ENHANCING AUDIT THRU POLICY REFORMS

By Hon. Juanito G. Espino Jr. COA Commissioner

COMMISSION ON AUDIT
Principal MANDATE ARTICLE IX-D, 1987- CONSTITUTION Examine, audit, and settle accounts pertaining to the revenue and receipts of and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters. Exclusive authority to define the scope of its audit and examination, establish techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. Keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.

7-POINT PRIORITY AREAS OF THE COMMISSION ON AUDIT

7 - POLICY ISSUES (COA RESOLUTION NO. 2008-008 DATED JUNE 25, 2008)

POLICY ISSUE 1. Risk-Based Audit Approach Risk2. Revisiting Pre-Audit Pre3. Organizational Restructuring 4. Assessment of e-NGAS Implementation e5. Settlement of Accounts 6. Intensified Fraud Audit 7. Keeping of the General Accounts
4

RISK-BASED AUDIT APPROACH

Rationale  Innovation from comprehensive audit focus of the audit on risk areas/operation where losses likely to occur Designed to exceed the auditee expectations by aligning the audit process with managements needs to improve performance and managed agency risks Gives management and third party users of the financial statements higher level of assurance

RISK-BASED AUDIT APPROACH

a. Actions taken:
 Proposed changes to RBA Manual with Simplification/ Customization of Templates. It is now for deliberations by the Ascoms Group for presentation to the Commission Proper Created/Activated RBAA TWG in the sector Identified/Resolved issues and concerns within sector Simplified/Customized RBAA within the framework of ISAs/Best Practice Included techniques/procedures in financial analysis

   

RISK-BASED AUDIT APPROACH

As of 2008, the extent of RBA Implementation in the three (3) audit sectors is as follows: Sector LGS CGS NGS Total No. of auditees 1,905 123 3,323 % 74.20 65.85 93.62

RISK-BASED AUDIT APPROACH b. For Implementation:

 On-going simplification of the Manual  Customization/reduction of templates  Harmonization of all sectors (National, Local and Corporate)  Recommend to the appropriate Oversight Committee the institutionalization of Risk Management Process in all agencies  Issue policy guidelines on materiality level  Issue policy guidelines on sampling and to train Auditors on the adoption of the prescribed sampling methodology
8

REVISITING PRE-AUDIT
Rationale  Present policy needs to be revisited due to the following: a) Rising incidents of irregular, illegal, wasteful and anomalous disbursements of huge amounts b) Assessment of risk-prone areas in government operations shows inadequacy in internal controls as exemplified by the frequency of anomalies uncovered
9

Notices of Disallowance Issued

Year 2006 2007 2008 Total No. 397 534 186 1,117 Amount (PhP) 193,944,465.00 538,808,634.00 1,496,427,893.00 2,229,180,992.00

10

Notices of Charge Issued

Year 2006 2007 2008 Total No. 6 4 4 14 Amount (PhP) 173,728.00 2,751,686.00 7,425,298.00 10,350,712.00

11

Unliquidated Cash Advances CYs 2005 - 2008

Year 2005 2006 2007 2008 Amount in Billion pesos 16.311 9.268 13.819 10.586

12

REVISITING PRE-AUDIT
a. Action taken:
 The Commission has issued COA Circular No. 2009-002 dated May 18, 2009, as amended, entitled Reinstituting Selective Pre-Audit on Government Transactions Agencies excluded  GOCCs audited under team approach  National High School  Barangays Transactions covered by pre-audit  Cash Advance  Payment of first salary after appointment by transfer or reinstatement, last payment prior to transfer, payment of terminal leave
13

REVISITING PRE-AUDIT
a. Action taken cont.

Transactions covered cont.:

 Payment of infrastructure projects with respect to advance payment, first payment of progress billings, payment to variation orders which exceeds the limit provided by RA 9184, and claim of contract price variations. (With pre-determined threshold limit as indicated in the aforesaid Circular)

14

REVISITING PRE-AUDIT
a.         Action taken cont.
Transactions covered cont.:

All payments for road right- of- way Payment for procurement of goods and services which are over the threshold amount. Payment made thru ADA (suspended) Release of funds to NGOs/POs Transfer of funds between gov t. agencies Disbursements from trust funds of LGUs Disposal of real and unserviceable property, which are over the threshold amount.

15

Organizational Restructuring
Legal Basis and Rationale Under the GAA of the current and past years, COA and other agencies granted with fiscal autonomy are authorized to undertake a continuing reorganization within the limits of their appropriations  Recently, COA reorganized its structure for the following reasons: a) The structure would not allow COA to completely perform and effectively accomplish its constitutional and statutory mandates b) The developments in governance mechanisms affect the audit environment and demand appropriate audit responses in terms of methods and techniques to enhance accountability c) There is a need for COA to be realigned with the national governments thrusts towards decentralization and regionalization 
16

Organizational restructuring
a. Actions taken:  Issuance of Resolution No. 2008-012 dated October 10, 2008 directing the reorganization of COA with the following salient features:  Reduction of no. of Clusters in the operating sectors: NGS - from 8 to 4; CGS from 6 to 3; and LGS from 6 to 1  Creation of Departmental Scheme  Reinstitution of Provincial Scheme
17

Organizational restructuring a. Actions taken cont.:

Salient features cont.
 Creation of an Executive Management Committee composed of the Ascoms Groups tasked to deliberate on policy matters before the same are forwarded to the CP  Creation of Public Sector Accounting and Auditing Standard Boards headed by a Commissioner and concerned Ascoms as members

18

Organizational restructuring
Salient features cont.  Reinstitution of the Regional Coordination Office as coordinating arm and communication hub of the Commission  Reinstitution of the Information Technology Office to strengthen IT infrastructure and IT related services

19

Organizational restructuring a. Actions taken cont.:

 On November 11, 2008, Office Order No. 2008-256 was issued for the simultaneous assumption to office in December 2008 of Ascoms, Directors and Asst. Directors in the CO and ROs under the Organizational Restructuring Determination of Plantilla Position for all units of the Organization Resumption of Recruitment and Promotion On-going hiring of CPAs, lawyers and engineers Constituted Audit Groups and Audit Teams

  

20

Organizational restructuring b. Steps on-going this year:

 Manning of Audit Groups and Audit Teams  Issuance of Office Orders by the Chairman  Assumption to Office of Audit Groups and Teams  Determination of Plantilla of Positions for all units of COA

21

Keeping of the general accounts & Assessment of E-ngas

Rationale The keeping of the general accounts is one of the constitutional mandates of COA. Under COA Office Order No. 2008-109 dated June 25, 2008 a Technical Working Group (TWG) was created to study the restoration of keeping the general accounts of the National Government under the Government Accountancy Sector.

22

Keeping of the general accounts & Assessment of E-ngas

The study will include the reassessment of the present NGAS and e-NGAS, particularly on the following issues:  NGAS only prescribes registry for allotments and obligations, whereas under PD 1445 (Secs. 113, 117 and 119) prescribes obligation accounting Under NGAS, the Budget Officer maintains registry of allotments and obligations, whereas PD 1445 (Section 86) prescribes that the proper accounting official shall certify as to the availability of funds Since NGAS only prescribes maintenance of registries, there is reservation whether COA is complying with its constitutional mandate

23

Keeping of the general accounts & Assessment of E-ngas Salient Features a) Reconciliation of the appropriations, allotments, disbursements or liquidation and balances b) Recording of NCA as subsidy income c) Maintenance of NG books d) Coordination with DBM on fund releases

24

Keeping of the general accounts & Assessment of E-ngas

The assessment of the NGAS will include review whether it is compliant with the standards prescribed by the International Public Sector Accounting Standards (IPSAS). At present NGAS is compliant on the following standards prescribed by IPSAS:

25

Status of compliance of NGAS with IPSAS

IPSAS NGAS Status of Compliance

IPSAS 1 Presentation Financial Statements

Secs. 4, 72-81 of Partially of NGAS Manual for compliant National Govt. Agencies (NGAs) and Local Govt. Units (LGUs)

IPSAS 2 Cash Flow Sec. 79 of NGAS Substantially Statements Manual for NGAs compliant and LGUs

26

Status of compliance of NGAS with IPSAS

Status of Compliance

IPSAS

NGAS

IPSAS 5 Costs

Borrowing Sec. 4 of NGAS Substantially Compliant Manual

IPSAS 9 Revenue from Secs. 16-24 of Substantially Exchange Transactions NGAS Manual Compliant for National Government Agencies

27

Status of compliance of NGAS with IPSAS

IPSAS NGAS Status of Compliance

IPSAS 12 - Inventories

Secs. 43-44 of Substantially NGAS Manual Compliant for National Government Agencies

IPSAS 17 Property, Not compliant Substantially Plant and Equipment to IPSAS as compliant in regards to other policies Public Infrastructures

28

Status of compliance of NGAS with IPSAS

Status of Compliance

IPSAS

NGAS

IPSAS 18 Segment Under the Partially Reporting NGAS, agencies Compliant are required IPSAS 19 Provisions, NGAS Manual Compliant Contingent Liabilities for NGAs, Vol. 1, with IPSAS and Contingent Assets Chap. 2, Sec. 4.0

29

Status of compliance of NGAS with IPSAS

Status of Compliance

IPSAS

NGAS

IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers)

The NGAS Manual Partially Vol. III, Sec. 161 as Compliant clarified under COA Circular Letter 2004-004 provides that income collected by agencies required to be remitted to the National Treasury shall be recorded as credit to Due to National Treasury
30

Status of compliance of NGAS with IPSAS

IPSAS

NGAS

Status of Compliance

IPSAS 24 Presentation of Budget Information in Financial Statements

NGAS Vol. 1, Partially Chapter 2, Sec. 4g, Compliant Budgetary accounts are taken up in the registries

IPSAS 25 No specific policy Partially Employee Benefits provided Compliant

31

Keeping of the general accounts & Assessment of E-ngas

The Commission issued COA Circular No. 2008-003 dated December 24, 2008 which suspended the implementation of the revised PGCA

32

Settlement of Accounts
Rationale -

 Settlement of accounts was formerly done by

the COA LAS For prompt action and efficiency, settlement function was transferred to ATLs and SAs since they are responsible for the audit and examination of accounts

33

Settlement of Accounts
Action Taken -

The Commission has issued COA Circular No. 2009-006 dated September 15, 2009 re: Prescribing the use of the Rules and Regulations on Settlement of Accounts

34

Settlement of accounts COA has the following accomplishments for the settlement of accounts:
 430 decisions were proposed and approved by various offices in the amount of P9.918 billion Issued 186 NDs (1.496B), 4 NCs (P7.425M) and 30 NS (P24.583M) Issued 68 FOAs (P263.550M) of which 14 FOAs were settled (P7.559M)
35

 

Intensified fraud audit

Rationale
 This is in addition to temporary adoption of

pre-audit  Created Fraud Audit and Investigation Office (FAIO) tasked to conduct investigation and fraud audit through its initiatives or upon request from any office of the Commission or from third parties This is in collaboration with the campaign of the national government against corruption
36

Intensified fraud audit

Salient Features
 The

special audit team could re-open accounts already post-audited within three years from the date these were settled Could issue subpoena and take testimonies of witnesses Issue Notice of Disallowance/Charge Under the supervision of a Director and not under the direction of the audit sector

37

Intensified fraud audit Status of cases in CY 2008:

Particulars Beginning Balance Received Total Acted Upon ** Balance as of 12/31/08 No. of cases 100 880 980 528 452

38

Intensified fraud audit **Actions taken:

Actions Taken
Teams created to conduct audit investigations Evaluated/endorsed (not within jurisdiction) Forwarded to LAO/OGC Forwarded to OMB Filed (to records division/for archival) Proposed for issuance of office order creating a team Total

No. of cases
70 350 8 59 39

2 528
39

OTHER POLICY REFORMS BEING PURSUED BY COA

 Write-Off of Dormant Accounts (COA Resolution No. 2003-02 dated January 30, 2003)  Report of Unliquidated Cash Advances (COA Memo No. 2005-001 dated January 5, 2005)  Transfer of Funds to NGO/PO (COA Circular No. 2007-001 dated October 25, 2007)  Unbooked Valid Obligations (COA Memo dated March 28, 2008 to DBM Secretary)  Relief from Money/Property Accountability (COA Resolution No. 2009 002 dated January 22, 2009)  Submission of Contracts/Purchase Orders (COA Circular No. 2009-001 dated February 11, 2009)
40

1. Write-Off of Dormant Accounts

 

Authority to approve write-off To ASB- Below P1M Action prescribes in 10 years Civil Code Art. 1144 Upon written contract Obligation created by law Upon judgment Appeals from the decision of the Board to be brought before the Commission Proper
41

2. Unliquidated Cash Advances

Submission of List of officials/employees with outstanding cash advances: (a) P50,000 and above & (b) Aged 30 days or over from due date of liquidation Auditors Quarterly Report Referral of the report to the Office of the OMB or CSC Issued in accordance with the tripartite CSC-OMB-COA Solana Covenant as part of anti-corruption drive

42

3. Transfer of Funds to NGO/PO Govt. Organization funds to retain their character as public funds No portion of the funds to be released before signing of MOA NGO/PO to submit the final Fund Utilization Report COA to audit the grant and utilization of the funds. Results will be included in AAR, VFM, Special Report.
43

4. Unbooked Valid Obligations Under Sections 86 and 87 of PD 1445, COA could certify as to the validity of prior years unbooked obligations Under the present practice, COA may still adjudicate unbooked obligations when claimant files a money claim based on quantum meruit on a case-to-case basis (Sec. 26, PD 1445)

44

5. Relief from Money/Property

Accountability
To facilitate resolution, the power of the CP to adjudicate application for relief from money/property accountability was delegated to the following officials: Approving Officials Amount Involved

Supervising Auditor/ P50,000 below Head of the Audit Group Audit Cluster Director Over P50,000 up or Regional Director to P100,000 Adjudication and Over P100,000 up Settlement Board (ASB) to P1M Commission Proper Over P1M
45

6. Submission of Contracts/POs Contracts

 Submission of copy of the contract and supporting docs. within 5 working days from execution  Auditorial review within 5 to 21 working days from receipt

Purchase Orders
 Submission of copy of the contract and supporting docs. within 5 working days from execution  Auditorial review within the same period
46

6. Submission of Contracts/POs Action by the Auditor for noncompliance

 Issue AOM requesting compliance  Suspension in audit of the transaction  Recommend administrative disciplinary action against agency officials and employees concerned

47

Concluding Remarks COA theme CY 2009: Enhanced Audit Functions Thru Policy Reforms Tangible benefits Reforms can be achieved through many different ways

48

49