Commission on Audit Develops Risk-Based Audit Approach
The Philippines' Commission on Audit (COA) has developed and introduced a risk-based audit approach (RBAA) that
emphasizes the need for the auditors to focus on high-risk areas that are potential breeding grounds for graft and corruption.
The COA embarked on a project to improve its audit services by institutionalizing the RBAA after receiving unsolicited
financial assistance from AustalianAid and the United Nations Development Programme (UNDP). Working with a UNDP consultant,
a technical working group of COA officials developed the Risk-Based Financial Audit Manual, which includes templates tailor-made
for e-auditing. This partnership ensured that the Manual would be customized and adopted for use by national, local, and corporate
audit sectors. As an initial step toward nationwide implementation, a trainers' training for 39 audit supervisors and audit
team leaders was conducted October 17-November 9, 2005. These participants will be deployed to selected government agencies,
where pilot audits will be conducted. The results of these audits will serve as input to the review and finalization of the
COA´S GOAL STATEMENT
To make the Commission on Audit
a vibrant partner in nation-building;
haven of integrity and competence;
an organization of professionals with a culture of excellence
where good work is
treasured as the reward in itself;
a quality member in the international organizations of
supreme audit institutions.
Continuous development of skills and professional competence and enhancement of personnel welfare
Implementation of a performance appraisal system to improve employee output and reward deserving
Continuing research to see to it that its auditing practices and the government accounting rules
and regulations are kept abreast of developments in international standards and legal norms.
Conduct of financial, compliance and performance audits in agencies of government.
COA at the cutting edge of technological advances in the areas of accounting, auditing and settlement
of accounts by maximizing the benefits of information and communication technology.
Adoption of the risk based and team approaches at all levels in the audit of government operations
and of private entities, as required by law.
Enhanced and strengthened decision-making process of the Commission.
Intensified monitoring of audit recommendations and enforcement of COA decisions.
Continued coordination with prosecutorial, investigative and other government agencies in the fight
against graft and corruption.
Strengthened relationships with the Supreme Audit Institutions (SAIs) of other countries.
Emphasis of substance rather than form, simplicity rather than complexity, quality rather than quantity,
the auditor as an enabler rather than a disabler.
Development of financial information systems that will serve the needs of government executives,
managers and decision makers.
Publication and other means of information dissemination to the public of the performance, financial
operations, results of audit of national, corporate and local government, and the actions taken on complaints.
Promotion of value-added audit services for improved agency fiscal responsibility and accountability.
From the Transparency International National Integrity
Systems Country Study 2006
Article IX of the 1987 Philippine constitution created the Commission on Audit (COA), one
of three constitutional commissions, which prevents the irregular use of government funds
or properties. Armed with this crucial mandate, the COA is the praetorian of the national
treasury. It is endowed with constitutional dependence and fiscal autonomy. A report
by the Philippine Centre on Transnational Crime states that The COA is the watchdog of the financial operations of the government. It is empowered
to examine, audit, and settle all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property under the custody of government agencies
and instrumentalities. It promulgates accounting and auditing rules and regulations for
the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or use of government funds and properties.
COA plays a critical role in the fight against corruption by promoting transparency and accountability
in public financial transactions. It publishes losses on overpriced equipment, as in the fertiliser scandal,
in which dead people were included in the list of fertilizer beneficiaries; irregularities such as fraud
in the local city governments of Tarlac and Caloocan; and anomalies, as in the Meralco scam in which significant
costs had been added as operating expenses in submitted financial statements.
COA forms task forces to conduct special audits for selected infrastructure projects,
supplies and equipment purchases. It reports violations of the law, as in the special audit of six cities
and a town in which it found overwhelming irregularities amounting to millions of pesos every year (although
no prosecutions followed these discoveries).
Yet in 2005 it received less
than half a per cent of the national budget.
In terms of regulatory support, pursuant to Section 6 of Article IX-A of the constitution, the commission
en banc crafts its own rules. Aside from this, other internal rules in the form of COA issuances, circulars,
memoranda, letters and resolutions exist. COA has its own Code of Ethics for Government Auditors; it prohibits
making loans within audit jurisdictions and forming unholy alliances as well as fraternisation with contractors
in karaoke establishments and bars. The current chairman, Guillermo Carrague, is a reform
champion who is also an innovator. He has introduced a new system of risk-based auditing and has internationally
been nominated as United Nations Industrial Development Organisation External Auditor. He spearheads the
New Government Accounting System; when an electronic version now in development is fully implemented, it
is expected to speed the preparation of the Annual Financial Report (AFR) of the national government. The
chairman leads a group of commissioners who are untainted, highly professional and independent – traits
that are crucial to the highest guardian of public accountability and performance. Gifts over PHP 5,000 are
not allowed by the commission, and civil service post-employment restrictions apply for a year, during which
employees are not allowed to join the private sector.
Concerning reporting lines, the COA delivers an annual financial report to the president and Congress.
The commission has taken proactive steps to reach out to the public and to be more transparent through an
interactive portal that maintains a Fraud Alert Form advising whistleblowers to report fraud, waste, abuse
or mismanagement of funds; it also warns of lack of anonymity. COA also maintains an Audit Help Desk, which
reaches out to the ordinary citizen and COA’s audit clientele who need help relating to government
financial transactions, accounting and audit.
As with all civil servants, disclosure rules apply
to COA officials. In terms of transparency, the latest annual audit reports are downloadable and available
to audit clientele. COA policy decisions, procurement processes and an Invitation to Bid are on its website.
Complaint enforcement mechanisms are dictated by the CSC code. In pursuit of anti-corruption activity, COA
is a member of the LSC and a leading member of inter-agency committees battling corruption.
Although COA investigations have led to exposés, the lack of prosecutions and convictions can jeopardise
investigators’ lives and has led has to demoralisation among auditors. They have expressed fear, saying,
‘We're scared of Congressmen, we're scared of the system. Babalikan
kami. [They'll seek revenge.]
We don't want to tolerate corruption, but nothing happens to our reports. We just become subjects of harassment,
and other people even make money out of our reports’.
Auditors feel helpless, as ‘small people waging
a war against political giants’.52
The appointment of COA officials
lies in the hands of a 25-member Congressional Commission on Appointments, and threats are used to stop investigations.
For example, there were allegations that the Commission would bypass the chairman’s appointment unless
an auditor, who turned out to be a personal friend, was reinstated in Metro Manila. Horse-trading
occurs in the area of auditor assignments, and auditors who have questioned irregular or corrupt practices
have been promptly re-assigned.
Bills advocating an automatic release of an internal revenue allotment for COA amounting to 1.2 per
cent of the national internal revenue collection, tackling compensation issues and paving the way to COA’s
exemption from the Salary Standardisation Law, thereby strengthening COA independence, are still pending.
Congressman Hermilando Mandanas has filed a bill that will ensure COA’s fiscal autonomy.
As the country’s Supreme Audit Institution,
the Commission on Audit is vested by the Constitution
the power and duty to audit and settle accounts
pertaining to revenues and receipts,
as well as expenditures
or uses of funds and property
owned or held in trust by the Government;
exclusive authority to prescribe
accounting and auditing rules and regulations;
responsibility to recommend measures necessary to improve
and effectiveness of government operations.
Article IX-D of the 1987 Philippine Constitution sets out COA's constitutional establishement
and functions as follows:
"D. Commission on Audit
SECTION 1. (1) There shall be a Commission on Audit composed of a Chairman
and two Commissioners, who shall be natural-born citizens of the Philippines and, at the time of their appointment, at least
thirty-five years of age, certified public accountants with not less than ten years of auditing experience, or members of
the Philippine Bar who have been engaged in the practice of law for at least ten years, and must not have been candidates
for any elective position in the elections immediately preceding their appointment. At no time shall all Members of the Commission
belong to the same profession.
(2) The Chairman and the Commissioners shall be appointed by the President with the
consent of the Commission on Appointments for a term of seven years without reappointment. Of those first appointed, the Chairman
shall hold office for seven years, one Commissioner for five years, and the other Commissioner for three years, without reappointment.
Appointment to any vacancy shall be only for the unexpired portion of the term of the predecessor. In no case shall any Member
be appointed or designated in a temporary or acting capacity.
SECTION 2. (1) The Commission on Audit shall have the
power, authority and duty to 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, or any of its subdivisions, agencies,
or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis:
(a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous
state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required
by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal
control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special
pre-audit, as are necessary and appropriate to correct the deficiencies. It shall 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.
The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit
and examination, establish the techniques and methods required therefor, and 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.
SECTION 3. No law shall be passed exempting any entity of
the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the Commission
SECTION 4. The Commission shall submit to the President and the Congress, within the time fixed by law, an
annual report covering the financial condition and operation of the Government, its subdivisions, agencies, and instrumentalities,
including government-owned or controlled corporations, and non-governmental entities subject to its audit, and recommend measures
necessary to improve their effectiveness and efficiency. It shall submit such other reports as may be required by law."