Rock Does Not Lie: Physical-Financial Reconciliation for the Verification of Deferred Stripping Tax Claims

Deferred stripping — the capitalisation of waste-removal costs in open-pit mining under IFRIC 20 and analogous national tax rules — is among the largest recurring discretionary judgements in extractive-industry taxation, and among the least auditable. Conventional audit analytics test financial records against other financial records; because the taxpayer authors every document in a stripping computation, such ledger-versus-ledger methods are structurally blind to misstatement in this domain. This paper introduces Physical-Financial Reconciliation (PFR): a verification paradigm that treats a financial claim as a falsifiable hypothesis about physical reality and tests it against an independent reconstruction of the mine’s excavation history, built exclusively from taxpayer-produced technical evidence (survey surfaces, block models, fleet and fuel records) and public satellite archives. We formalise the paradigm, derive an exact audit-grade decomposition of disallowable deductions into ineligible-content, fictitious-volume, and allocation-ratio components, and present ONYX-DS, an open reference implementation. On a physically consistent synthetic mine-year with four manipulation schemes injected — expected-strip-ratio inflation, cost-pool stuffing, phantom volumes, and development/production boundary abuse — the engine identifies every scheme with quantified, evidence-cited adjustments totaling K53.5M, while returning zero findings on the honest control derived from identical physics. All results are simulation-based and fully reproducible; establishing field performance is explicitly identified as future work. We discuss evidentiary posture, adversarial robustness, and implications for revenue administrations in resource-dependent developing economies.

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