PA 231 Fiscal Administration

MODULE 3C. Auditing Process on the Budget Approval and Budget Execution: The Role of
Commission on Audit

Report Outline

1. Who is Commission on Audit?

a. Who gave the COA the power?
b. Constitutional Commission
2. P.D. 1445
a. Overview on the chapters
b. Focus on the Title II – Government Auditing
3. SAO Report on the PDAF
4. IBP Audit Case Study on the PDAF
5. Checks and Balances: Audit and Accountability in the Philippine Public Finances
6. 2009 Revised Rules of Procedures of the COA
PA 231 Fiscal Administration

MODULE 3C. Auditing Process on the Budget Approval and Budget Execution: The Role of
Commission on Audit

Slides

Slide 1 Introduction on the Topic:

Good evening, everyone. I will be discussing the Module 3c: Auditing Process on the
Budget Approval and Budget Execution: The Role of Commission on Audit.

The past modules have already given us a full discussion on the fiscal administration.
The fundamentals, the national budget process, the different sources of income, and
different budget process on GOCCs and LGUs. This report will give us a glimpse of the
auditing process.
Slide 2 This will be the outline of my report,
First, we will look on who is Commission on Audit. Where did it get its functions and
power to audit?
Second is the PD 1445.
After that, we will discuss the Special Audit Report on the PDAF or the Pork Barrel
Fund.
Slide 3 First, let us look for the different government accountability agencies.
Slide 4 The office of the ombudsman,
The protectors of the people shall act promptly on complaints filed in any form or
manner against officers or employees of the Government, or of any subdivision,
agency or instrumentality thereof, including government-owned or controlled
corporations, and enforce their administrative, civil and criminal liability in every case
where the evidence warrants in order to promote efficient service by the
Government to the people
Slide 5 Next is the SANDIGANBAYAN,
This agency covers criminal and civil cases against graft and corrupt practices and
other offenses committed by public officers and employees with Salary Grade 27 and
above, including those in local government units and government-owned or
controlled corporations, which are related to their official duties as determined by
law.
Slide 6 Next one is the Presidential Anti-Corruption Commission
It shall directly assist the President in investigating and/or hearing administrative
cases primarily involving graft and corruption against all presidential appointees, as
defined in Sec. 5 thereof, and to perform such other similar duties as the President
may direct.
Slide 7 The Civil Service Commission: It is the central personnel agency of the government
and is tasked in the recruitment, building, maintenance and retention of highly-
competent and professional workforce.
Slide 8 The Commission on Audit (COA) is the Philippines' Supreme State Audit Institution.
The Philippine Constitution declares its independence as a constitutional office,
grants it powers to audit all accounts pertaining to all government revenues and
expenditures/uses of government resources and to prescribe accounting and auditing
rules, gives it exclusive authority to define the scope and techniques for its audits,
and prohibits the legislation of any law which would limit its audit coverage.

The COA is a Constitutional Commission (together with the Comelec, and CSC). Its
power and function are all mentioned in the Article IX of the 1987 Constitution.
Slide 9 The power and functions mentioned in the Article IX-D of the 1987 Constitution,
which can be found in the COA Website, are:
1. Examine, audit and settle all accounts pertaining to the revenue and receipts of,
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MODULE 3C. Auditing Process on the Budget Approval and Budget Execution: The Role of
Commission on Audit

and expenditures or uses of funds and property owned or held in trust by, or
pertaining to, the government.
2. Promulgate accounting and auditing rules and regulations including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant or
unconscionable expenditures, or uses of government funds and properties.
3. Submit annual reports to the President and the Congress on the financial
condition and operation of the government.
Slide 10 4. Recommend measures to improve the efficiency and effectiveness of government
operations.
5. Keep the general accounts of government and preserve the vouchers and
supporting papers pertaining thereto.
6. Decide any case brought before it within 60 days.
7. Performs such other duties and functions as may be provided by law.
Slide 11 Before discussing the Presidential Decree No. 1445, let us first look at overview of the
Auditing Process.
Slide 12 This diagram is grabbed from the Financial Audit Manual

The first phase is the Preliminary Engagement Activities, which ensures the
engagement team’s independence and compliance with ethical standards. The
purpose of audit is to enhance the degree of confidence of the intended users of
financial statements, the public. Throughout the engagement period, no threats to
independence of the audit engagement and that members of the team comply with
relevant ethical standards. These threats may take form of conflict of interest,
individual value system, and familiarity with key management officials. The team
should also possess appropriate competence and capabilities perform audit
procedures in accordance with professional standards and legal requirements and
issue an appropriate opinion. Due professional care is also exercised requiring the
auditor to exercise professional skepticism.

After the ensuring the team’s independence and compliance with ethical standards,
the auditor should define the terms of audit engagement. These terms shall be
established before the commencement of the audit of a certain financial period. It
should be in a written format, which includes the objective and scope of audit of
financial statements, responsibilities of both the auditor and management,
identification of the applicable financial reporting framework, expected form and
content of any report to be issued by the auditor, and a statement that the form and
content may differ from the expected due to different circumstances. The terms of
engagement shall be communicated to the management. There is no need to seek
conformity by the auditees with the terms of engagement because COA is
constitutionally and legally mandated to audit all government agencies.

The second phase is the Planning Phase involves the preparing the overall audit
strategy, conducting risk assessment, and preparing the audit engagement plan.
Establishing the overall audit strategy involves setting the scope, timing, and
direction of the audit.
The Audit Engagement Plan should include the fundamental elements: updating the
overall audit strategy, preparing the audit program, and preparing the engagement
planning memorandum. The overall audit strategy that was done during the first
phase should be updated to consider the result of risk assessment. The Audit
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MODULE 3C. Auditing Process on the Budget Approval and Budget Execution: The Role of
Commission on Audit

Program contains the audit procedures to be performed for a specific audit objective
for the accounts and the risks identified. The engagement planning memorandum
sets out the objectives of the audit and spells out how the auditor aims to achieve
these objectives. It serves as a blueprint of the financial audit after the Planning
Phase and contains the detailed audit procedures to be performed.

The third phase is the audit execution phase. The audit activities contained in the
approved EPM and the Audit Program are pursued to ensure that audit procedures
are performed as planned and on time. During this phase, the auditors will execute
the audit tests, then summarize the audit observation and recommendation and
communicate with those charged with governance, and lastly conduct exit
conference with management subject to the approval of the Supervising Auditor or
Regional Supervising Auditor.

The fourth phase shall be the reporting phase. After the sufficient and appropriate
evidence has been obtained, the auditor will prepare the independent auditor’s
report on the audit of the financial statements of the agency.

And lastly, the quality control. After mapareceive ang annual report sa management,
meron pong isang office, the Quality Assurance Office, will choose po who will be
subject to the Quality Control Review.

Unmodified Auditor’s Report is rendered when the auditor concludes that the
financial statement is free from material misstatements and are prepared in
accordance with the applicable and appropriate standards.
The Modified Auditor’s Report is rendered if the author concludes that the financial
statement is not free from material misstatements, or is unable to obtain sufficient
appropriate audit evidence to conclude that the financial statement as a whole are
free from material misstatement. It can either be qualified opinion, adverse opinion,
or disclaimer of opinion.
Slide 13 Next are the COA Reports published and produced by the Commission;
1. The Regular Annual Audit Report – bale ito na yung AAR na usual na napo-
produce;
2. Consolidated Financial Report – this is produced Annually kung saan
maproduce and financial position ng buong agencies. May iba’t ibang volume
sya per National Government Agencies, Government Corporations, or sa
Regions.
3. Special Audit Report – ito po ay ginagawa ng Special Services Sector. Ang
audit po nila ay usually upon request. Eg., sa fraud audit, there should be a
written request po. Later, when we discuss the PDAF topic, the report po was
a Special Audit Reprt.
Slide 14 Now, let us go to the PD No. 1445. This was the Presidential Decree signed by former
President Marcos. There are provisions or title I will discuss in detail that I believe will
have added value in our fiscal administration topic;

This presidential decree is actually in the process of revision. The House has already
approved the bill revising the government auditing code
Slide 15 These are the titles of the PD No. 1445
Slide 16 First is the General Provisions
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MODULE 3C. Auditing Process on the Budget Approval and Budget Execution: The Role of
Commission on Audit

Slide 17 Title
Slide 18 This law shall be known and cited as the “Government Auditing Code of the
Philippines”
Slide 19 Next is the Declaration of Policy
Slide 20 It is the declared policy of the State that all resources of the government shall be
managed, expended or utilized in accordance with law and regulations, and
safeguarded against loss or wastage through illegal or improper disposition, with a
view to ensuring efficiency, economy and effectiveness in the operations of
government. The responsibility to take care that such policy is faithfully adhered to
rests directly with the chief or head of the government agency concerned.
Slide 21 Definition of Terms
Slide 22 1. “Fund” is a sum of money or other resources set aside for the purpose of
carrying out specific activities or attaining certain objectives in accordance
with special regulations, restrictions, or limitations, and constitutes an
independent fiscal and accounting entity.
2. “Government funds” includes public moneys of every sort and other
resources pertaining to any agency of the government.
Slide 23 3. “Revenue funds” comprises all funds derived from the income of any agency
of the government and available for appropriation or expenditure in
accordance with law.
4. “Trust funds” refers to funds which have come officially into the possession
of any agency of the government or of a public officer as trustee, agent, or
administrator, or which have been received for the fulfillment of some
obligation.
Slide 24 5. “Depository funds” comprises funds over which the officer accountable
therefor may retain control for the lawful purposes for which they came into
his possession. It embraces moneys in any and all depositories.
6. “Depository” means any financial institution lawfully authorized to receive
government moneys upon deposit.
Slide 25 7. “Resources” refers to the actual assets of any agency of the government such
as cash, instruments representing or convertible to money, receivables,
lands, buildings, as well as contingent assets such as estimated revenues
applying to the current fiscal period not accrued or collected and bonds
authorized and unissued.
8. “Government agency” or “agency of the government,” or “agency” refers to
any department, bureau or office of the national government, or any of its
branches and instrumentalities, or any political subdivision, as well as any
government-owned or controlled corporation, including its subsidiaries, or
other self-governing board or commission of the government.
Slide 26 Fundamental Principles
Slide 27 1. No money shall be paid out of any public treasury or depository except in
pursuance of an appropriation law or other specific statutory authority.
2. Government funds or property shall be spent or used solely for public purposes.
3. Trust Funds shall be available and may be spent only for the specific purpose for
which the trust was created or the funds received.
4. Fiscal responsibility shall, to the greatest extent, be shared by all those exercising
authority over the financial affairs, transactions, and operations of the government
agency.
Slide 28 5. Disbursements or disposition of government funds or property shall invariably bear
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MODULE 3C. Auditing Process on the Budget Approval and Budget Execution: The Role of
Commission on Audit

the approval of the proper officials.

6. Claims against government funds shall be supported with complete
documentation.
7. All laws and regulations applicable to financial transactions shall be faithfully
adhered to.
8. Generally accepted principles and practices of accounting as well as of sound
management and fiscal administration shall be observed, provided that they do not
contravene existing laws and regulations.
Slide 29 So, for the Title I we will be studying the Commission on Audit;
Slide 30 Chapter 1, The Organization. The PD 1445 has a detailed explanation on the
organization composition of the Commission. Since it is already outdated, and a lot
has changed, instead I will show you the latest organizational chart.
Slide 31 The top officials, the Chairperson, the Commissioner I and Commissioner II.
Collectively, they are called the Commission Proper. In the PD 1445, the Commission
Secretariat is not included, but in the 2009 Revised Rules of the Commission.

You can see here the Audit Sectors, which handles the GCs, LGUs, NGAs, as
mentioned earlier, the Special Services Sector, who handles the special audit, the
Commission Proper Adjudication Sector who handles the claims and adjudication, the
Legal Affairs Office, the Government Accountancy Sector. This is the office in charge
of the