COMMISSION ON AUDIT MEMORANDUM NO. 93-316D November 11, 1993
TO
:
All Assistant Commissioners, COA Directors of Central and Regional Offices,
Heads of Auditing Units of National, Local and Corporate Agencies of the
Government and All Others Concerned.
SUBJECT:
Prescribing the Application of the Test Audit Scheme (TAS) and the Simplified
Sampling Scheme (SSS) in the Audit of Current and Prior Years Transactions
and Accounts of Local and National Agencies and Government Owned and/or
Controlled Corporations.
1.0
RATIONALE:
The tremendous volume and complexity of transactions in the government have made
the practice of examining each and every transaction physically impossible, and in fact has
created a large volume of backlog in post-audit.
The existing statistical sampling
methodologies presently prescribed by the Commission (COA Memorandum Nos. 84-316-A
and 85-316-C), have been applied by only few auditing units mainly in the corporate sector.
Thus, it has been observed that due to the adherence to 100% audit of transactions, backlogs
in post-audit kept piling up to millions of unaudited vouchers/receipts and other transaction
documents. The existence of these backlogs cannot but raise doubt on the integrity of the
Annual Audit Reports submitted by the Auditors.
Moreover, external auditing as performed by other audit institutions, both in this country
and in the world over, is always on test basis. Detailed audit is time-consuming, costly and not
necessarily more effective. The auditing staff cannot be expected to examine/review all the
work of an Accounting Department or Unit with more staff members.
This Commission therefore finds it necessary to develop other simplified schemes that
would facilitate audit work and which would be suited to national and local agencies as well as
to government owned and/or controlled corporations.
2.0
TEST AUDIT SCHEME
2.1
2.2
DEFINITION OF TERMS
2.1.1
Test Audit Scheme - An audit approach whereby the audit of the selected
months of the year is deemed to cover the audit of the transactions and
accounts of the entire year under audit.
2.1.2
Test Audit Months - The months selected for audit which shall comprise
at least six (6) months of the year under audit as determined in
accordance with the procedures prescribed in paragraph 2.2 hereof.
SELECTION OF TEST AUDIT MONTHS
2.2.1
The selection of test audit months which shall comprise at least six (6)
months of the succeeding year shall be approved by the COA Director
concerned. For this purpose, the Unit Auditor shall submit to the said
COA Director, on or before the end of December of each year, the
following information:
2.2.1.1
Monthly volume of transactions in terms of quantity and total
amount per month for the current year and the immediately
preceding two (2) years (for the initial year of implementation
only), categorized into collections, disbursements and other
non-cash transactions. Sub-categories under each of the
main categories may be presented as necessary depending
on the nature of the operations of the audited agency.
2.2.1.2
Recommendation of the auditor as to the months of the
succeeding year that will be subjected to audit.
On the basis of the foregoing information, the COA Director
concerned may either adopt the recommendation of the Auditor or make
changes in the proposed test audit months as he may deem fit or
necessary. The approved test audit months shall be communicated in
writing to the Auditor within fifteen (15) days upon receipt for the latter's
implementation. The communication of the COA Director approving the
test audit months shall form part of the permanent working paper file of
the auditing unit.
2.2.2
The approved test audit months shall be kept confidential and any
unauthorized release of information relative thereto shall be a ground for
disciplinary action.
2.2.3
The peak months of the year, i.e., the months when the transactions are
voluminous in terms of amount and quantity (other than the months of
January and December) shall likewise be included in the test audit
months. The peak months for collections may be different from the peak
months for disbursements and other transactions, in which case the peak
months for both shall be selected in the order of amount and quantity of
the transactions.
2.2.4
The months not selected as test audit month (non-test audit months)
during any year may be included as test audit month in the succeeding
year subject to the condition that the months of January and December
as well as the peak months of the succeeding year shall be included in
the test audit months.
2.2.5
The test audit months approved by the COA Director concerned shall not
be changed without the prior authority of the said Director except when
the change(s) is (are) in addition to the test audit months previously
approved. However, when in the judgment of the Auditor, the six (6) test
audit months approved by the Director can still be reduced as when the
internal control system of the auditee agency has been established to be
adequate or when errors, suspensions and/or disallowances have been
very minimal or negligible or when sheer volume of transactions compels
further reduction of test, the Auditor may upon proper written justification
recommend to the COA Director concerned, the reduction of the six (6)
test audit months which in all cases shall not be less than four (4)
months.
2.3
AUDIT SCOPE AND PROCEDURES
2.3.1
2.3.2
The audit of the test audit months shall cover the entire accounting cycle,
i.e., from the source documents at the inception of a transaction up to the
point when that transaction is ultimately immersed in the agency's
financial statements or vice-versa. The audit of the entire accounting
cycle will generally comprise the following stages:
2.3.1.1
The audit of source documents for receipts, disbursements
and other sources of original entries.
2.3.1.2
The audit of entries in the Books of Original Entries and
month-end accounts summarization.
2.3.1.3
The audit of postings from the Books of Original entries and
other sources, to Subsidiary and General Ledgers.
2.3.1.4
The verification of trial balance, financial statements and other
financial reports.
Where the audit in any of the test audit months results to suspensions
and/or disallowances or when there are complaints/adverse information
concerning certain transaction (whether or not the transactions subject of
adverse information are included in the test audit months), all other
related or similar transactions in all the months of the year under audit
(including the non-test audit months) shall be audited. However, when in
the judgement of the Auditor, the suspensions or disallowances in the
test audit months are not material as to warrant the audit of the related or
similar transactions in the not-test audit months, he may dispense with
the audit of the latter mentioned transactions upon written authority of the
Director concerned.
In case fraud is established during the audit, a special audit report
shall be prepared and submitted immediately in accordance with the
guidelines embodied in COA Memorandum No. 93-813 dated July 9,
1993.
2.3.3
The Unit Auditor shall keep a permanent file of the Audit Program used in
the examination of the transactions and accounts in the test audit months
indicating therein among others, the names of the audit staff assigned to
perform the audit. The said Audit Program shall be up-dated upon
completion of the audit for a particular month, to reflect therein the actual
audit procedures undertaken and the names of the audit staff who
actually performed the audit activities embodied in the audit program.
2.4
ISSUANCE OF THE CERTIFICATE OF SETTLEMENT AND BALANCES (CSB)
2.4.1
The CSBs shall be issued only for the test audit months except in the
instances contemplated on paragraph 2.3.2 above where the particular
transactions audited in the non-test audit months shall likewise be
covered by the corresponding CSB.
2.4.2
Only the transactions audited shall be stamped "Post-audited" although
the transactions for the entire year shall be deemed to have been
audited.
2.4.3 Auditing units applying the test audit scheme as herein prescribed shall
issue the CSB on a monthly basis in accordance with par. 2.4.1 above.
2.4.4
3.0
When Test Audit Scheme is applied, the certification on the face of the
CSB may be modified to include a statement to the effect that the
transactions/accounts covered by the CSB have been audited in
accordance with the Test Audit Scheme procedures prescribed under
COA Memorandum No. __________.
SIMPLIFIED SAMPLING SCHEME
3.1
DEFINITION OF TERMS
3.1.1
Batch/population - documents consist of vouchers/receipts/JVs and
other transaction documents including their summaries and supporting
papers, usually submitted by management in batches periodically to the
Auditor for examination and audit. If one month's transactions are few,
several months may be combined and if they are voluminous one month
may be divided into several populations. In no case, however, shall the
population consists of more than four months transactions.
3.1.2
Error - is a deviation from or non-compliance with laws, rules and
regulations, or defects in the transaction that affects its validity including
inaccuracy in computations and representation of amounts.
3.1.3
High Value Items transactions that are high in amount as determined in
accordance with the procedures prescribed and illustrated in paragraph
3.3.1.2a thereof.
3.1.4
Key Items/Special Items transactions and accounts that are prone to
error, subject of complaints, and other high risk transactions which in the
perception of the auditor require detailed 100% audit such as payment for
infrastructure contracts, cancelled/tampered ORs, bank reconciliation
statements and the like.
3.1.5
Route - direction specified for each month in the quarterly Memorandum
issued by the CASU/CRASU or its equivalent which is either downward or
sideward.
3.2
3.1.6
Tolerable Error Rate - percentage of error in relation to the samples
selected which does not materially affect the integrity of the population
represented in the sample size.
3.1.7
Substantive Errors - when the amounts paid or collected or assessed are
illegal, invalid inaccurate or unrecorded. These are also the monetary
inaccuracies in computation.
3.1.8
Compliance Errors - deviations from the established system of internal
control and prescribed rules and regulations including approval and other
documentary requirements.
SAMPLING SUPPORT ORGANIZATION
Creation and Functions of CASU/CRASU.
There shall be a COA Audit Sampling Unit (CASU) for operating offices
and COA Regional Audit Sampling Unit (CRASU) for regional offices or its
equivalent unit that will monitor, supervise the activities of auditing units applying
sampling techniques and conduct in-house training on sampling. It shall also
issue one month before the beginning of each quarter the Random Number Start
(RNS) covering three months period. (Annex A)
3.3
PROCEDURES :
3.3.1
BASIC SAMPLING DETERMINANTS
3.3.1.1
Determination of Populations
a.
b.
Official Receipts - The Population in the audit of
Official Receipts (ORs) may be classified in the
following manner:
a.1
All ORs per accountable officers;
a.2
All ORs as submitted for a particular period
by management and as reported by the
Chief Cashier regardless of revenue
classification;
a.3
All ORs per revenue classification for a
particular period. The population may be per
month, per two (2) months or per three (3)
months depending on the volume. In no
case shall it exceed four (4) months.
Disbursement Vouchers - the population in the
post-audit of Disbursement Vouchers (DVs) shall
include all the DVs submitted for a particular period
as reflected in the transmittal letter after separating
the payrolls, liquidation for cash advances and
Journal Vouchers (JVs). The payrolls, liquidation
of cash advances (other than payrolls) will
constitute separate populations while JVs will be
audited 100%. The audit of the liquidation of cash
advances (other than payrolls) shall be related to
the cash examination undertaken and vice versa.
The population may be composed of one month,
two months or three months transactions
depending on the volume. In no case, however,
shall the population exceed four months
transactions.
c.
3.3.1.2
Payrolls - the population for the post-audit of
payroll shall consist of the total number of payees
or employees per period. This may be per month,
per two months or per three months depending on
the volume. In no case shall it exceed four months.
Adjusted Populations
The adjusted population is defined as the population
less High Value Items (HVIs) and Key Items (KIs). In cases
where the population is homogeneous in terms of amounts, as
in the case of payrolls, only KIs are separated from the
population to arrive at the adjusted population. HVI's and KI's
are to be post-audited 100%.
3.3.1.2a
Determination of High Value Items - High Value
Items are determined with the use of the
percentage table to define the high value as
shown below.
Percentage to Define High Value
Number of Transactions
in the population
0 - 1999
2000 - 4999
5000 +
Percentage
5%
2%
1%
Illustration:
For the month of May, 1993, accounting unit submitted
2,030 vouchers (payrolls and journal vouchers are considered
separate population and are already segregated) to COA with
a total amount of P11,000,000.00.
From the table of
percentage, 2,030 falls in the range of 2,000 - 4,999 for which
2% is to be used to determine high value. High Value (HV) 2% x P11,000,000.00 = P220,000.00. This means that any
single transaction amounting to P220,000.00 and above will
be considered high value item.
3.3.1.3
Sample Size
The sample size to be used must have the right
balance between two conflicting needs - minimal sampling
uncertainty and audit economy. Sampling uncertainty can be
reduced by increasing the sample size but this would be at the
expense of audit economy.
The desired sample size from a given population shall
be determined through the use of the following table in the
determination of sample sizes as shown below:
Determination of Sample Sizes
No. of transaction
in the population
0 - 199
200 - 1999
2000 - 4999
5000 +
Sample Size
75
100
150
200
Sample Sizes are determined based on the adjusted
population or on the unadjusted population in case there will
be no KI's and HVI's.
Illustration:
Assuming that from the submitted 2,030 vouchers with
a total amount of P11,000,000.00, 10 vouchers are high value
items, each with amounts of P220,000.00 or more totalling to
P7,000,000.00 and 40 vouchers picked as key items
amounting to P500,000.00. The adjusted population will now
be:
Total volume
2,030
less HV items
(10)
Key items
(40)
----------------------------------Adjusted Population 1,980
The sample size for 1,980 vouchers based on the table is 100.
3.3.1.4
Sample Interval
The sample interval is determined by dividing the
adjusted population by the desired sample size.
Example: Based on the given example
Sample Interval (SI) = 1,980 Adj.Pop.
----------------------100 sample size
= 19.80 or 20
This means that if the sample interval is 20, the auditor
will select one sample for every 20 vouchers.
3.3.2
SELECTION OF SAMPLES
In the selection of samples, several factors are to be considered.
For one, every item in the population must have an equal or known
chance of selection. Another, the process of selecting the sample must
be unbiased. The samples will be selected on a systematic sampling
technique. This means that after getting the sample interval (SI), the
Auditor will look from the Memorandum on Random Number Start (RNS)
(Annex A) for starting number. In the selection of the prescribed starting
number, the month of audit is the reference month. When the prescribed
number is higher than the SI, the auditor should refer to the prescribed
route stated in the Memorandum to get the number which is equal to or
less than the SI. As in our example, 20 is the SI and refering to the
month of June in the Memorandum (Annex A), 45 is the starting number
for two (2) digits in Table I (Annex B). Since 45 is higher than the SI, the
auditor will go downward and look for a number equal to or less than 20,
which in this case, the number is 15. This means that the first sample
item is the 15th voucher. For the succeeding sample items, add the SI to
the number of the first sample item and every interval thereof until the
desired sample size is obtained.
1st sample item
2nd sample item 15 + 20
3rd sample item 35 + 20
4th sample item 55 + 20
=
=
=
=
15th voucher
35th voucher
55th voucher
75th voucher
This process will continue until the desired sample size is
attained.
Random Number Start
A memorandum on monthly Random Number Start (RNS) will be
issued by the CASU/CRASU or its equivalent on a quarterly basis
covering three months period.
3.3.3
EVALUATION OF SAMPLES
The selected samples are post-audited and evaluated by
comparing the actual compliance and substantive errors found during the
audit of the samples with the tolerable error rates. The tolerable error
rate for compliance evaluation is 20% of the sample size while the
tolerable error rate for substantive evaluation is 8% of the total amount of
the sample size (Annex C). If the audit of samples does not pass
compliance and/or substantive evaluation, the auditor shall audit the
whole population.
In both cases, the auditor shall submit the
corresponding evaluation report.
Evaluation Working Paper
The auditor shall prepare an Evaluation Working Paper (EWP)
(Annex C). While the format is flexible, it must include the reference for
the transactions audited and the total number of compliance and
substantive errors found in the sample. A copy of the EWP shall be
attached to and submitted quarterly together with the accomplishment
report.
When error rates do not exceed the tolerable error rates.
When the audit of the samples reveal compliance and/or
substantive error rates equal to or below 20% or 8%, respectively, but
which nevertheless resulted to suspensions or disallowances, the
transactions in the population related to or similar to the transactions
suspended or disallowed in audit shall be audited 100%. The rest of the
other transactions in the population shall be considered to have been
passed in audit. The amounts suspended and/or disallowed shall be
reflected in the CSB.
When error rates exceed the tolerable error rates.
When the audit of the samples resulted to a situation where
either the compliance or substantive error rate exceeds 20% or 8%
respectively, the whole population shall be audited 100% and the
resulting suspensions and/or disallowances shall be reflected in the
CSB/s.
3.3.4
ISSUANCE OF CERTIFICATE OF SETTLEMENT AND BALANCES
(CSB)
When sampling is applied, the CSB shall preferably be issued on
a per population basis. The certification on the face of the CSB may be
modified to include a statement to the effect that the
transactions/accounts covered by the CSB have been audited in
accordance with the Simplified Sampling Scheme procedures prescribed
under COA Memorandum No. 93-316D.
Transactions to be stamped "Post-Audited"
Only the audited High Value Items, Key Items and the samples
selected shall be stamped post-audited although the entire population
represented by the samples shall be deemed to have been post-audited
and covered by the corresponding CSB or CSBs issued therefore.
3.3.5
REPORTING
The auditor will submit to CASU/CRASU or its equivalent the
quarterly accomplishment report (annex D) which shall reflect the
transaction stream, the month of audit, period covered, the volume, the
sample size, the key and high value items, the total transaction passed in
audit and the number of transactions disallowed/suspended. Likewise,
the audit objectives with the corresponding audit procedures as stated in
the State Audit Manual shall also be included but only in the initial
implementation of sampling.
3.3.6
AUDIT SCOPE
The audit of the samples, the High Value items and the Key Items
shall likewise cover the entire accounting cycle as provided in 2.3.1
hereof. The transactions selected as samples including the High Value
Items and Key Items shall be audited and considered as the basis for
audit of the accounts affected by the transactions. In case there are
account/s whose transactions do not form part of the samples selected or
where there are only very few transactions forming part of the samples,
the Auditor may select additional samples pertaining to the said
account/s.
For the audit of payrolls, the audit may be done through sampling
as herein prescribed or by using the systems-based audit approach as
prescribed in Section 30.3 of the State Audit Manual.
The application of sampling enables the Auditor to form a
conclusion on the state of compliance with applicable laws, rules and
regulations not only on the sample transactions but also on the
population of transactions subjected to sampling selection, and therefor
provides the Auditor with an achievable target and manageable audit
scope in the post-audit of transactions.
However, sampling's inherent limitation is that it is merely an audit
technique and may not provide all the answers to the problems that may
be encountered in the conduct of the audit. Thus, to ensure that the
standard of "sufficient, relevant and competent evidence" needed by the
auditor to arrive at a conclusion on the regularity, efficiency, economy or
effectiveness of operations or to express an audit opinion on the financial
statements, is adequately met, it will be necessary for the auditor to
employ, in addition to the procedures applied to the sample transactions,
other audit tools and techniques such as but not limited to the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
4.0
Inspection/physical count
Confirmation
Observation
Analysis
Interview/inquiry/questionnaire
Recomputations
Review of reconciliation procedures
Modeling
Flowchart/ validation
POST-AUDIT OF BACKLOGS
The up-dating of post-audit backlogs shall be carried out in accordance with the
procedures prescribed. However, in view of the Annual Audit Report that have been rendered
in the previous years, the audit of the corresponding accounts need not be disturbed except
when the same is relevant to and affects the balances of accountabilities reflected in the books
of accounts. As a general rule therefore, the audit of backlogs shall be limited to the
determination of regularity or validity of transactions except when balances of accountabilities
are affected as a result of the issuance of CSBs or other pertinent special audit reports.
5.0
CONTINUATION OF SAMPLING SCHEMES PRESENTLY EMPLOYED:
The existing sampling schemes, the COA-Sampling-Card Methodology (CSCM) and the
Pareto's Principle of Distribution shall still be continued. The Auditor shall have the options to
choose which scheme is best suited in their particular agency.
6.0
LEGAL AUTHORITY VIS-A-VIS LIABILITY:
The provisions of the Constitution grant the Commission exclusive authority to define
the scope of its audit and to establish the techniques and methods required therefor. This
Constitutional prerogative is amplified in Section 43 (3) of PD 1445, otherwise known as the
Government Auditing Code of the Philippines and Section 28 (3), Subtitle B, Book V, of the
Administrative Code of 1987 (E.O. No. 292), which contains the basic proviso that justifies the
promulgation by the Commission of auditing procedures and techniques to wit:
"In the performance of their respective audit functions as herein specified, the auditors
shall employ such auditing procedures and techniques as are determined by the Commission
under regulations that it may promulgate."
When the auditor employs the sampling techniques authorized by the Commission and
as long as he apply the technique in good faith and with due care, he does not incur any civil,
criminal or administrative liability arising in any way from his use of such audit technique.
The sampling procedures herein prescribed should be applied only in instances where
the volume of transactions is physically impossible to audit 100%. When the volume of
transactions does not warrant the application of sampling technique, the auditor may perform a
100% audit.
7.0
EFFECTIVITY:
This memorandum shall take effect immediately.
(SGD.) PASCASIO S. BANARIA, Chairman
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COMMISSION ON AUDIT MEMORANDUM NO. 93