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NATURE OF STATE AUDITING
State audit is an ancient and respected branch of state administration. In time, state audit developed from the need for good government. It started from a simple device to prevent ruin and chaos in public finances and bookkeeping and serves as an instrument for ensuring open, regular, efficient and responsive government. Thus it became closely intertwined with modern government and public accountability.
State audit is the analytical and systematic examination and verification of financial transactions, operations, accounts, and reports of any government agency for the purpose of determining their accuracy, integrity, and authenticity, and satisfying the requirements of law, rules, and regulations.
AUDITING IN PUBLIC ADMINISTRATION
.State audit may be considered as the control and accountability component of the fiscal administration cycle.
and applicable laws and regulations. accounting and auditing standards. .AS A CONTROL MECHANISM Auditing ensures the proper and legal utilization and management of fiscal resources in accordance with sound financial management principles.
.AS ACCOUNTABILITY COMPONENT Auditing seeks to ensure that public officials entrusted with functions and resources are made responsible for the performance and results of operations of their office.
Audit reports contain vital information on the results of operations of agencies and recommendations to improve their performance.IN THE FISCAL ADMINISTRATION CYCLE Auditing provides inputs to the next phase which is planning. . These information are useful in formulating plans and targets.
HISTORY OF AUDTING IN THE PHILIPPINES .
1. BEFORE POLITICAL INDEPENDENCE .
. This later evolved into a separate and independent fiscal control activity in 1739 with the establishment of the royal exchequer or a national treasury.A. AUDITING UNDER SPAIN The first activity in the Spanish colonial government was in 1953 when a Royal Audiencia or a high court of justice was set up in Manila. Fiscal review was conducted by the audiencia in addition to regular judicial functions.
an independent Philippine republic was declared and the Malolos Constitution was created. 1898 provided that tax collectors should render an accounting of all expenditures as well as all tax collections made which were to be verified by the Assembly. 40 of the Decree of June 20. While the Malolos Constitution was silent on the function of auditing. . The budget process was described in detail and the budgets were subject to public scrutiny. Rule No.B. AUDITING UNDER THE MALOLOS REPUBLIC In 1896.
1898 and the first step undertaken was an inventory of all public funds. a shift was made from the judicial type of audit(Spanish era) to legislative type of audit(Malolos Republic) then to the executive type of auditing functions. . AUDITING UNDER THE AMERICANS The Americans took over the Philippines on August 13. the position of Auditor of the American military government was created. On September 5. During the American rule. It was during this period that the practice of pre-audit was initiated. The work of the Auditor was to countersign all warrants for withdrawal of money from the National Treasury. Later.C. all disbursements should be approved by the Auditor. 1898.
320 which combined both the accounting and auditing functions under the GAO 3. The passage of Commonwealth Act No.D. . 325 which conferred on the GAO the function of auditing public service enterprises. The passage of Commonwealth Act No. The drawing of the Constitution of 1935 which provided for an independent General Auditing Office 2. Three major events in the Philippine state auditing were: 1. AUDITING UNDER THE COMMONWEALTH PERIOD The Philippines was transformed into a Commonwealth in 1935.
to help government cope with worsening political and economic problems. . including modernization of fiscal administration. Implementation of administrative reforms was part of the precondition for the grant of further foreign aid. The Government Survey Reorganization Commission (GSRC) was set up with assistance from the American government in the form of consultancy services from two management firms. POST INDEPENDENCE PERIOD An Economic Survey Mission headed by Daniel Bell was sent by President Truman in 1950. Bell recommended reforms in public administration. Its objective was to evaluate the entire governmental system and make recommendations for reforms.2.
A. THE FIRST REORGANIZATION EFFORT: REFORMS WITH ASSISTANCE OF AMERICAN CONSULTANTS .
3 837 and in 1957.In 1954. In 1953. These were part of the reform efforts in the administrative system in response to a very real and serious threat to the government.A. . a modernization project in auditing was initiated upon the advice of the American consulting firm. R. R. During this period. 1890. the General Auditing Office (GAO) was reorganized twice.A. Booz. Allen and Hamilton.
REFORMS UNDER THE SECOND REORGANIZATION EFFORT .B.
One of the most significant changes during the Martial Law era which greatly affected state auditing was the change in the Constitution. This development can be described as the second deliberate effort to link the administrative system.The Presidential Commission on Reorganization (PCR) was formed during the late sixties with the major concerns on the fiscal administrative system which included auditing. including auditing. with national development goals. . Another development in state auditing under the 1973 Constitution was the reorganization of the Commission on Audit from a constitutional institution headed by the Auditor General to a commission type of organization headed by the Chairman and two Commissioners.
FORMS OF ORGANIZATION/LOCATION IN GOVERNMENT PRIMARY AUDITING PERIOD Spanish period First Filipino republic American Regime: as colony American regime: as Commonwealth Post independence: early period Post independence: the fifties Post independence: early seventies SET-UP Judicial type court of accounts General Assembly Bureau under the Governor General independent Constitutional body independent Constitutional body -doChange to Commission type of organization ACTIVITY detailed post audit of transactions Post audit of transactions Pre-audit of all transactions -do-doPartial lifting of pre-audit Further lifting of pre-audit/ Expansion of program audit .
SCOPE . ORGANIZATIONAL STATUS 3.II. TIMING 2. TYPES OF AUDIT 1.
Pre-audit .the auditor reviews a transaction even before such services are rendered.A. . Post.audit . TIMING TWO MAIN TYPES OF TIMING: 1.the auditor reviews and approves the transaction after the services have been rendered and payment has been made. 2.
The review may consist of: 1. 3. 2. 4. Determining whether all relevant laws. Determining whether the required authority or approval has been secured. Physical inspection of supplies or equipment. and 5. Checking mathematical accuracy . Checking whether all necessary documents are submitted and properly accomplished. rules and regulations have been observed in the transaction.
2. EXTERNAL AUDIT ± performed by auditors external to or independent of the audited organization.B. In the state audit it is performed by the COA auditors. INTERNAL AUDIT ± mainly a management tool for control and evaluation of agency operations. AS TO ORGANIZATION STATUS 1. . it is conducted by independent certified public accountants on private business organizations. Sometimes referred to as ³management audit´. in commercial audit.
policies. 1. Financial audit performed primarily through an examination of financial statements in order to express an opinion on the fairness with which the financial condition and results of operations of an audited entity are presented. AS TO AUDIT SCOPE Fiscal audit is the ³traditional financial audit´ in government. . Compliance audit is an evaluation of the extent to which the agency has complied with pertinent laws.C. It is a combination of financial audit and compliance audits. 2. and rules and regulations in the conduct of its operations.
. program. and effectiveness in agency operations.PERFORMANCE AUDIT It is a constructive examination and evaluation of the financial and operational performance of an organization. efficiency. function or activity with the objective of identifying opportunities for greater economy.
. 3.ECONOMY AND EFFICIENCY AUDITS DETERMINE: 1. 2. The causes of inefficiencies or uneconomical practices. Whether the agency is managing and utilizing its resources economically and efficiently. Whether the agency has complied with laws and regulations concerning matters of efficiency and economy.
Whether the agency has considered alternatives that might yield desired results at a lower cost. .EFFECTIVENESS OR ´PROGRAM RESULTSµ AUDIT DETERMINES: 1. and 2. Whether the desired results or benefits established by the legislature or other authorizing body are being achieved.
Phase VI ± Finalization of report. . and standards it has adopted. 7. and the plans.III. 2. The state audit cycle consists of seven phases: Phase I ± Preliminary survey of the agency or audited entity Phase II ± Review of the legal and policy framework within which the agency operates. 5. and evaluation. and Phase VII ± Follow-up on the implementation of audit recommendations. 6. analyses. Phase V ± Preparation of draft report and presentation to agency officials. 4. 3. policies. Phase IV ± In-depth examination of critical areas. objectives. THE AUDIT PROCESS 1. Phase III ± Review and evaluation of the agency¶s internal control system.
policy.Phase I ²Preliminary Survey It is conducted to acquire a working knowledge of the audited agency and its legal. and administrative environment. . The auditor gathers general background information on the agency and its operations after which he defines the scope of his audit.
and operating standards.Phase II ² Review of Legal and Policy Framework In this phase. programs. the information gathered from the preliminary survey are reviewed in order to obtain a general knowledge of the legislation and policies applicable to agency objectives. . policies.
. At the end of the phase.Phase III ² Review and Evaluation of Internal Control System In this phase. the auditor is expected to have identified any problem areas which need further examination in detail. the auditor reviews the procedures and practices actually applied by the agency in processing its transactions to identify major critical areas that would warrant more detailed examination and determine the type of tests to be used in the closer examination of such areas later on.
records and such other relevant documents and analyzing. Data-gathering Analysis and Evaluation In this phase. books. inspection. or observation. verifying and confirming their content through enquiries.Phase IV ² In-depth Examination of Problem Areas. the auditor concentrates on audit finding on the problem areas. Indepth examination may involve reviewing agency reports. . evaluating. files.
An ³exit meeting´ is held between the auditor and agency officials to discuss reactions to the findings. and recommendations in the draft report.Phase V ² Preparation and Presentation of Draft Report A draft audit report is prepared based on the findings and recommendations formulated in the previous phase. conclusions. . The report is then presented to agency officials for review and comments.
the auditor finalizes the audit report.Phase VI ² Finalization of Audit Report After the meeting. The scope of the audit should be stated clearly and concisely in the report and any limitations should be explicitly mentioned. . The report should be clear and complete in its finding and recommendations in order to encourage the agency management to improve its operations.
.Phase VII ² Follow-up on the Implementation of Audit Recommendations Audit recommendations. proposed adjustments in the accounts. Efficiency and Effectiveness. such as suggested improvements. solution to existing problems. It is such improvements that will lead to a full attainments of its objectives and goals. It is the realization of the 3E¶s of agency management ± Economy. etc. should be followedup. correction or discontinuance of malpractices.
GENERAL OBJECTIVES. PRINCIPLES AND STANDARDS .
Establishing accountability for compliance with applicable laws. Establishing accountability for financial material and human resources of an agency. The efficient. and rules and regulations. .GENERAL OBJECTIVES 1. economical and effective operations of the agency is another accountability of public officials. It means the accountability of government officials to higher authorities for adherence to laws. policies. rules and regulations. 2. It aims to establish how and to what extent has the agency officials exercised their fiscal responsibility. 3. policies.
Communication of information to public authorities and the public through publication of audit reports. 2. Proper and effective use of public funds.SPECIFIC OBJECTIVES In the Lima Declaration of Guidelines on Auditing Precepts. . Development of sound financial management. specific objectives of state auditing are as follows: 1. Orderly execution of administrative activities. 3. and 4.
objectivity.AUDIT: PRINCIPLES AND STANDARDS Audit principles and standards guides the auditor in conducting his audit with integrity. . Professional audit standards serve as guideline to measure the quality of audit procedures used in the course of audit. Audit procedures are the various methods used in obtaining evidence and the steps followed in accomplishing the audit. Audit techniques are ways and methods of gathering evidence and information. independence and efficiency.
IV. . The COA is the official external auditor of the government. THE COMMISSION ON AUDIT The Commission on Audit (COA) is the highest public institution legally responsible for conducting professional government audit in the country and sometimes referred to as supreme audit institution (SAI).
POWERS. AUTHORITY AND FUNCTIONS OF COA .
2. or any of its subdivisions. or instrumentalities and such nongovernmental entities receiving subsidy or equity which are required to submit to COA audit. Keep the general accounts of the government Preserve the vouchers and supporting papers pertaining to such accounts Define the scope of its audit and examination and establish the techniques and methods required Promulgate accounting and auditing rules and regulations. 5. audit. owned or held in trust. by or pertaining to. Examine. and expenditures of funds and property. 4. the government. . and settle all accounts pertaining to the revenue and receipts of. 3.POWERS OF COA 1. agencies.
POWERS OF COA 6. Perform such other functions as prescribed by law. 8. . 7. and 9. Submit to the President and the Congress an annual report covering the financial condition and operation of the government and such other reports required by law. Recommend measures necessary to improve efficiency and effectiveness in government. Decide any case or matter brought before it within sixty days from date of its submission for decision or resolution.
2. Rule-Making ± exclusive authority to determine its scope of audit and examination and formulate accounting and auditing rules and regulations. Reportorial ± submission of reports to heads of audited agencies. 4. Limited Accounting Function ± keeping the general accounts of government by accounting for transactions affecting the overall cumulative results of operation (CRO) . the President. and such other reports as required by law. and settlement of accounts or liabilities. and Congress.FUNCTIONS OF COA 1. 3. Auditorial ± includes audit and examination through pre-audit and post-audit services.
initiation of criminal/malversation cases with Sandiganbayan. request for relief from accountability. Quasi-Judicial ± decision making on compromise claims. Recommendatory ± recommends measures to improve efficiency and effectiveness in general government and agency operations. issuance of opinions on queries. 8. and constructive distraint on property. membership in policy study bodies. Other Functions ± deputization of private licensed professionals to assist government auditors. 6. participation in inventory of assets and properties. and preservation of vouchers and other supporting papers pertaining to the general accounts. . 7. custody of funds from tax refunds. Custodial ± management and custody of the general accounts of government.FUNCTIONS OF COA 5.
The Chairman is the presiding officer of the CP and the chief executive officer of the Commission. Actual audit and examination is performed by a resident auditing unit headed by an auditor. The CP exercises its powers and authority collegially and has authority to act on any appeal brought before it for final resolution. The CP do not audit transactions involving government funds and property. Its decision is appealable only to the Supreme Court. . COA has a resident auditor who has full authority to perform duties in every agency.ORGANIZATION The Chairman and two Commissioners comprises the Commission Proper (CP) which is the highest policymaking body of the COA.
. The Accountancy Office prepares the annual financial report of the national government and verifies appropriations of and controls funds released to national government agencies. The Special Audit Office (SAO) conducts special audits.ORGANIZATION Provincial and city auditors supervise the resident auditors in their respective areas. They are in turn supervised by regional offices headed by Directors who supervise and control the implementation of auditing rules and regulations in agencies with the region. The COA central offices in Quezon City supervise and control the regional offices.
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