COMMISSION ON AUDIT MEMORANDUM NO. 93-813 July 9, 1993
TO
:
SUBJECT:
I.
All COA Assistant Commissioners, Directors, Heads of Auditing Units,
Supervisors, Leaders and Members of Special Audit Team and All Concerned.
Guidelines on the Conduct and Reporting of Fraud Audits
PURPOSE
In order to enhance the quality of fraud audits and the corresponding audit
reports as well as to avoid the protracted delays in their preparation, finalization and
transmittal, the guidelines on the conduct and preparation thereof are hereby prescribed
for the guidance and compliance of all concerned.
II.
RATIONALE
Past experiences have indicated that the preparation of fraud audit reports have
not always been satisfying. Often, these are not complete, reliable and timely. It has
been noted that it normally takes at least a year before a final report is prepared and
transmitted to the Agency Head who could have resigned or retired or even perhaps
been promoted. The Agency Head would have missed an opportunity to strengthen the
internal control system in his office and to impose penalties on those responsible for
violations. Certainly, a delayed audit report loses much of its value.
It must be borne in mind that a fraud audit report should be acted upon with
dispatch so that it can be released as expeditiously as possible to avoid or minimize
possible further losses or damages to public funds and/or properties, to prevent guilty
parties from covering up the effects of their acts, to enable the Agency Head to apply
remedial measures and to forestall any suspicion that the auditor is withholding results
for some consideration.
III.
DEFINITION OF FRAUD
a)
Fraud is deemed to comprise anything calculated to deceive, including all acts,
omissions, and concealment involving a breach of legal or equitable duty, trust,
or confidence justly reposed, resulting in damage to another, or by which an
undue and unconscientious advantage is taken of another. (People vs. Sabio,
86 SCRA 596).
Fraud indicates that there has been disclosure or detection of deceit, abuse,
wastage or illegal act that has resulted in loss or damage to public funds and
properties. Consequently, there has been a violation of law, rule or regulation.
IV.
GUIDELINES ON THE CONDUCT AND REPORTING OF FRAUD AUDITS
A.
CONDUCT OF AUDIT
A fraud audit is conducted when there is a suspicion of a report that fraud exists.
Fraud may also be discovered in the course of a financial audit.
1.
2.
3.
Team Composition
1.1
The quality of audit work depends on the skill and competence of the
audit team, the proper planning of the work and effective supervision. As
such, the team shall be composed of members having adequate
technical training and proficiency as auditors. Considering the delicate
and sensitive nature of fraud audit assignments, the auditors shall
maintain independence in mental attitude and be able to face and defy
pressures and temptations.
1.2
The choice of a Team Leader shall be carefully made. Because the
success of the audit depends so much on the ability and dedication of the
Team Leader, only one who is competent and is properly motivated shall
be designated as such.
1.3
Likewise, the successful completion of every audit assignment depends
to a large extent on the effectiveness of supervision. Hence, the
selection of the Team Supervisor shall be based on the nature and
degree of complexity of the audit assignment.
Preparation of the Audit Program
2.1
An audit program shall be prepared by the Team Leader and reviewed by
the Team Supervisor after the required survey of the auditee. This will
assure, to a certain extent, the proper approach to and conduct of the
audit according to audit standards.
2.2
If an audit survey of the auditee is not immediately feasible, a
standard/general audit program shall be prepared subject to later
modifications to suit the particular audit.
2.3
The audit program shall, in all cases, be discussed with the team
members. The performance of the team members according to the audit
program shall be closely monitored to ensure that the work is being
carried out properly and promptly.
Assistance in the Audit
3.1
Unit Auditor
The Unit Auditor of the agency under examination shall be consulted in
the course of the audit, whenever necessary. However, when he/she
hampers the conduct of the audit or is implicated in any reported
anomaly, he/she shall be relieved from his/her duties and responsibilities
as unit head or be transferred to another office during the audit period.
This matter shall, however, be handled with utmost care and action shall
be taken at the highest COA level.
3.2
Legal Office
The assistance of the Legal Office shall be availed of to resolve legal
issues encountered in the course of the audit. It shall render legal advice
to the team particularly in the identification and preparation of evidences
necessary in the filing of possible administrative or judicial action. It shall
assist in the preparation of sworn statements necessary in the filing of
cases with the Ombudsman.
3.3
Technical Service Office (TSO)
The services of the TSO may be requested when necessary. It shall act
on the Team's request for assistance with priority and render an
appropriate report of its findings within five (5) days upon completion of
the services rendered. Said report shall be an integral part of the fraud
audit report.
4.
5.
Documentation of the Audit
4.1
The audit team shall be guided by the standards, procedures and
techniques prescribed under Chapter V of the SAM.
4.2
Adequate working papers shall be developed during the field work.
4.3
The audit team must obtain sufficient competent evidence and must
adhere on proper documentation of its findings. It must always be
conscious of the importance of audit evidence and documentation.
4.4
The audit team must be aware of its responsibility to keep original
documents for questioned transactions.
4.5
Requests for documents shall always be in writing duly signed by the
Team Leader and acknowledged as received by the appropriate auditeeagency official/personnel.
4.6
The originals of documents, properly numbered, may be borrowed but it
shall be duly receipted for by the Team Leader.
Exit Conference
5.1
An exit conference with agency official concerned shall be conducted at
the conclusion of the audit in order to resolve certain issues and inform
the Auditee of the audit findings and recommendations. In this manner,
immediate remedial actions may be undertaken by Management to avert
further losses without waiting for the final report. However, sensitive
issues shall not be discussed in an exit conference if for some compelling
reasons, the issues involved cannot be prematurely disclosed without
posing a threat on the life and safety of the audit team or the
confidentiality of the evidences gathered.
5.2
In case the security of the team is in danger, the exit conference shall be
held at the COA Central Office/Regional Office.
B.
5.3
A member of the team shall be assigned to take down the minutes of the
conference, especially the reactions or explanations of the Auditee on the
audit findings discussed.
5.4
Should the Auditee desire to submit a written comment to rebut the audit
findings, such response with proper documentation if necessary, shall be
submitted within the time agreed upon. These shall be properly
evaluated and, if justifiable, shall be incorporated in the final report.
5.5
In case no exit conference could be held, the audit team shall provide
Management with the Audit Highlights with a request that comments be
submitted within five (5) days after receipt thereof.
REPORTING
Fraud audit report conveys findings on fraudulent, abusive or illegal acts
discovered in fraud audits conducted upon authorization of the Chairman or the
Regional Director. Because it may probably be the basis of court action, the
report shall be prepared with extreme care and caution supported with strong
and competent evidence.
1.
C.
Format of the Audit Report
1.1
The audit report must be in the format as prescribed in Annex A of
this memorandum, duly signed by the Director, Team Supervisor,
the Team Leader and all team members.
1.2
It shall be addressed to the Head of the Agency audited, with
copies furnished to the Department Head concerned, the Unit
Auditor of the audited agency and other interested parties, thru a
transmittal letter signed by the Chairman.
1.3
Since the report will probably be the basis of an administrative or
judicial action, evidences gathered must be able to stand close
scrutiny. Sworn statements of the members of the audit team and
other witnesses, as well as copies of contracts, ledgers, journals,
requisitions, purchase orders, checks paid, etc., shall be attached
to the report. All persons appearing to be responsible for the
discovered fraud or anomaly must be named or identified.
1.4
Fraud audit reports shall be endorsed to the COA Review Panel for
evaluation.
1.5
As soon as the fraud audit reports are received by the COA
Review Panel, a number shall be assigned thereto for control
purposes.
DUTIES AND RESPONSIBILITIES
1.
2.
3.
Team Member
1.1
The team member shall develop and assess each of his/her audit
findings by preparing a summary sheet identifying therein the
condition, criteria, cause and effect (as provided under Section
40.2.2 of the SAM) and listing under each element the
corresponding evidence/s gathered to support the same.
1.2
He/she shall be responsible for the retrieval of documents related
to his/her audit areas.
Team Leader
2.1
The Team Leader shall closely monitor the adherence to the audit
program by all team members.
2.2
He/she shall prepare an interim audit report which shall be the
basis of the Chairman in determining whether the audit will result
into a court case that will warrant the assignment of a lawyer to
the team.
2.3
He/she shall prepare the fraud audit report with the assistance of
the Team Supervisor within thirty (30) days after the completion of
the field work.
2.4
Whenever necessary, the Team Leader shall seek the advice of
the Team Supervisor or the Director in case the problem is
serious enough to require their immediate action.
Team Supervisor
3.1
The Team Supervisor shall review and approve the audit program.
3.2
He/she shall participate, as much as possible, in the field work to
be well aware of the status of the audit and possible problem
areas. He/she must assist and guide the Team Leader in order to
provide reasonable assurance of an effective audit.
3.3
He/she shall resolve significant accounting and auditing questions
raised during the audit.
3.4
He/she shall review the appropriateness of the audit working
papers to ensure that these adequately address the audit
objectives and clearly reflect the audit procedures performed by
the audit team.
3.5
He/she shall see to it that all evidences gathered by the audit
team are adequate in support of the audit conclusions.
4.
5.
3.6
He/she shall assist the Team leader in the preparation of the fraud
audit report.
3.7
He/she shall report in a confidential memorandum to the
Chairman,
thru
the
Director
concerned,
the
involvement/irregularity and recommend the relief of the said
auditor, as soon as sufficient competent evidential matters are
obtained.
3.8
He/she shall determine with the Team Leader the need for the
assistance of the TSO and/or the Legal Office in the conduct of
the audit and sign the request/s for such assistance.
3.9
He/she shall preside over the exit conference at the conclusion of
the audit.
Director
4.1
The Director concerned shall conduct periodic progress meetings
with the Team Supervisor so that he/she shall be informed of the
status of the audit and other problem areas.
4.2
The Director concerned shall review the report draft and transmit
the same to the Chairman within fifteen (15) days after its
submittal by the audit team.
4.3
The Director concerned shall set time tables for the preparation,
review, typing (encoding) and finalization of the audit reports in
order to avoid unnecessary delays that might adversely affect the
effectiveness and significance of the reports.
Unit Auditor
5.1
The Unit Auditor shall follow-up with the Agency Head concerned
such action as may be taken on specific findings and
recommendations, render a written report thereon to the
Chairman within thirty (30) days so that further follow-up can be
undertaken.
5.2
Ordinarily, it shall be the duty of the Unit Auditor to conduct fraud
audits whenever in the course, of his/her regular audit work, fraud
of suspicion of fraud is discovered. In this case, he/she shall
immediately inform the Director concerned, in a confidential
memorandum, of the fraud discovered and the recommendation
for the creation of the fraud audit team from among the regular
staff of the Unit.
5.3
In case the Unit Auditor believes that the fraud audit can not be
pursued by his/her own staff, he/she shall explain the reasons
therefor. The creation of a fraud audit team from outside the
Auditing Unit's staff complement shall depend upon the validity of
the explanation given by the Unit Auditor.
V.
COMMON ANOMALIES AND IRREGULARITIES
The types of the most common, usual and recurrent violations of laws, rules and
regulations are summarized in Annex B of this memorandum.
VI.
RELATIONSHIP WITH THE STATE AUDIT MANUAL
This memorandum modifies the suggested format on reporting of fraud audits appearing
on page 529 of the State Audit Manual.
For the guidance and compliance of all concerned.
(SGD.) PASCASIO S. BANARIA, Chairman