Objectives of an audit as stated in paragraph 11 of ISSAI 1200: (a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and (b) To report on the financial statements, and communicate as required by the ISAs, in accordance with the auditor’s findings. In addition, the audit team needs to recommend measures to improve the efficiency and effectiveness of government operations as mandated by the Philippine Constitution. The Commission on Audit is the Philippines’ Supreme Audit Institution. It was formally established by the Americans on May 8, 1998. Since then, it had undergone several jurisdictional and organizational reforms under the Philippine Constitutions of 1935, 1973 and 1987. The appropriation of the Commission for its annual operating requirements is funded by the General Appropriations Act (GAA), and utilization of the funds is in accordance with the GAA, budget circulars and other pertinent laws, rules and regulation. The 1987 Constitution grants fiscal autonomy to the COA. Section 5, Article IX-A, Common Provisions states: “The Commission shall enjoy fiscal autonomy. Their approved annual appropriations shall be automatically and regularly released.” COA is a member of the Constitutional Fiscal Autonomy Group (CFAG). It is envisioned in the Constitution that fiscal autonomy guarantees each member of the CFAG the full management and the control of its financial affairs as well as the flexibility to allocate, administer and utilize its resources with the wisdom and dispatch that its official needs require. 1. 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; 2. Promulgate accounting and auditing rules and regulations including those for the prevention and disallowances of irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of government funds and properties; 3. Submit annual reports to the President and the Congress on the financial condition and operation of the government; 4. Recommend measures to improve the efficiency and effectiveness of government operations; 5. Keep the general accounts of government and preserve the vouchers and supporting papers pertaining thereto; 6. Decide any case brought before it within 60 days; and 7. Perform such other duties and functions as may be provided by law. Supervising Auditor: Maribeth De Jesus, Director III Audit Team Leader: Eden Bunayog, State Auditor III Audit Team Member: Mark Anthony Flores, State Auditor I Audit Scope: Financial Year January 1, 2015 – December 31, 2015 Audit Timetable: 1. Planning phase – September 21, 2015 to October 13, 2015 2. Execution phase – October 14, 2015 to February 28, 2016 3. Conclusion/Reporting – March 31, 2016 The Department of Social Welfare and Development (DSWD) is the executive department of the Philippine Government responsible for the protection of the social welfare rights of Filipinos and to promote social development. 1. To provide social services to NCR residents as well as the transient inhabitants since NCR is the destination of rural migrants and settlers from nearby cities seeking domestic and overseas jobs, temporary stay for studies, or seeking refuge from calamities and disasters ad finding livelihood or other means to support their families. 2. Address the concerns of the poor segments of the NCR population since Urban poverty is a key feature of its environment. NHTS has identified poverty to be particularly high in the cities of Manila, Quezon City, Caloocan, Malabon and Navotas. 3. Oversee social service delivery, referred to as the “steering/implementing role” to respond to the needs of the claim holders, such as: • Provision of services for center-based clients - Manage and maintain the operations of nine residential care facilities - Manage and maintain the operations of three training and rehabilitation centers • Implementation of 4Ps/CCT Grants - Compliance Verification System monitoring - Verification of Liquidation Reports for OTC mode of payment of grants • Assistance to Individuals in Crisis Situation (AICS) - Provision of medical/financial/burial assistance • Disaster Relief Operations • Sustainable Livelihood Programs-SEA-K • Social Pension to Indigent Senior Citizens - Provides monthly pension to Indigent Senior Citizens aged 65 and above. • Supplemental Feeding - Provides food supplementation in the form of Hot Meals to be served during the snack/meal time to target children five (5) days a week for 120 days. 4. Provide special child placement services such as adoption, foster home care, legal guardianship and issuance of travel clearances are exclusively DSWD regional functions. The FO-NCR operates on a total appropriation of Php 4,336,225.00 for CY 2015, sourced from the National Government and funds transferred from the DSWD Central Office categorized as Centrally-Managed Funds. The agency also received donations from local and foreign sources during crisis/calamities and/or directly delivered/given to the residential care facilities/centers. •DSWD-Office of the Secretary •DSWD FO-NCR management and employees •Non-Government Organizations/People’s Organization (NGOs/POs) •Program Beneficiaries •Donors – Foreign and Domestic •Legislators •Government – DOH/Philhealth/Department of Education/LGUs/DBM-PS/NFA/PITC The Philippine Public Sector Accounting Standards (PPSAS), based on the International Public Sector Accounting Standards (IPSAS), is the financial reporting framework adopted by the DSWD, as prescribed by the COA, for annual reporting periods beginning January 1, 2014. This means that the financial statements, consisting of the following, are prepared and presented under the accrual basis of accounting: Statement of Financial Position; Statement of Financial Performance; Statement of Changes in Net Assets/Equity; Statement of Cash Flows; Statement of Comparison of Budget and Actual Amounts; and Notes to Financial Statements, comprising a summary of significant accounting policies and other explanatory notes The DSWD recognizes the effects of changes in accounting policy retrospectively. The effects of changes in accounting policy are applied prospectively if retrospective application is impractical. The effects of changes in accounting estimates are applied prospectively by including in surplus or deficit. The agency corrects material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery by restating the comparative amounts for prior period(s) presented in which the error occurred; or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets/equity for the earliest prior period presented. The following are the identified Business and Process risks of DSWD assessed as High: Cash Management (Financial/Control/Compliance Risk) Improper handling and recording of cash advances due to lack of proper training in the discharge of duties as Accountable Officers (AO). Reconciliation (Financial Risk) - Risk that the Agency’s financial statements might not be fairly presented due to the delay in the preparation of reconciliation of accounts. Procurement (Financial/Compliance Risk) - Failure to identify and prevent legal risk posed by not complying with the agency procurement reform act.\ PROCESS LEVEL RISKS: - The agency might have purchases that are not included in the Annual Purchase Plan (APP) - The agency might have sent invitations to bid for unfunded purchase request - Multiple POs resulting to double payment to suppliers - Unauthorized purchases - Related assets, expenses and payable, if on account, might not be recorded in the proper period. GAD Requirements (Compliance Risk) - The risk that the Agency may not set at least 5% of their total budget for Gender and Development Programs. Accounting for Donations (Business/Financial Risk)– risk that the donation transactions might not have been accounted properly due to weakness in internal controls that might put the integrity of the agency at stake as a result of several individuals rallying on DSWD. Employee Fraud (Financial/Control Risk) - Possible loss or misappropriation of unutilized cash advance, caused by non appearance of the beneficiaries during the scheduled pay out, still in the hands of the SDO due to late liquidation/refund of unused fund. Lack of Risk Assessment (Business/Control Risk) – Risk that any business risks/control risks existing in the agency might not be identified and properly responded that may result to agency failure. Internal Control Deficiency (Compliance/Control Risk) – the agency might not be able to identify weaknesses in controls and might not be in compliance with PD1445 for the installation, implementation and monitoring of sound internal control system PROCESS LEVEL RISK: - The amount of funds disbursed does not match with the budget allotment - Unauthorized disbursement - Disbursement of fund might not be recorded in the proper period - Voucher may be paid twice Also, as a result of understanding the Internal Control, it is concluded that the entity’s control environment is not conducive to a control reliant approach. Based on COA guidelines: OVERALL MATERIALITY: P67,700,281.59 based on ½ of 1% of total assets PERFORMANCE MATERIALITY: P40,620,168.95 based on 60% of overall materiality Please refer to Annex 1 – Materiality Template in Template 2 (Overall Audit Strategy) for details of the computation. Substantive Analytical Procedures: Trend Analysis - Compare Prior year and Current Year balances and further investigations shall be made for unusual significant movement Substantive Test of Details: Bank Confirmation – Bank confirmation letters will be sent to all bank accounts for balances as at December 31, 2015 (Existence; Valuation and Allocation; Rights and Obligation). . Bank reconciliations – Examine the entity’s bank reconciliations as of period end, including cash-in-transit accounts, (e.g., in subledgers) to verify the proper reconciliation of bank statements and general ledger accounts. Investigate any unusual items and test other reconciling items based on the established threshold (Existence; Valuation and Allocation). Cash cutoff – Test cutoff of cash receipts and cash disbursements for transfers between different bank accounts at the balance sheet date (Valuation and Allocation). Substantive Analytical Procedures: Trend Analysis - Compare Prior year and Current Year balances and further investigations shall be made for unusual significant movement Substantive Test of Details: Cash Count – Surprised count shall be performed before yearend and rollforward procedures will be done to account for transactions from cash count date up to December 31, 2015 (Existence). Substantive Analytical Procedures: Trend Analysis - Compare Prior year and Current Year balances and further investigations shall be made for unusual significant movement Substantive Test of Details: Agreement of subledger and general ledger - Agree receivables subledger to the general ledger control account. Investigate any unusual items and test other reconciling items based on the established testing threshold (Existence; Valuation and Allocation) Verification of existence – Verify the existence of receivables through confirmation or, when appropriate, examination of subsequent cash receipts, or examination of other supporting documentation (Existence; Valuation and allocation) Substantive Analytical Procedures: Trend Analysis - Compare Prior year and Current Year balances and further investigations shall be made for unusual significant movement Substantive Test of Details: Observation of physical inventories - Evaluate management’s instructions and procedures for recording and controlling the results of the entity’s physical inventory counting. Observe the performance of the entity’s count procedures and perform test counts. Trace test counts to the entity’s inventory compilation and determine that the inventory compilation accurately reflects actual inventory count results (Existence; Valuation and Allocation; Rights and Obligation). . Confirmation of inventories held by others - If significant, confirm inventories held by others at the physical inventory date and trace confirmed quantities to the inventory compilation; consider observing these physical inventories as well (Existence; Rights and Obligation). Reconciliation of inventory compilation with general ledger - Review the reconciliation of the valued physical inventory compilation with the general ledger account balances and the perpetual inventory records. Investigate any unusual items and test other reconciling items based on the established testing threshold (Valuation and Allocation). Valuation in accordance with accounting policies - Test the valuation of inventory to verify that it is performed in accordance with the entity’s accounting policies and applicable financial reporting framework (Valuation and Allocation). Net realizable value testing - Test the provisions to reduce the valuation of inventory to net realizable value, (e.g., obsolescence and other reserves) and verify that appropriate adjustments are made in accordance with the entity's accounting policies and applicable financial reporting framework (Valuation and Allocation). Substantive Analytical Procedures: Trend Analysis - Compare Prior year and Current Year balances and further investigations shall be made for unusual significant movement Substantive Test of Details: Agreement of subledgers with general ledger - Obtain a schedule of property, plant and equipment, including capitalized leases, and related additions, disposals, reclassifications and depreciation, depletion and/or amortization (PPE subledger) and agree balances to the respective general ledger accounts (Existence; Valuation and Allocation). Additions and disposals - For significant additions (including capitalized labor, borrowing costs and other acceptable costs) and disposals during the period, examine invoices, capital expenditure authorizations, leases and other data that support these additions and disposals (Existence; Valuation and Allocation; Rights and Obligation). Depreciation Testing - Test depreciation expense in a manner responsive to our combined risk assessment with reference to the entity’s accounting policy and applicable financial reporting framework (Valuation and Allocation). Impairments of property, plant and equipment - Use information obtained during the audit in determining whether management has identified appropriate indicators of impairment and verify that appropriate adjustments are made in accordance with the entity's accounting policies and applicable financial reporting framework (Valuation and Alocation). Substantive Analytical Procedures: Trend Analysis - Compare Prior year and Current Year balances and further investigations shall be made for unusual significant movement Substantive Analytical Procedures: Test of Transactions – Identify key items/transactions and traced to supporting documents and check the appropriateness of dates of recording (Cutoff; Occurrence). Based upon the risk assessment procedures, further audit procedures have been designed that are sufficient and appropriate to carry out the audit.