ENHANCING AUDIT THRU POLICY REFORMS By Hon. Juanito G. Espino Jr. COA Commissioner

1. ENHANCING AUDIT THRU POLICY REFORMS By Hon. Juanito G. Espino Jr. COA Commissioner

2. 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.

3. 7-point priority areas of the commission on audit

4. 7 - POLICY ISSUES (COA RESOLUTION NO. 2008-008DATED JUNE 25, 2008)

5. 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 management’s needs to improve performance and managed agency risks • Gives management and third party users of the financial statements higher level of assurance

6. Risk-based audit approach • 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

7. Risk-based audit approach As of 2008, the extent of RBA Implementation in the three (3) audit sectors is as follows:

8. 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

9. Revisiting pre-audit • Rationale – • Present policy needs to be revisited due to the following: • Rising incidents of irregular, illegal, wasteful and anomalous disbursements of huge amounts • Assessment of risk-prone areas in government operations shows inadequacy in internal controls as exemplified by the frequency of anomalies uncovered

10. Notices of Disallowance Issued

11. Notices of Charge Issued

12. Unliquidated Cash Advances CYs 2005 - 2008

13. 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

14. Revisiting pre-audit a. Action taken con’t. • Transactions covered con’t.: • 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)

15. Revisiting pre-audit • Action taken con’t. • Transactions covered con’t.: • 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.

16. 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: • The structure would not allow COA to completely perform and effectively accomplish its constitutional and statutory mandates • The developments in governance mechanisms affect the audit environment and demand appropriate audit responses in terms of methods and techniques to enhance accountability • There is a need for COA to be realigned with the national government’s thrusts towards decentralization and regionalization

17. Organizational restructuring • 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 a. Actions taken:

18. Organizational restructuring a. Actions taken con’t.: Salient features con’t. • 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

19. Organizational restructuring Salient features con’t. - • 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

20. Organizational restructuring • Actions taken con’t.: • 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

21. 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

22. 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.”

23. 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

24. Keeping of the general accounts & Assessment of E-ngas • Salient Features – • Reconciliation of the appropriations, allotments, disbursements or liquidation and balances • Recording of NCA as subsidy income • Maintenance of NG books • Coordination with DBM on fund releases

25. 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:

26. Status of compliance of NGAS with IPSAS

27. Status of compliance of NGAS with IPSAS

28. Status of compliance of NGAS with IPSAS

29. Status of compliance of NGAS with IPSAS

30. Status of compliance of NGAS with IPSAS

31. Status of compliance of NGAS with IPSAS

32. 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

33. 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

34. 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”

35. 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)

36. 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

37. 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

38. Intensified fraud audit Status of cases in CY 2008:

39. Intensified fraud audit **Actions taken:

40. 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)

41. 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

42. 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 • Auditor’s 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

43. 3. Transfer of Funds to NGO/PO • Gov’t. 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.

44. 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)

45. 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:

46. 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

47. 6. Submission of Contracts/POs • Action by the Auditor for non-compliance • Issue AOM requesting compliance • Suspension in audit of the transaction • Recommend administrative disciplinary action against agency officials and employees concerned

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

49. 1 Maraming Salamat