invested in, featured expenditures of close to $200mm and included multiple wells with differing working interests, including some wells in which our client did not participate in. Additionally, the fund’s right to audit the expenditures was set to expire within four months, and as such, a significant volume of costs had to be analyzed in a short period of time.