SELECTIVE PRE-AUDIT
ON GOVERNMENT
TRANSACTIONS
Brief Background
•
•
traditionally, government auditing is on a pre-audit
system
General McArthur issued General Order No. 72 ON 23
May 1900 prescribing that “civilian officials’ estimates
for funds needed (cash advances) shall be coursed thru
the department heads and forwarded through the
Auditor to the Military Governor for approval. Military
officials charged with disbursing funds shall forward
their estimates to division headquarters, to the Auditor,
thence to the Military Governor for approval
Brief Background
• On 23 February 1901, the US President issued an
unnumbered executive order which stated among others
that the warrants to be issued by the Military Governor
were to be countersigned by the Auditor. When peace
and order reigned in the Philippine Islands, the civil
government ushered and the Office of the Auditor was
converted into a Bureau of Insular Auditor.
Countersigning of warrants still remained. Even during
the reign of Governor Generals and the change of the
Bureau of Insular Auditor to the Bureau of Audits, and
during the Commonwealth regime, the system of
countersigning of warrants by the Auditor prevailed.
Brief Background
•
The shortcomings of the pre-audit system was then felt by
the government authorities. In the early 1953, then Acting
Auditor General
Pedro M. Jimenez lifted pre-audit of
expenditures in national agencies not exceeding P200 (raised
to P500 in 1955), to “reduce to the minimum the delay in the
payment of claims” . When Gimenez became a full pledged
Auditor General, pre-audit in all government owned and
controlled corporations as well as national government
agencies (except for a few transactions), was lifted. Ironically,
two years later, Gimenez restored pre-audit in the Department
of Public Highways and one month from that date, restored
the pre-audit of all government corporate expenditures. The
restoration of pre-audit in national government agencies
followed six months later, “to countervail expenditures that
tend to dry cash in the treasury and those leading to
uneconomical operations”.
Brief Background
• Again in 1967 then Auditor General Ismael
Mathay Sr. , took exploratory steps
towards
the
lifting
of
pre-audit
(disbursements not
exceeding P5,000
was exempted from pre-audit). However,
full pre-audit was still in effect through the
Auditor’s inspection
activities.
The
biggest attempt in the lifting of pre-audit
was in 1976 when then Chairman
Francisco Tantuico, Jr. issued COA
Circular 76-26
and its subsequent
amendments partially lifting pre-audit
towards the full implementation of postaudit. Pre-audit was totally lifted in 1996.
Legal Basis
Section 2(1) of Article IX D of the 1987 Constitution of the
Philippines which states that:
“The Commission on Audit shall have the power, authority, and duty to
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 or any of its
subdivisions, agencies, or instrumentalities, including governmentowned or controlled corporations with original charters, and on a postaudit basis: (a) constitutional bodies, commissions and offices that have
been granted fiscal autonomy under this Constitution (b) autonomous
state college and universities; (c) other government-owned or controlled
corporations and their subsidiaries; and (d) such non-governmental
entities receiving subsidy or equity, directly or indirectly, from or through
the government, which are required by law or the granting institution to
submit such audit as a condition of subsidy or equity. However, where
the internal control systems of the audited agencies is inadequate, the
Commission may adopt such measures, including temporary or special
pre- audit, as are necessary and appropriate to correct the deficiencies.
xxxxxxx
Legal Basis
Section 2(2) of Article IX D of the 1987 Constitution of the
Philippines which states that:
• The Commission shall have exclusive
authority, subject to the limitations in this
Article, to define the scope of its audit and
examination, establish the techniques and
methods required therefore, x x x x x x
MINUTES OF THE PROCEEDINGS OF
THE CONSTITUTIONAL CONVENTION
• Mr. Nolledo: xxxxx I notice that on Section
2(1) lines 27 to 36, the Committee mentioned
certain bodies, institutions or entities that
are subject to audit on a post-audit basis. X x
x x x x x x I would like to suggest that “on a
post-audit basis” be deleted because the
time may come when circumstances may
warrant the need for a pre-audit. Instead, we
concentrate on the word “audit” on line 22
as covering these entities. xxxxxx
MINUTES OF THE PROCEEDINGS
OF THE CONSTITUTIONAL
CONVENTION
• Mr. Monsod:
Maybe we should explain why the
Committee made an exception on these institutions and made
them on a post-audit basis, because normally COA Audit is
both on a pre-audit and post-audit basis. This decision was
really very difficult on the part of the Committee, for it involved
discussions, as well as a very lengthy testimony by the
Commission on Audit. There are certain companies or
institutions within the government itself which by the nature of
their functions would be hampered by pre-audit procedures.
The question now is: Would limiting the COA to post-audit
procedures not allow abuses on the part of these institutions?
MINUTES OF THE PROCEEDINGS
OF THE CONSTITUTIONAL
CONVENTION
(CONTINUATION- Mr. Monsod)
• As a matter of fact, if we look at the performance of COA at this
time, perhaps over 80-90 per cent of the anomalies unearthed
were on a post-audit basis. The reason there were so many
anomalies during the Marcos year’s is not the absence of a preaudit or a post-audit function. As a matter of fact, there was a
pre-audit function, but it was a whole system to defraud and
misspend that was put in place that prevented COA from the
exercise of its normal function. Under normal circumstances, a
post-audit is a very effective tool and deterrent, but we must
balance it against the normal operations of corporations that
must necessarily involve huge amounts of money on a day-today basis.
House Bill No. 451 “An Act
Requiring the Mandatory PreAudit of Government
Disbursements and Uses of
Fund”
“Pre-audit system is not meant to be
unreasonable. Quality pre-audit is what is
important and the Commission on Audit
may address such issues and other related
concerns in the implementing rules.”
House Bill No. 451…
The argument that this pre-audit scheme will
result in further delays, establishing another
unnecessary level of review, that may
unduly prejudice implementation of urgent
government projects and transactions must
now yield to the higher interest to protect
and conserve government resources and
minimize losses from illegal expenditures in
these hard times.
RATIONALE
• Rising incidents of illegal, irregular, wasteful and
anomalous disbursements of huge amounts of public
funds
• Marked inadequacies in internal controls as
exemplified by anomalies uncovered or reported after
assessment of risk-prone areas in government
operations
WHY SELECTIVE PRE-AUDIT?
• not all government agencies are subject to
pre-audit
• not all transactions of the government are
subject to pre-audit - only 10 transactions
are initially identified
DEFINITION AND GENERAL SCOPE OF
PRE-AUDIT
Pre-audit is the examination of
documents supporting a transaction
or series of transactions before these
are paid for and recorded.
DEFINITION…continued
Pre-audit operates to-
- determine that the proposed expenditure is in
compliance with appropriation law and other specific
statutory authority and regulations
- assure that sufficient funds are available
- initially determine that the transaction is not illegal
irregular, extravagant, excessive, unconscionable or
unnecessary
- determine that the transaction is approved by proper
authority and supported by authentic underlying
evidences
INITIAL DETERMINATION
As used in the circular “initially determine”
emphasize that• Determination of the auditor is not yet final and could be
modified in post-audit
-
In cases of technical matters, the auditor may
possess some degree of competency in
determining the reasonableness of price but
still needs the assistance of a technical expert.
INITIAL DETERMINATION… (continued)
The final determination contemplated
above shall be understood only for
purposes of the pre-audit or post-audit at
the level of the auditor.
PRE-AUDIT VS. POST-AUDIT
• Pre-audit is a review before a transaction
is paid for or recorded. Post-audit refers to
review after the transaction is recorded or
consummated.
• Pre-audit is an upfront auditing procedure
undertaken on the documents supporting
a transaction prior to its payment or
recording.
COVERAGE
Agencies
- national government agencies, local government
units and GOCCs with original charter
Exception: national high schools, GOCCs
audited on an engagement basis and barangays
COVERAGE… continued
Transactions
-
cash advances
payments of salaries and terminal leave benefits
payments for infrastructure projects
payments for road right-of-way
procurement of capital assets, goods and services
payments thru ADA (suspended under COA Circular No. 2009-
005 dated September 15, 2009)
- releases of funds to NGOs/Pos (suspended under COA
Circular No. 2009-007 dated September 25, 2009)
- transfer of funds between government agencies
- disbursements from trust funds of LGUs
- disposal of real property and unserviceable property
SPECIFIC SCOPE OF PRE-AUDIT
Cash advances
-
all cash advances including those for foreign
travel funded out of local funds
Exceptions: cash advances for payroll fund,
intelligence funds, petty cash
funds, revolving funds and local
travel expenses
SPECIFIC SCOPE… continued
Payment of salaries and terminal leave
benefits
- payment of first salary after appointment by
transfer or reinstatement and last payment of
salary prior to transfer
- all payments of terminal leave benefits
SPECIFIC SCOPE… continued
Infrastructure projects
- Only the advance payments to contractors and the first
and last progress billings are subject to pre-audit
- First progress billing covers first collection on work
accomplishment
- Pre-audit of last progress billing must consider all
previous payments
SPECIFIC SCOPE… continued
Variation orders
• all first payments under variation orders related
to contracts within the monetary threshold are
subject to pre-audit
• First payment and last progress billing under
variation orders which bring a contract within
the monetary threshold are subject to pre-audit
SPECIFIC SCOPE… continued
Price escalation
All claims for price escalations are subject
to pre-audit
SPECIFIC SCOPE… continued
Infrastructure projects
National Government Agencies
- Dept./Bureau/Agency Main/Central/Head Offices,
General Headquarters, PMOs – P 25M above
- Regional Offices or their equivalents – P 10M above
- Provincial/District/Satellite Offices or their
equivalents – P 2M above
- Tertiary and/or specialized hospitals – P 5M above
SPECIFIC SCOPE… continued
Local Government Units
- Cities within MM, other highly urbanized cities, first class
provinces – P 5M above
- Provinces/cities below first class – P 3M above
- Municipalities – P 1M above
GOCCs
- Head Offices, PMOs – P 25M above
- Regional/Provincial Branches/Field Offices – P 10M above
- Tertiary and/or specialized hospitals – P5M above
SPECIFIC SCOPE… continued
Payments for road right-of-way
• All claims for road right-of-way to be preaudited based on its compliance with the
requirements of RA No. 8974 and its
implementing rules and regulations
SPECIFIC SCOPE… continued
Procurement of capital assets, goods and services
- capital assets (land and building)
- supplies, materials, general support services (rentals,
janitorial, security, solid waste management) labor
- procurement of construction materials for projects
implemented by administration
only first payment for general support services is subject
to pre-audit
SPECIFIC SCOPE… continued
Procurement of Goods… continued
Procurements subject to pre-audit:
- at least P 2M for NGAs, GOCCs, cities within MM, other highly
urbanized cities and first class provinces
- at least P 1M for provinces/cities below first class
- at least P500,000 for municipalities
Exception:
- Procurement between government agencies
- Procurement of goods and services to address the effects
and impacts of natural calamities or emergencies during
its existence shall be exempt from pre-audit (as amended
under COA Circular No. 2009-007 dated Sept. 25, 2007)
SPECIFIC SCOPE… continued
Transfer of funds between and among
government agencies
- all transfers of funds either thru funding
check or bank transfer between and
among bank accounts of agencies or
between different bank accounts of the
same government agency.
SPECIFIC SCOPE… continued
Exceptions:
- Routinary fund transfers between government
banks
- Transfers of funds to address an emergency or
existing calamity
- Releases of NCAs and NTAs
SPECIFIC SCOPE… continued
Disbursements from trust funds of LGUs
“Disbursement of trust funds of local government units
covered by pre-audit shall include only trust funds
received from national government agencies and
government –owned and controlled corporations
intended to implement specific projects which could be
either as infrastructure project or procurement. Thus,
the thresholds established in items 4.3.2 ( infrastructure
projects) and 4.5.3 (procurement of goods and services)
of the Circular shall govern” ( as amended under COA
Circular No. 2009-007 dated September 25, 2009)
SPECIFIC SCOPE… continued
Disposal of real property, unserviceable property
and those no longer needed
- Include only those undertaken through negotiated sale
for NGAs/GOCCs and private sales for LGUs
Real property - at least P1 million for NGAs and GOCCs
- regardless of amount for LGUs
Unserviceable property/those no longer needed
- at least P500,000 for NGAs/GOCCs
- acquisition/transfer cost of at least
P50,000 for provinces/cities
and P25,000 for
municipalities/barangays
SPECIFIC SCOPE… continued
Acquired assets of GFIs – at least P50M
Exception: Disposal to previous owners in
the exercise of the right of redemption
DUTIES AND RESPONSIBILITIES OF
AGENCY OFFICIALS
• no transactions are paid without evidence of the
pre-audit action
• all disbursement vouchers, advices/instructions,
MOAs, MOUs, contracts, purchase/letter orders,
loan agreements, bond flotation/certificates of
indebtedness, appraisal reports and their
supporting documents are submitted
• disbursement vouchers for infrastructure
projects are accompanied by duly accomplished
relevant checklist for technical review
DUTIES… (continued)
• copies of delivery documents are furnished to
the auditor within 24 hours after acceptance of
deliveries
• the agency’s Annual Procurement Plan and its
amendments are submitted within the first
quarter
• a separate logbook of transactions subject to
and submitted for pre-audit is maintained.
EVIDENCE OF AUDIT ACTION
• Pre-audit action is evidenced by a pre-audit
stamp impressed upon the face of the
disbursement voucher and its supporting
documents with the following statement:
Pre-audited pursuant to COA Circular
No. 2009-002 dated May 18, 2009
EVIDENCE OF AUDIT…continued
• In case of deficiencies or defects, the
disbursement voucher and its supporting
documents should be returned to the head
of the agency within 24 hours from such
determination informing him of the action
taken and indicating the reasons therein
• Credit Notice for cash advances
APPEAL
• Adverse action of the auditor may be
appealed to the Cluster/Regional Director
• Decision of the Cluster/Regional Director
shall not be subject to appeal to higher
authorities
• Agency may pursue the proposed
transaction notwithstanding the adverse
action of the auditor or director.
APPEAL … (continued)
• Appeal is permitted as an extraordinary
remedy to afford the aggrieved party
another opportunity to ventilate its cause.
• Appeal is limited to the Cluster/Regional
Director because the proposed transaction
is not yet consummated and the CP does
not act on hypothetical issues.
PENAL PROVISIONS
• Non-liquidation of cash advances subjects the
accountable officer to liability under Sec. 128 in
relation to Sec. 89 of PD 1445 and/or other
applicable laws and administrative regulations.
• Non-submission of transaction for pre-audit
before consummation is a ground for initiating
administrative disciplinary action in accordance
with Section 127 of PD 1445 and Section 55,
Title I-B, Book V of EO No. 292, without
prejudice to disallowance, if warranted
OVERSIGHT COMMITTEE
• The Assistant Commissioners’ Group
• Authority and responsibility
- recommend to CP the inclusion/exclusion of
transactions subject to pre-audit
- develop mechanism for evaluating progress of agencies
in enhancing/improving their internal control
- develop mechanism/process by which agencies may
be exempted from pre-audit using the risk-calibrated
agency audit framework