Checks and Balances: Audit and Accountability in Philippine Public Finances

Leslie Jamie Cobar

Tuesday, 11 May 2010

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Anti Corruption
Audit
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Transparency And Accountability

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 governments 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 governmentowned 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.
PAGCs 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, governmentowned and controlled corporations and non-government organizations receiving benefits and subsidies from the
government.
The Constitution identified the following functions for the Commission:
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;
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;
Submit annual reports to the President and the Congress on the financial condition and operation of the
government;
Recommend measures to improve the efficiency and effectiveness of government operations;
Keep the general accounts of government and preserve the vouchers and supporting papers pertaining
thereto;
Decide any case brought before it within 60 days;
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 agencys 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:
Regular Annual Audit Report of each NGA, LGU and GOCC
Consolidated Annual Financial Report for NGAs, LGUs and GOCCs
Special Audit Reports
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 opinionsindicating 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 years 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 countrys
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 countrys 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 Sandiganbayans 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 CENPEGs study on the effectiveness of the judicial system in combating corruption 5, 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 COAs mandate, the accounting and auditing system
In her public budgeting and accounting class6, the late Professor Emilia Boncodin stressed some issues on
COAs 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 agencys 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 GOCCs 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 DPWHs 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
COAs 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 COAs 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 COAs 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 COAs 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 COAs 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:
Human error, i.e., errors in judgment such as internal auditors biases/conflict of interest, negligence,
misunderstanding, fatigue, distraction, collusion, abuse, etc.
Shifts in government policies or programs
Resource constraints
Organizational changes; and
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 Partnerships (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:
Dissemination of budget information
Executives annual budget proposal

Availability of other information

Budget process
Questions in the survey are further segmented into the following:
a. Executives budget proposal
Citizens budget
Pre-budget statement
In-year reports
Mid-end review
Year-end report
Audit report
In the report of the 2008 Open Budget Survey, findings show that 80 percent of the worlds 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:
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.
Institutionalize mechanisms for public involvement in the budget process, including public hearings
during formulation and discussion of the Executives budget proposal, and at regular intervals throughout the
budget cycle.
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.
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.
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.
Credibility of the budget
Comprehensiveness and transparency
Budget cycle
Policy-based Budgeting
Predictability and Control in Budget Execution
Accounting, Recording and Reporting
External Scrutiny and Audit
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
Cario, 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

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.

the Philippine

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

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.

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Comments

# Vicente Mariano 2010-05-18 11:31

The story provides a comprehensive view of the Audit and Accountability landscape in Philippine Public
Finances. Congratulations to the writer!
As to the obervation on the feasibility of recommendations :
"The COAs recommendations on reports are not always being followed by agencies and these are already
beyond the control of the institution." would it be possible to have an idea or estimate of the percentage of how
many recommendations are not followed? Such a figure could be a basis of what should be done to minimize the
waste of very scarce government resources.
If a big percentage of agencies habitually do not follow the recommendations , why so? Is COA unreasonably rigid
in its applying the letter of the law, but not the spirit? Or is it because the agencies can get away with their
disallowances in spite of COA's recommendations .