COA: the supreme audit institution. CESAR USAPDIN

The Philippine Constitution emphasizes the importance of accountability in the government. Article XI simply and bluntly begins: “Public office is a public trust,” before it adds that officials and employees should serve the people with “responsibility, integrity, loyalty and efficiency.”

In the government budget cycle, accountability is laid down by the need for government agencies and departments submit to submit quarterly and monthly income statements; statements of allotment, obligations and balances along with other financial reports and documents for audit - a formal process whereby the authenticity, accuracy and reliability of financial accounts or transactions are checked and approved.

There are several kinds of audit: One is Financial Auditing wherein financial transactions and accounts are checked to ensure the submitting government agency has complied with the rules and regulations, specifically the pre-agreed and government accounting system. Another type is Performance Auditing whereby one is looking at the systems of the agency to assess it has delivered on its institutional purpose and mandate by linking the budgets with results or results-based budgets. An internal audit, as the name suggests, an internal check on agency systems and processes. External Auditing involves an outside audit body being brought in to look at the agency. Pre-auditing refers to auditing by agencies before approval of transactions while post-auditing is auditing by an independent body after.

Government accountability agencies

The Philippine government has agencies mandated to ensure accountability and transparency on its overall operations. These agencies are: The Office of the Ombudsman, Sandiganbayan, Presidential Anti-Graft Commission, the Civil Service Commission and primarily, for the purpose of this paper, the Commission on Audit.

Office of the Ombudsman

The Office of the Ombudsman (Ombudsman) is mandated by the Constitution as “protectors of the people who shall act promptly on complaints filed against officers or employees of the government including members of the Cabinet, local government units and government-owned and 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.”

Significantly, Section 13 of Republic Act 6770 or the Ombudsman Act of 1989 states it shall give priority to “high-profile complaints to high-ranking and supervisory officials involved with grave offenses and large sums of money and/or properties.”

The Ombudsman does not only cover officials and employees of the government, but also private individuals who have participated or “in conspiracy” with them in the filed complaints.

Sandiganbayan

The Sandiganbayan, or the government’s anti-graft court, is mandated by the 1973 and 1987 Constitutions. It 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.

Crimes and civil cases filed against public officers below Salary Grade 27 are covered by the Regional Trial Court but Sandiganbayan is vested with Appellate Jurisdiction over its final judgments, resolutions or orders. Private individuals can also be sued before this special court if they are alleged to be in conspiracy with public officers. The Sandiganbayan is also entrusted to have original exclusive jurisdiction over special laws such as RA 3019 (Anti-graft and Corrupt Practices Law), RA 1379 (Forfeiture of Illegally Acquired Wealth), Revised Penal Code spec. Batasang Pambansa 871.

Presidential Anti-Graft Commission

The Presidential Anti-Graft Commission (PAGC) is mandated by Executive Order No. 12 to assist the President in the campaign against graft and corruption. It investigates and conducts hearings of administrative cases and complaints against Presidential appointees in the Executive Branch with Salary Grades 26 and higher including members of the Armed Forces of the Philippines and Philippine National Police of directed by the President, government-owned and controlled corporations and public officers, employees and private persons in conspiracy with alleged public officials.

PAGC’s jurisdiction includes the following laws: RA 3019, RA 1379, 6713, Revised Penal Code, and E.O. 292.

Civil Service Commission

The Civil Service Commission (CSC) is the central personnel agency of the government and is tasked in the recruitment, building, maintenance and retention of a highly-competent and professional workforce. It is also one of the three independent commissions established by the Constitution with adjudicative powers to render final disputes and personnel actions on Civil Service. It covers all national government agencies, local government units and government-owned and -controlled corporations.

Commission on Audit

The Commission on Audit (COA) is the constitutional commission mandated to be the supreme audit institution of the government. It has jurisdiction over national government agencies, local government units, government-owned and controlled corporations and non-government organizations receiving benefits and subsidies from the government.

The Constitution identified the following functions for the Commission:

1. Examine, audit and settle all 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;
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;
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. Perform such other duties and functions as may be provided by law. COA, as the other constitutional commissions are mandated, is headed by a Chairman and two Commissioners appointed by the President and the Commission on Appointments of Congress. It also enjoys fiscal autonomy which means its appropriations must be released regularly and automatically. The Commission also deploys resident auditors in all national government agencies, local government units and government-owned and controlled corporations pursuant to its mandate to review each agency’s financial operations in a risk-based audit approach.

COA reports

In order to perform its audit functions, COA produces different kinds of reports. A study by the Philippine National Budget Monitoring Project¹ identified and explained each of these:

1. Regular Annual Audit Report of each NGA, LGU and GOCC
2. Consolidated Annual Financial Report for NGAs, LGUs and GOCCs
3. Special Audit Reports
4. Circulars and other Issuances

The Annual Audit Reports contain the results of the audit conducted on the financial statements submitted by agencies, local government units and government-owned and controlled corporations to COA auditors. The results are shown in the form of audit opinions indicating how the agencies faired with their financial statements at the end of each fiscal year. The types of audit opinions are: Unqualified (U), Qualified (Q), Adverse (A) and Disclaimer (D).

An Unqualified Opinion refers to the “clean opinion” or the agency reflected the results of the financial statements fairly, which means its operations and the financial condition in a period of time based on existing government accounting standards, and in compliance with government laws, rules and regulations. A Qualified Opinion means that an agency reflected fairly except for some specific transactions and/or accounts that have been found to be problematic, either improper, questionable or needs further explanations. Adverse opinion means that the financial statements did not fairly present its results of operations and financial condition of the agency, and are not in compliance with prescribed laws and applicable guidelines. Lastly, the Disclaimer opinion means that “there is no sufficient basis to form any opinion” for an agency does not keep or submit its records of financial accounts and transactions.

An audit report has the following parts: Audit Certificate, which shows the audit opinion, the Financial Statements, Major Findings and Observations which explains if there are defects in the compliance of accounting and auditing rules and policies, and Recommendations to the entities. In turn, COA checks if these measures were conformed by the entity on the next year’s annual audit report.

The Consolidated Annual Financial Reports on the other hand show the financial performance of the public sector in general. Each level has a volume of the consolidated financial report, one each for NGAs, LGUs and GOCCs. These are based on the audit reports of each entity. These reports contain the financial condition and highlights of agencies, local government units and government corporations. These reports also reflect the financial resources of the government, even the off-budget accounts or funds that are not subject to annual appropriations. Interestingly, these reports are the only source where one can be informed about funds that are not sourced out from appropriations.

Special Audit Reports are purposely for investigation, in response to a request by interested parties or by a directive from Congress. The Commission has already undergone special audit reports on the country’s outstanding debt and special purpose funds such as the Agriculture and Fisheries Modernization Act and procurement of the Department of Public Works and Highways.

GAFMIS

The Government Accountancy and Financial Management Information System (GAFMIS) is a financial database which keeps the general accounts of the government. It is spearheaded by the COA so as to implement its mandated function. Thru this, the appropriations are verified and allotment releases to agencies are ensured not to exceed the appropriations. From the Department of Budget Management (DBM), copies of Agency Budget Matrices (ABM) and Special Allotment release Orders (SARO) are submitted to GAFMIS and these make up the Registry of Appropriations and Allotments.

The GAFMIS is also essential because it assists government agencies with the Electronic New Government Accounting System (e-NGAS). It is a computerized program of the New Government Accounting System wherein budget transactions, allotments and obligations are recorded and monitored electronically. It also helps in streamlining the New Government Accounting System which provides the new accounting policies in the government. Some of the basic features of the new system are the Accrual accounting and One-fund concept. Accrual accounting recognizes the income when earned and expenses when incurred as oppose to recognizing income when cash is earned and expenses when paid.

Internal control and the internal control system

Internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems which are designed to help it accomplish its goals. It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the organization's resources.² Internal audit is an integral part of internal control. It maintains efficiency and effectiveness in operations. It looks at the reliability of financial transactions in reports by making sure that they are in accordance with rules and regulations.

Several provisions in the Philippines have signified the internal control in the government such as Section 123 of the amended Presidential Decree 1445, the Administrative Code 1987 and Government Accounting and Auditing Manual guided by worldwide standards thru the International Organization for Standardization (ISO) and International Organization for Supreme Audit Institutions (INTOSAI). The INTOSAI also formulated standards for the internal control systems in the public sector. It has emphasized that internal control systems shall be in line with the characteristics, values and context of the public organizations.

In line with these provisions, the Government has formulated the National Government Internal Control System (NGICS) through the efforts of the DBM and resource and reference panels from various government agencies. It serves as a guide to government agencies in putting up internal control systems. It aims to strengthen accountability, safeguard assets, promote efficiency, economy and effectiveness in the operations and adhere with the policies of the organization.

Issues and limitations

The audit and accountability system in the Philippines have issues and limitations that affect the status of checks and balances in the country’s financial resources.

A comparative assessment³ of government accountability agencies has identified the following factors that affect the performance of their operations:

1. Personnel, budget and organization

As of September 2009, the Ombudsman has 1,007 employees, 30 percent of whom are lawyers and 70 percent are investigators, technical and administration staff. The agency experiences difficulty in hiring good lawyers due to uncompetitive salaries against the private sector. Likewise, Sandiganbayan lacks human resources while CSC lacks sufficient budget for salaries and programs. In PAGC, it is reported that employees have no security of tenure. Akbayan Representative Risa Hontiveros-Baraquel also reported that the COA had its budget cut by government in 2009⁴ even though this is technically illegal since it has fiscal autonomy from the administration under the Constitution.

Other organizational problems that were reported to exist were the unclear organizational goals, lack of prioritization among concerns and values that are not service-oriented.

2. Questions over political neutrality

The Office of the Ombudsman has been continuously involved in controversy. Ombudsman Merceditas Gutierrez has been accused of being unduly influenced by Malacanang Palace –something she denies. PAGC is also seen as being very political – but then again it is a presidential and not a constitutional body.

3. Cooperation among agencies and the public

The Sandiganbayan’s performance on cases was said to be affected by a lack of cooperation with other accountability agencies such as the Ombudsman, PAGC, Court of Appeals and Court of Tax Appeals. These agencies have imposed programs that encourage the public to be vigilant about the unethical behavior of public officials yet they have been receiving little feedback from them.

4. Backlog of cases

According to CENPEG’s study on the effectiveness of the judicial system in combating corruption⁵, The Ombudsman and Sandiganbayan are both overloaded with a large number of pending cases every year. The Ombudsman had a total of 78,700 old and new criminal and administrative cases filed between 2001 and May 2006 while the Sandiganbayan had 7,324 cases out of which 1,700 were dismissed. The majority of the cases (3,909 or 53.4 percent) are still pending as of December 2008. Out of the total cases filed at Sandiganbayan, staggering numbers of only 0.6 percent ended in convictions: There is also an issue that complaints against “high-profile” officials are few, their cases do not move, and that only so-called “small fish” were being prosecuted.

On COA’s mandate, the accounting and auditing system

In her public budgeting and accounting class⁶, the late Professor Emilia Boncodin stressed some issues on COA’s mandate and the accounting and auditing system of the government. These are the following:

1. Auditing is not based on the budget

The audit system looks only at the agency’s compliance with the accounting standards and laws in the financial reports instead of finding if the agencies have properly allocated their appropriated budgets.

2. Reporting of GOCC’s entire budget

What is reported in the government budget documents regarding the GOCCs are the budgetary support to government corporations or subsidies only. Yet, COA audits the corporate operating expenses or the entire budget of government corporations.

3. Lax in penalizing because COA is limited to recommendatory functions only

Adverse/Disclaimer audit opinions and recommendations by COA to government agencies do not have the corresponding penalties or sanctions if they are not acted upon and followed. An example is DPWH’s audit report where it has been given an adverse opinion for the past 16 years.

4. Pre-audit vs. Post-audit

Each type of audit has its own problems. Post-audit is disadvantageous because it involves final evaluation of financial transactions –that is after the funds have already been disbursed. Pre-audit however, ironically defeats the overall essential purpose of auditing because financial transactions are assessed beforehand. In the past, COA had been operating on post-audit basis since 1995 until 2009 when COA Circular 2009-002 reinstituted the selective pre-auditing due to the rising incidents of anomalous disbursements. However, Circular 2009-003 in June 16, 2009 suspended some of the provisions in the earlier circular to ensure uniformity and consistency in its implementation.

On COA reports

The Philippine National Budget Monitoring Project⁷ has identified the following limitations that affect the importance of COA reports in ensuring accountability:

1. Timeliness

COA’s deadline on the submission of reports is not parallel to the schedule of budget preparation. Audit and financial reports must be submitted by end of September while budget preparation time ends in July when the Congress’ session opens. The timings would thus work best if reversed since the reports should serve as aids in reviewing the agencies’ budgets in time for budget legislation. Given the reality, the value of COA’s reports being used as tools to determine the status of government entities in terms of financial performance and compliance with rules are nullified.

2. Completeness

Audit reports of agencies are not completed on time due to inability of personnel and time constraints. In effect, this puts problems in reviewing the budget and in making the annual financial reports.

3. Availability

Although COA’s website is useful in terms of the reports posted, many reports from agencies including those from LGUs and GOCCs are currently missing.

4. Contestability of findings

There are issues on COA’s findings on its reports. First is that the some of the past findings have not been resolved yet or the so-called “hereditary balance sheets.” An example is the disallowances that must be deducted by agencies to employees. However, these have not been resolved even if some personnel have already left the service or died. Secondly, there is the inconsistency of audit rules by resident auditors. In some agencies, the rules of past auditors and new auditors differ like deductions that were not present in the past have already been installed at the time the new auditor comes to office. The third issue is the unreasonable application of rules and regulations in auditing. Some expenses are disallowed even if it yields good results. The last issue is the inability of auditors to understand the situation of agencies’ operations. The operations have complexities that emergencies become inevitable and it is hard for them to look at the reasons for the issues in operations.

5. Feasibility of recommendations

The COA’s recommendations on reports are not always being followed by agencies and these are already beyond the control of the institution.

6. Conflict of interest

COA auditors are still considered as “mere mortals” that may experience biases, influences and errors in judgment. There are often claims that some auditors are complicit in bribery and graft.

On internal control and the internal control system

The NGICS has identified the following limitations of internal control:

1. Human error, i.e., errors in judgment such as internal auditor’s biases/conflict of interest, negligence, misunderstanding, fatigue, distraction, collusion, abuse, etc.
2. Shifts in government policies or programs
3. Resource constraints
4. Organizational changes; and
5. Management attitude

International accountability mechanisms

There have been evidence-based evaluations of public expenditure practices of governments, including the Philippines, thru the international indexes of different programs from international agencies:

Open Budget Index (OBI)

The Open budget Index is an advocacy of the International Budget Partnership’s (IBP) Open Budget Initiative promoting public access to budget information and adopting accountable budget systems.

The open budget index survey is being demonstrated in 85 countries around the world, one of which is the Philippines, to determine if information is publicly available and to monitor the practice of budget execution. The survey is formulated to measure the following aspects of the budget system:

1. Dissemination of budget information
2. Executive’s annual budget proposal
3. Availability of other information
4. Budget process

Questions in the survey are further segmented into the following:

1. Executive’s budget proposal
2. Citizens’ budget
3. Pre-budget statement
4. In-year reports
5. Mid-end review
6. Year-end report
7. Audit report

In the report of the 2008 Open Budget Survey, findings show that 80 percent of the world’s governments do not provide adequate budget information to citizens. Most countries have weak formal oversight institutions. They have recommended some immediate measures to the governments to improve budget transparency and accountability:

1. Disseminate budget information in forms and through methods and media that are understandable and useful to the wider population. This should include disseminating information through radio or other broadcast media, and in languages spoken by the majority of the population.
2. Institutionalize mechanisms for public involvement in the budget process, including public hearings during formulation and discussion of the Executive’s budget proposal, and at regular intervals throughout the budget cycle.
3. Expand opportunities for media coverage of the budget process, for example, by opening budget hearings to journalists or broadcasting these hearings on radio, television, and the Internet.
4. Support relevant reforms to improve the independence and capacity of the legislature and supreme audit institution to play their formal oversight role. Reforms should address the political and financial independence of these institutions, as well as their analytical capacity, access to the executive, and other legal powers required to fulfill their mandate.
5. Build effective public finance information systems that enhance the quality and timeliness of available budget information, for example, through the use of clear, standardized classification systems and appropriate Information Technology (IT).

Public Financial Management-Performance Measurement Framework

The PFM-Performance Measurement Framework is a project of the Public Expenditure and Financial Accountability (PEFA) partnership composed of the World Bank, European Commission, the Department for International Development of the United Kingdom, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Royal Norwegian Ministry of Foreign Affairs, and the International Monetary Fund. It aims to support integrated and harmonized approaches to assessment and reform in the field of public expenditure, procurement and financial accountability.

The Framework was developed to assess and develop essential public financial management systems. The following are the critical dimensions that serve as indicators in the performance of an open and orderly public financial management system.

1. Credibility of the budget
2. Comprehensiveness and transparency
3. Budget cycle
   1. Policy-based Budgeting
   2. Predictability and Control in Budget Execution
   3. Accounting, Recording and Reporting
   4. External Scrutiny and Audit
4. Donor Practices

Report on the observance of standards and codes of fiscal transparency

The Fiscal ROSC is a project of the International Monetary Fund which takes a look at how the countries observe the international standards and codes. It focuses on twelve areas, one of which is fiscal transparency.

The Code of Good Practices on Fiscal Transparency is based on the following principles

• Roles and responsibilities in government should be clear.
• Information on government activities should be provided to the public.
• Budget preparation, execution, and reporting should be open.
• Fiscal information should attain widely accepted standards of data quality and be subject to independent assurances of integrity. Philippine Public Transparency Reporting Project 

(The author is a research assistant of the International Center for Innovation, Transformation and Excellence in Governance under the Philippine National Budget Monitoring Project.)

Sources:

• 1987 Constitution of the Republic of the Philippines
• Asian Development Bank. Government Budgeting and Accounting. Date Accessed: Feb. 8, 2010. <Link>
• Boncodin, Emilia. Public Administration 132: Public Budgeting and Accounting, First  Semester 2009-2010, Auditing and Accountability. UP-NCPAG, October 2009.
  
• Briones, Leonor M. Chapter 10 Public Financial Accountability for Integrity and Results:  The Case of the Philippine Bureau of the Treasury. Governance, Corruption     and Public Financial Management.  Asian Development Bank <Link> Date     Accessed:     February 8, 2010
• Cariño, Ledivina V. Administrative Accountability: A Review of the Evolution, Meaning and Operationalization of a Key Concept in Public Administration, Philippine     Journal of Public Administration, April 1983.
• Center for People Empowerment in Governance and Transparency International     Philippines. Is     the Philippine Judicial System Effective in Fighting Corruption?:
• A Preliminary Report. Dec. 8, 2006, <Link>
• Civil Service Commission. About Us.<Link> Date Accessed: February 8, 2010
• Commission on Audit <Link>
• Department of Budget and Management. National Government Internal Control System. DBM Publication. <Link> Date Accessed: February 7, 2010.
• Ethics and Accountability in Public Service (Public Administration 161) class WFV, First Semester 2009-2010 headed by Prof. Minerva Baylon, Ph.D. Comparative Table of  Effectiveness of Agencies Mandated to Ensure Accountability in Government.  UP-NCPAG, October 2009.
• International Monetary Fund. Code of Good Practices on Fiscal Transparency (2007). <Link>
• Natad, Johny Sauro. Internal Control and the IC System in the Philippines. Bukidnon State University Graduate Extension Studies, Surigao City Study Center, September 2008.
• Office of the Ombudsman. About Us.<Link> Date Accessed: February 8, 2010.
• Official Website of the Government Accountancy and Financial Management Information System <Link>
• Open Budget Initiative. Open Budgets. Transform Lives. The Open Budget Survey 2008. International Budget Partnership <Link>  Feb. 15, 2010
• Philippine National Budget Monitoring Project. Using Reports of the Commission on Audit. United States Agency for International Development, July 2009.
• Presidential Anti-Graft Commission. About Us <Link> Date Accessed: February 8, 2010.
• Public Expenditure and Financial Accountability. Public Financial Management     Performance Measurement Framework. Washington DC : PEFA Secretariat, World Bank, June 2005. <Link>
• Sandiganbayan. About Us. <Link> Date Accessed: February 8, 2010.

¹ Philippine National Budget Monitoring Project. Using Reports of the Commission on Audit. United States Agency for International Development, July 2009.

² Natad, Johny Sauro. Internal Control and the IC System in the Philippines. Bukidnon State University Graduate Extension Studies, Surigao City Study Center, September 2008
³ Ethics and Accountability in Public Service (Public Administration 161) class WFV, First Semester 2009-2010 by Prof. Minerva Baylon, Ph.D. Comparative Table of Effectiveness of Agencies Mandated to Ensure Accountability in Government. UP-NCPAG, October 2009.
⁴ See Government cutting COA budget In 2009 by Norman Bordadora

⁵ Center for People Empowerment in Governance and Transparency International Philippines. Is the Philippine Judicial System Effective in Fighting Corruption?: A Preliminary Report. Dec. 8, 2006

⁶ Boncodin, Emilia. Public Administration 132: Public Budgeting and Accounting, First Semester 2009-2010, Auditing and Accountability. UP-NCPAG, October 2009.
⁷  Philippine National Budget Monitoring Project. Using Reports of the Commission on Audit. United States Agency for International Development, July 2009.