Keywords

audit; flow measurement; records; custody transfer metering; calibration; procedure; certification data; analysis equipment; audit principles; objective; evidence

Introduction

Information in this chapter should be supplemented by reference to other chapters for a complete understanding of the advantages and limitations of individual meters.

Physical auditing, as opposed to financial auditing, is a formal periodic examination and check of the flow measurement equipment and procedures of a specific company and/or location. It should include field and office operations from the measurement source to the end user, including data reports, overall performance, field operation, data handling, calculation, accounting, and final billing.

The client for which an audit is performed will be best served by using personnel to conduct the audit who are not directly concerned with the flow measurement system being audited, or by hiring outside independent specialists with a proven track record rather than performing the audit in-house. The outside viewpoint has no axe to grind and will usually provide a more thorough and valid report. Also, the specialists in this field bring a wealth of experience and knowledge, and they know where to concentrate efforts for the most benefit to the client.

When money is exchanged for measured fluids, the agreement will usually include a means of auditing the quantities obtained. Sufficient operation and maintenance records should be made available to all parties so that the calculated quantities can be determined independently. At least a check of the values used by the other party should be made to see that agreement is reached on the calculated quantities.

This procedure is an important aspect of custody transfer metering and is usually completed within 30 to 60 days after the required data is processed. It will keep both parties involved and prevent disagreements about procedures and quantities at some later date. With the data still current, any disagreements can be settled while knowledge of the measurement is fresh in the minds of both parties.

A complete record of all disagreements must be maintained, including their resolutions. Records can be reviewed to see if a particular meter station or particular differences are recurring problems that need to be addressed by an equipment or maintenance upgrade. Most flow metering is done with the help, if not the specific use, of computers. This, therefore, is where much of the information can be found. However, a meaningful audit should go beyond just data review and include some analysis of the data’s quality.

The following is a general overview of items related to meters typically included in gas and liquid audits.

Gas Meters

Liquid Meters

Analysis Equipment

Audit Principles

Flow measurement is the cash register of our business, and minimum uncertainty directly relates to profit control. The principles of an audit are the same for gas or liquid operations (as outlined by the Institute of Internal Auditor procedures) and the audit should:

The specifics of a gas flow and liquid flow measurement audit are quite similar, except that gas audits may involve chart integration, manual or electronic, and liquid audits include run or batch tickets.

Objective

The audit’s objective is a broad description of what is intended to be accomplished. It should address the risk associated with a specific activity. It should be stated clearly, so that procedures, evidence, and testing are clearly outlined. A clear objective helps other audit participants to understand the scope and to determine the level of liability. It sets limits for the work to be done.

The scope of a measurement audit can include confirming and proving any or all of these areas:

The level of risk that management is willing to accept will determine the depth of the audit and the significance of deviations plus the need for correction.

Procedures

Audit procedures prove and test how well internal controls are working. Procedures detail how each testing is required to meet the audit objective given the internal controls that are in place. Proper internal control should be verified. However, this condition should be proven with minimum audit procedures or definitive testing.

Evidence

An audit of flow measurement requires collecting, analyzing, interpreting, and documenting sufficient useful information to support audit results. If information is available in computerized form, data collection is simplified.

Audit evidence forms the basis of audit conclusions, opinions, findings, and recommendations. Evidence should be correct and relevant to the objective. It should be complete enough to ensure that another auditor would come to the same conclusion. Evidence includes:

Any form of evidence can be used to meet the audit objective. However, each must be applied with an understanding of its limitations and weighted accordingly. While testimonial evidence is relevant, it must be corroborated by both parties, because the possibility of bias can make accuracy questionable. Physical evidence is the most basic, but gives no information about ownership or value. Also, information may be biased as people defend their behavior. Documentary evidence is a report of test work done. It is one step removed from the actual test event or activity. Money is exchanged on the basis of the document, and it should be checked by witnessing actual tests. Analytical evidence can point to the need for further checking before drawing conclusions.

Definitive Testing

Definitive testing consists of detailed testing and analytical procedures designed to detect quantity misstatements or significant control weaknesses. There are two kinds of statistical testing; quality and variable. Quality testing ascertains the probability that a specific condition does exist. It is a “yes/no” test and is useful for determining whether internal controls are in place and working. Variable testing allows auditors to make probability statements about values and amounts. It is used to test quantities—volumes, dollars, time, and similar variables.

When the test population is large, statistical sampling is usually employed. This allows the auditor to:

After evidence has been gathered and definitive testing is completed, the auditor, using the facts and professional judgment, forms an audit conclusion. If the auditor concludes that significant deviations occur in tested areas, he or she will write a detail report. A detail report includes a condition statement, criteria, root cause, risk, and a response from the entity audited. Background information, findings, and recommendations for corrective action should be included.

In reviewing flow measurement procedures, the auditor provides assurance that trained personnel are measuring the product and following proper procedures with appropriate equipment and control.

In any of the audits listed, one of the first decisions to be made is to determine whether all stations should be audited, or if it would be more cost effective to select only a smaller group of stations. Because of limited time, manpower, and costs involved, not all meter stations are audited often. Each company should choose the stations to be included. The type of station (receipt, transportation, or delivery) may not be as important as evaluating:

The majority of pertinent data may be computerized, with electronic equipment performing calculations from electronic transducers plus data transmission and storage. Internal audits should be set up to compare field information from site inspections to the stored data used to perform calculations. Calculations may include equipment verification (plate changes, transducer calibrations, etc.), meter and peripherals testing frequencies, test results, lost and unaccounted reports, and contract requirements.

Sources of Information

Auditors depend on other people (field technicians, outside companies, other departments), copies of paperwork, charts and computer-generated reports for the necessary data. None of these sources is completely error free, so it is important to compile all required documents before beginning the audit. Separate files should be set up for each meter station chosen for the audit.

What information is required? The information required to perform a thorough assessment during any audit is the same regardless of the reason(s) an audit was deemed necessary.

To begin an audit, a letter or memo should be written to the operating company stating precisely what is being requested and why. This request should include, but is not limited to:

Contract Review

The next and very important step will be to obtain a copy of the contract and/or tariff to help identify the extent of controls intended to regulate the flow measurement quality. Each company has its standard contract, defined by using guidelines set by AGA, API, and other organized industry groups. Reviewing these contracts will reveal special provisions pertaining to each individual station. Areas that should be included in the evaluation:

Field Measurement Equipment Review

It is vital for all locations, whether in the main offices, field locations, outside companies, or other departments, to use the same data for their jobs. Verifying the following information can eliminate possible areas of differences:

More in-depth reviews may include drawings of the meter site that show the length of the meter tube, and location of taps and direction of product flow and/or physical inspection of the internal condition of flow meters and meter tubes. This will also help determine the location of regulators, valves, dehydrators, scrubbers, storage tanks, production treating and processing units, and any other equipment located near the meter that could directly or indirectly affect measurement uncertainty. In addition, inspection of the internal condition of meters and/or meter tubes can also identify fluid conditions that could affect measurement uncertainty. There may also be a third party check meter at the site for measurement comparison.

Data Review and Comparison

After reviewing the contract, securing the information needed, and determining what equipment is being used, various documents can be compared to spot any inconsistencies. The comparisons should include:

Auditing Gas Measurement Systems

Several types of gas audits can be run so the extent of the audit must be determined. (The same general concepts can be applied to liquid audits.) It is important to define the “why and what” involved with the audit. Methods broadly include:

Different steps can be used for internal audit, so the client for which the audit is being conducted should define the desired procedures. Regardless of the approach used, the final objective is the same: to validate information received from the field with data used within the computer system for calculation purposes. Typical information can include:

Chart Review

Upon receiving charts, each group should be arranged by date and time. Review and censor each chart before integrating. Some items to look for:

Now charts can be reintegrated. Remember, do not use ink as this will obscure the original integration; use either onionskin or dry ink. There are accepted industry standards for integrating charts, but the practices can vary from company to company.

Upon completing reintegration, compare integrator readings and volumes created from the audit against original readings and volume statements. Discrepancies can be caused by differences in integration practices, invalid factors, hours of flow, etc. If the difference is greater that the contractual allowable tolerances, an adjustment may be warranted. If an adjustment is not warranted, the difference should be documented and included in an accounting for “lost and unaccounted.”

The major difference between chart review and EFM review is how information is viewed. Charts have a visual flow pattern. EFMs provide numerical patterns. But the concept is the same. Look for abnormalities in the flow pattern, factors used for calculations, characteristics, event logs, and editor change log. When an audit cannot be completed with the above information, it may be desirable to request the raw, original unedited data.

Most companies incorporate a recalculation program that enables them to recreate the daily volumes that can be used for comparison purposes. Again, the contractual agreement should address the tolerance for allowed discrepancies.

Auditing Liquid Measurement

Auditing liquid measurement requires combining a solid knowledge of the measurement process with sound auditing techniques. Just as with the gas audit, steps in a liquid audit should:

A liquid audit may involve tank gauging, truck loading systems, and/or barge loading systems. It will obviously relate to measurement systems designed specifically for liquid measurement. The most common meter types encompassed are orifice, liquid turbine, and PD, with growing use of ultrasonic and Coriolis meters—and much less frequently, vortex-shedding.

Finalizing the Audit

If a complete gas or liquids system audit review still leaves doubts, ask questions. Review documents again. Do whatever is required to satisfy the unanswered questions. If adjustments are warranted, a letter should be written to the operating company with specific explanations and findings plus an offer of supporting documents. It is important for the auditor to be open-minded and fair; it should not matter who is at fault if a mistake is found. The important thing is to find and correct the error.

Conclusion

Because we are human and susceptible to mistakes, ensuring accuracy is the primary focus of any audit. It is important to verify that contractual agreements are being met and thus properly account for product measured through any system.

Custody transfer measurement begins with a contract between two parties that specifies the data needed to choose a metering system. To get the most accurate measurement required to minimize settlement problems, the maintenance and operation of the system must be controlled so that the potential performance capabilities of the meter may be realized in service. An audit is a controlled study to demonstrate these performance capabilities.

A properly run audit will protect the client’s interest and revenues. These contractual requirements also form the basis for resolving any disputes or litigation between seller and buyer. Properly conducted, audits should improve business relations by imparting useful knowledge to all concerned.