1 structure and functions of internal audit service presented by: alberto a. bernardo, cpa, esq.,...

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Structure and Functions of Structure and Functions of Internal Audit ServiceInternal Audit Service

Presented by:Presented by:

ALBERTO A. BERNARDO, CPA, Esq., CESO IALBERTO A. BERNARDO, CPA, Esq., CESO IDeputy Executive Secretary, Office of the PresidentDeputy Executive Secretary, Office of the President

Member, Presidential Anti-Graft CommissionMember, Presidential Anti-Graft Commission

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I. Creation of Internal Audit ServiceI. Creation of Internal Audit Service 1.1. Presidential Decree No. 1 abolished the IAS created Presidential Decree No. 1 abolished the IAS created

under under RA 3456 as amended by RA 4177 RA 3456 as amended by RA 4177 2.2. Application of the Admin. Code of 1987Application of the Admin. Code of 1987 3.3. Creation of IAS for Other Agencies Under AO 278 & AO Creation of IAS for Other Agencies Under AO 278 & AO

7070 4. The Code of Conduct and Ethical 4. The Code of Conduct and Ethical Standards for Public Officials and Employees Standards for Public Officials and Employees

(RA 6713)(RA 6713) NGICS/PGIAM NGICS/PGIAM vis–à–vis IIA/ISSPIAvis–à–vis IIA/ISSPIA

O R D E R O F P R E S E N T A T I O N

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II. Internal Audit FunctionsII. Internal Audit Functions 1. IAS assists the Department Secretary or the Governing 1. IAS assists the Department Secretary or the Governing

BoardBoard 2.2. IAS functions delegated by the head of agencyIAS functions delegated by the head of agency NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISSPIA IIA/ISSPIA 3. Under the Administrative Code of 19873. Under the Administrative Code of 1987 4.4. Working Definition of Internal AuditWorking Definition of Internal Audit 5. IAS not to participate in activities and operations of 5. IAS not to participate in activities and operations of

another unitanother unit NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISSPIA IIA/ISSPIA 6. Internal Control to Ensure/Assure6. Internal Control to Ensure/Assure 7. Relationship in a Three-Dimensional Matrix 7. Relationship in a Three-Dimensional Matrix 8. Relationship between the 4Es 8. Relationship between the 4Es 9. Internal Audit is part of Internal Control.9. Internal Audit is part of Internal Control. 10. Internal Audit in government is not an assurance 10. Internal Audit in government is not an assurance

service.service. 11. Internal Audit in government is not a consulting 11. Internal Audit in government is not a consulting

service. service.


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III. Organization & Staffing of IASIII. Organization & Staffing of IAS 1. Organizational Structure1. Organizational Structure 2. Head of IAS2. Head of IAS 3. Reporting Line3. Reporting Line 4. Staffing4. Staffing 5. Internal audit studies, services, and seminars by private 5. Internal audit studies, services, and seminars by private person or firmsperson or firms 6. Consultancy Contracts for IAS/IAU6. Consultancy Contracts for IAS/IAU NGICS/PGIAM NGICS/PGIAM vis–à–vis IIA/ISSPIAvis–à–vis IIA/ISSPIA

IV. Functions Related to Internal Control Among the Operating IV. Functions Related to Internal Control Among the Operating Units, Units,

Management Division and the Internal Audit ServiceManagement Division and the Internal Audit Service 1. Nature and Purpose of Review1. Nature and Purpose of Review 2. Scope, Coverage and Frequency2. Scope, Coverage and Frequency 3. Actions to be Taken3. Actions to be Taken 4. Organizational Chart of the Office of the Secretary4. Organizational Chart of the Office of the Secretary 5. Organizational Chart of the Department Proper5. Organizational Chart of the Department Proper 6. Organizational Chart of the Operating Units6. Organizational Chart of the Operating Units 7. Organizational Chart of the IAS7. Organizational Chart of the IAS 8. Organizational Chart of the Provincial Office8. Organizational Chart of the Provincial Office


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The legal bases for the creation of Internal The legal bases for the creation of Internal Audit Service (IAS) include Executive Order Audit Service (IAS) include Executive Order (EO) 292 s. 1987, or the “Administrative Code (EO) 292 s. 1987, or the “Administrative Code of 1987”; Administrative Order (AO) No. 278 s. of 1987”; Administrative Order (AO) No. 278 s. 1992; AO 70 s. 2003; Department of Budget 1992; AO 70 s. 2003; Department of Budget and Management-Civil Service Commission and Management-Civil Service Commission (DBM-CSC) Joint Resolution No. 1 s. 2007; and (DBM-CSC) Joint Resolution No. 1 s. 2007; and DBM Circular Letter Nos. 2008-5 and 2008-8. DBM Circular Letter Nos. 2008-5 and 2008-8.

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1.1. “Opinion is requested on the ‘legality 1.1. “Opinion is requested on the ‘legality and/or propriety’ of the claim of seven and/or propriety’ of the claim of seven Auditing Examiners II, who were Auditing Examiners II, who were serving with the serving with the defunct Internal Audit defunct Internal Audit ServiceService, x x x.” , x x x.” [underscoring supplied] (Excerpts [underscoring supplied] (Excerpts

from DOJ Opinion No. 153 s. 1974, 27 September 1974)from DOJ Opinion No. 153 s. 1974, 27 September 1974)

“x x x the “x x x the Internal Audit Service was Internal Audit Service was abolishedabolished by the Integrated by the Integrated Reorganization Plan under Reorganization Plan under Presidential Decree No. 1.”Presidential Decree No. 1.” [underscoring [underscoring

supplied] (ibid)supplied] (ibid)

1. PD 1 abolished the IAS created under 1. PD 1 abolished the IAS created under RA 3456 as amended by RA 4177 and RA 3456 as amended by RA 4177 and transferred the function to transferred the function to Management Division Management Division

1. PD 1 abolished the IAS created under 1. PD 1 abolished the IAS created under RA 3456 as amended by RA 4177 and RA 3456 as amended by RA 4177 and transferred the function to transferred the function to Management Division Management Division

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1.2. “Pursuant to Item 3, Article IV, Chapter 1.2. “Pursuant to Item 3, Article IV, Chapter I, Part V of Presidential Decree No. 1 I, Part V of Presidential Decree No. 1 (Reorganizing the Executive Branch of (Reorganizing the Executive Branch of the National Government), ‘the National Government), ‘the IAS the IAS and the Management Division in and the Management Division in depart-ment were merged into a depart-ment were merged into a Management Division under the Management Division under the Financial and Management ServiceFinancial and Management Service.’.’ ” ” [underscoring supplied] (DOJ Opinion No. 007 s. 2007, 29 [underscoring supplied] (DOJ Opinion No. 007 s. 2007, 29 January 2007)January 2007)

1.1. PD 1 abolished the IAS created under PD 1 abolished the IAS created under RA 3456 as amended by RA 4177 and RA 3456 as amended by RA 4177 and transferred the function to transferred the function to Management Division Management Division

1.1. PD 1 abolished the IAS created under PD 1 abolished the IAS created under RA 3456 as amended by RA 4177 and RA 3456 as amended by RA 4177 and transferred the function to transferred the function to Management Division Management Division

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1.3. 1.3. “In particular, the creation, “In particular, the creation, organization and operation in all organization and operation in all government agencies of an Internal government agencies of an Internal Audit Service as mandated by RA No. Audit Service as mandated by RA No. 3456 is still mandated under PD No. 13456 is still mandated under PD No. 1 exceptexcept that pursuant to Item 3, Article that pursuant to Item 3, Article IV, Chapter I, Part V thereof ‘IV, Chapter I, Part V thereof ‘the IAS the IAS and the Management Division in and the Management Division in departments were merged into a departments were merged into a Management Division under the Management Division under the Financial and Management ServiceFinancial and Management Service.’ x .’ x x x” x x” [underscoring supplied,][underscoring supplied,] (Paragraph 5, OGCC (Paragraph 5, OGCC Opinion No. 099 s. 2007, 30 May 2007) Opinion No. 099 s. 2007, 30 May 2007)

1.1. PD 1 dated abolished the IAS created PD 1 dated abolished the IAS created under RA 3456 as amended by RA 4177 under RA 3456 as amended by RA 4177 and transferred the function to and transferred the function to Management Division Management Division

1.1. PD 1 dated abolished the IAS created PD 1 dated abolished the IAS created under RA 3456 as amended by RA 4177 under RA 3456 as amended by RA 4177 and transferred the function to and transferred the function to Management Division Management Division

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2.2. Application of the Admin. Code of 1987Application of the Admin. Code of 19872.2. Application of the Admin. Code of 1987Application of the Admin. Code of 1987

““The Code is a general law and The Code is a general law and ‘incorporates in a unified document the ‘incorporates in a unified document the major structural, functional and procedural major structural, functional and procedural principles of governance’principles of governance’ and ‘embodies and ‘embodies changes in administrative structures and changes in administrative structures and procedures designed to serve the procedures designed to serve the people.’” people.’” [underscoring supplied][underscoring supplied] (3rd and 4th WHEREAS (3rd and 4th WHEREAS

clauses of clauses of EO 292 s. 1987, the “Administrative Code of 1987” EO 292 s. 1987, the “Administrative Code of 1987”

andand Ople vs. Torres, et. al., G.R. No. 127685, 23 July 1998)Ople vs. Torres, et. al., G.R. No. 127685, 23 July 1998)

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““The Code The Code covers both the internal covers both the internal administration of governmentadministration of government, , i.e,i.e, internal internal organization, personnel and recruitment, organization, personnel and recruitment, supervision and discipline, supervision and discipline, and the effects and the effects of the functions performedof the functions performed by by administrative officials on private administrative officials on private individuals or parties outside individuals or parties outside government.” government.” [underscoring supplied][underscoring supplied] (Ople vs. Torres, (Ople vs. Torres, et. al, et. al, Ibid Ibid))

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2.1. Internal Audit Service at DPWH2.1. Internal Audit Service at DPWH““Sec. 4 Organizational Structure – Sec. 4 Organizational Structure – The Department shall be composed The Department shall be composed of:of:

(1) The Department Proper (1) The Department Proper consisting of the Office of the consisting of the Office of the Secretary, the Offices of the Secretary, the Offices of the Undersecretaries and Assistant Undersecretaries and Assistant Secretaries, Secretaries, the Internal Audit the Internal Audit ServiceService, Monitoring and , Monitoring and Information Service, Planning Information Service, Planning Service, x x x.” Service, x x x.” [underscoring supplied][underscoring supplied] (Sec. (Sec. 4, Ch. 1, Title V (DPWH), Book IV, EO 292 s. 1987, the 4, Ch. 1, Title V (DPWH), Book IV, EO 292 s. 1987, the “Administrative Code of 1987” )“Administrative Code of 1987” )

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2.2. Internal audit at DOF2.2. Internal audit at DOF““SEC. 12. Central Financial SEC. 12. Central Financial Management Office. — The Central Management Office. — The Central Financial Management Office shall Financial Management Office shall have the following functions: have the following functions:

(1)(1) Supervise Department - wide Supervise Department - wide activities relating to budget activities relating to budget preparation and management, preparation and management, department accounting, and department accounting, and internal internal auditaudit;” ;” [underscoring supplied][underscoring supplied] (Ch. 3, Title II (DOF), (Ch. 3, Title II (DOF), Book IV, EO 292 s. 1987, the “Administrative Code of Book IV, EO 292 s. 1987, the “Administrative Code of 1987”)1987”)

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3.3. Creation of IAS for Other Agencies Creation of IAS for Other Agencies Under AO 278 s. 1992 & AO 70 s. Under AO 278 s. 1992 & AO 70 s. 20032003

3.3. Creation of IAS for Other Agencies Creation of IAS for Other Agencies Under AO 278 s. 1992 & AO 70 s. Under AO 278 s. 1992 & AO 70 s. 20032003““Section 1. Creation of Internal Audit Service Section 1. Creation of Internal Audit Service – All heads of government offices, agencies, – All heads of government offices, agencies, government-owned and/or controlled government-owned and/or controlled corporations, including government financial corporations, including government financial institutions, State Universities and institutions, State Universities and Colleges (SUCs) and local government units, Colleges (SUCs) and local government units, shall organize an Internal Audit Service (IAS) shall organize an Internal Audit Service (IAS) in their respective offices.”in their respective offices.” ((AO 278 s. 1992,AO 278 s. 1992, “Directing the Strengthening of the Internal Control Systems of “Directing the Strengthening of the Internal Control Systems of Government Offices, Government Owned And/Or Controlled Government Offices, Government Owned And/Or Controlled Corporations, Including Government Financial Institutions and Local Corporations, Including Government Financial Institutions and Local Government Units, In Their Operations”, 28 April 1992Government Units, In Their Operations”, 28 April 1992 and and AO 70 AO 70 s. 2003s. 2003, “, “Strengthening of the Internal Control Systems of Strengthening of the Internal Control Systems of Government Offices, Government Owned And/Or Controlled Government Offices, Government Owned And/Or Controlled Corporations, Including Government Financial Institutions and Local Corporations, Including Government Financial Institutions and Local Government Units”, 14 April 2003Government Units”, 14 April 2003))

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4. The Code of Conduct and Ethical 4. The Code of Conduct and Ethical Standards for Public Officials and Standards for Public Officials and Employees (RA 6713)Employees (RA 6713)

4. The Code of Conduct and Ethical 4. The Code of Conduct and Ethical Standards for Public Officials and Standards for Public Officials and Employees (RA 6713)Employees (RA 6713)

““Section 1. These Rules shall cover all Section 1. These Rules shall cover all officials and employees in the government, officials and employees in the government, elective and appointive, permanent or elective and appointive, permanent or temporary, whether in the career or non-temporary, whether in the career or non-career service, including military and police career service, including military and police personnel, whether or not they receive personnel, whether or not they receive compensation, regardless of amountcompensation, regardless of amount. . [Rule I [Rule I

(Coverage), Rules Implementing the Code of Conduct and Ethical (Coverage), Rules Implementing the Code of Conduct and Ethical Standards for Public Officials and Employees, 21 April 1989]Standards for Public Officials and Employees, 21 April 1989]

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“ “1. 1. Reference should be made to Reference should be made to the Institute of Internal Auditors (IIA), the the Institute of Internal Auditors (IIA), the primaryprimary body for the internal audit body for the internal audit profession. The IIA provides profession. The IIA provides comprehensive guidance for the comprehensive guidance for the profession through its International profession through its International Professional Practices Framework (IPPF). Professional Practices Framework (IPPF). The IPPF comprises the The IPPF comprises the official definition official definition of internal auditingof internal auditing, the International , the International Standards for the Professional Practice of Standards for the Professional Practice of Internal Auditing (the Standards), theInternal Auditing (the Standards), the Code of EthicsCode of Ethics, x x x.” , x x x.” [underscoring [underscoring supplied] (General Comments, Comments on the PGIAM, supplied] (General Comments, Comments on the PGIAM, dated 23 June 2009, p.1)dated 23 June 2009, p.1)

NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISPPIA IIA/ISPPIA NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISPPIA IIA/ISPPIA

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NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISSPIA IIA/ISSPIA NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISSPIA IIA/ISSPIA

“ “(I)f internal auditors are prohibited by (I)f internal auditors are prohibited by laws or regulations from complying with laws or regulations from complying with certain parts of the Standards, they certain parts of the Standards, they should comply with all other parts of the should comply with all other parts of the Standards and make appropriate Standards and make appropriate disclosuresdisclosures..”” (The Professional Practices Framework, (The Professional Practices Framework, ISPPIA Introduction, Institute of Internal Auditors, January ISPPIA Introduction, Institute of Internal Auditors, January 2004 Ed., p. 8)2004 Ed., p. 8)

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““24. on penultimate paragraph – The 24. on penultimate paragraph – The phrase ‘. . . phrase ‘. . . they should comply with they should comply with all the other parts of the all the other parts of the standardsstandards . . .’ deserves a second . . .’ deserves a second glance. glance. Standard - settingStandard - setting organizations usually do not permit organizations usually do not permit partial adoption of their standards. partial adoption of their standards. Their standards are generally adopted Their standards are generally adopted on this basis on this basis ‘‘all or nothingall or nothing’’.”.” [ emphasis supplied][ emphasis supplied] (Item 1.1.4 (Item 1.1.4 Hierarchy of Hierarchy of Applicable Auditing Standards andApplicable Auditing Standards and PracticesPractices, , Comments on the PGIAM, dated 23 June 2009, p.4)Comments on the PGIAM, dated 23 June 2009, p.4)

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Internal Audit Service (1) provides assistance Internal Audit Service (1) provides assistance to the Department Secretary or the governing to the Department Secretary or the governing body and (2) performs functions delegated by body and (2) performs functions delegated by the head of agency. the head of agency. (Ch. 2, Bk. IV,(Ch. 2, Bk. IV, EO 292 s. 1987, the EO 292 s. 1987, the

“Administrative Code of 1987”, and Sec. 55(b), Vol. III, GAAM COA “Administrative Code of 1987”, and Sec. 55(b), Vol. III, GAAM COA Circular No. 91-368 dated 19 December 1991)Circular No. 91-368 dated 19 December 1991)

The Department Secretary or the governing The Department Secretary or the governing body is not the internal auditor’s client, neither body is not the internal auditor’s client, neither areare the auditees its customers. Internal Audit auditees its customers. Internal Audit Service is not an assurance and consulting Service is not an assurance and consulting service.service.

Internal Audit Service (1) provides assistance Internal Audit Service (1) provides assistance to the Department Secretary or the governing to the Department Secretary or the governing body and (2) performs functions delegated by body and (2) performs functions delegated by the head of agency. the head of agency. (Ch. 2, Bk. IV,(Ch. 2, Bk. IV, EO 292 s. 1987, the EO 292 s. 1987, the

“Administrative Code of 1987”, and Sec. 55(b), Vol. III, GAAM COA “Administrative Code of 1987”, and Sec. 55(b), Vol. III, GAAM COA Circular No. 91-368 dated 19 December 1991)Circular No. 91-368 dated 19 December 1991)

The Department Secretary or the governing The Department Secretary or the governing body is not the internal auditor’s client, neither body is not the internal auditor’s client, neither areare the auditees its customers. Internal Audit auditees its customers. Internal Audit Service is not an assurance and consulting Service is not an assurance and consulting service.service.

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1. 1. IAS assists the Department Secretary IAS assists the Department Secretary or Governing Bodyor Governing Body


““The IAS shall be an The IAS shall be an integral part of the integral part of the officeoffice and shall and shall assist in the management assist in the management and effective discharge of the and effective discharge of the responsibilities of the officeresponsibilities of the office, without , without intruding into the authority and mandate intruding into the authority and mandate of the Commission on Audit (COA) granted of the Commission on Audit (COA) granted under the Constitution. x x x.” under the Constitution. x x x.” [underscoring [underscoring

supplied] (Sec. 1, 2nd par., AO 70 s. 2003, “Strengthening of the supplied] (Sec. 1, 2nd par., AO 70 s. 2003, “Strengthening of the Internal Control Systems of Government Offices, Government Internal Control Systems of Government Offices, Government Owned And/Or Controlled Corporations, Including Government Owned And/Or Controlled Corporations, Including Government Financial Institutions and Local Government Units”, 14 April Financial Institutions and Local Government Units”, 14 April 2003)2003)

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1.1.1.1. Authority of the Department SecretaryAuthority of the Department Secretary

““SEC. 6. Authority and Responsibility of SEC. 6. Authority and Responsibility of the Secretary. – The authority and the Secretary. – The authority and responsibility for responsibility for the exercise of the the exercise of the mandate of the Departmentmandate of the Department and for and for the the discharge of its powers and functionsdischarge of its powers and functions shall be vested in the Secretary, who shall be vested in the Secretary, who shall have supervision and control of shall have supervision and control of the Department.”the Department.” [underscoring supplied] (Ch. 2, [underscoring supplied] (Ch. 2,

Bk IV, EO 292 s. 1987, the “Administrative Code of 1987”)Bk IV, EO 292 s. 1987, the “Administrative Code of 1987”)

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1.2.1.2. Authority of the BoardAuthority of the Board

““SECTION 23. The board of directors or SECTION 23. The board of directors or trustees. — Unless otherwise provided trustees. — Unless otherwise provided in this Code, the in this Code, the corporate powerscorporate powers of all of all corporations formed under this Code corporations formed under this Code shall be exercised, shall be exercised, all businessall business conducted and conducted and all propertyall property of such of such corporations controlled and held by the corporations controlled and held by the board of directors or trustees x x x.” board of directors or trustees x x x.” [underscoring supplied][underscoring supplied] (BP 68, “The Corporation Code of (BP 68, “The Corporation Code of the Philippines,” 01 May 1980) the Philippines,” 01 May 1980)



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1.3. Supervision and Control1.3. Supervision and Control

1. 1. IAS assists the Department Secretary or IAS assists the Department Secretary or Governing BodyGoverning Body


“ “(1) Supervision and Control. – (1) Supervision and Control. – Supervision and control shall include Supervision and control shall include authority authority to act directlyto act directly whenever a whenever a specific function is entrusted by law or specific function is entrusted by law or regulation to a subordinate; regulation to a subordinate; directdirect the the performance of duty; performance of duty; restrainrestrain the the commission of acts; commission of acts; reviewreview, , approveapprove, , reverse or modifyreverse or modify acts and decisions of acts and decisions of subordinate officials or units; subordinate officials or units; determine determine prioritiespriorities in the execution of plans and in the execution of plans and programs; and programs; and prescribe standards,prescribe standards, guidelines,guidelines, plans and programsplans and programs. x x x. x x x” ” [underscoring supplied] (Section 38, Chapter 7, Book IV, EO [underscoring supplied] (Section 38, Chapter 7, Book IV, EO 292 s. 1987, the “Administrative Code of 1987”292 s. 1987, the “Administrative Code of 1987”

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1.4.1.4. Conduct of AuditConduct of Audit

1.4.1.1.4.1. “(I)t can be placed under the “(I)t can be placed under the control and supervision of the control and supervision of the Secretary of National Defense, Secretary of National Defense, who consequently has the who consequently has the power to conduct an extensive power to conduct an extensive management audit of petitioner management audit of petitioner corporation.” corporation.” (The Veterans Federation (The Veterans Federation of the Philippines vs. Reyes, G. R. No. 155027, of the Philippines vs. Reyes, G. R. No. 155027, 28 February 2006)28 February 2006)

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1. 1. IAS assists the Department Secretary or IAS assists the Department Secretary or Governing BodyGoverning Body1.4. Conduct of Audit1.4. Conduct of Audit

1.4.2.1.4.2. “(2) “(2) Administrative Supervision. - Administrative Supervision. - x x x to x x x to generally oversee the operations of such agencies generally oversee the operations of such agencies and to insure that they are managed effectively, and to insure that they are managed effectively, efficiently and economically but without efficiently and economically but without interference with day-to-day activities; or require interference with day-to-day activities; or require the submission of reports and the submission of reports and cause the conduct cause the conduct of management audit,of management audit, performance evaluation and performance evaluation and inspection to determine compliance with policies, inspection to determine compliance with policies, standards and guidelines of the department; x x x” standards and guidelines of the department; x x x” [underscoring supplied] (Sec. 38(2)(a), Ch. 7, Book IV, EO 292 s. 1987, the [underscoring supplied] (Sec. 38(2)(a), Ch. 7, Book IV, EO 292 s. 1987, the “Administrative Code of 1987”)“Administrative Code of 1987”)

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2. 2. IAS function delegated by the head of IAS function delegated by the head of agencyagency


2.1.2.1. Responsibility for Internal Control Responsibility for Internal Control

““Section 124. Section 124. Installation.Installation. It shall be It shall be the direct responsibility of the agency the direct responsibility of the agency head to install, implement and head to install, implement and monitor a sound system of internal monitor a sound system of internal control.” control.” (PD 1445, (PD 1445, “Government Auditing Code of “Government Auditing Code of

the Philippines”, as amended, 11 June 1978the Philippines”, as amended, 11 June 1978) )

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2.2. Responsibility for Monitoring of Internal 2.2. Responsibility for Monitoring of Internal ControlControl

““It is the primary responsibility of the head It is the primary responsibility of the head of the agency to monitor the system of of the agency to monitor the system of internal control. This responsibility may be internal control. This responsibility may be delegated by management to an internal delegated by management to an internal audit department or office within the audit department or office within the agency. x x x” agency. x x x” (Section 55 (b), Title II-Internal Control (Section 55 (b), Title II-Internal Control System, Vol. III, GAAM COA Circular No. 91-368 dated 19 System, Vol. III, GAAM COA Circular No. 91-368 dated 19 December 1991 and Sec. 8(5), Ch. 3, Title V, Book IV, EO 292 s. December 1991 and Sec. 8(5), Ch. 3, Title V, Book IV, EO 292 s. 1987, the “Administrative Code of 1987”)1987, the “Administrative Code of 1987”)



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““18. on the last paragraph – To achieve the 18. on the last paragraph – To achieve the objectivity and impartiality of the objectivity and impartiality of the Internal Auditor, it should report not Internal Auditor, it should report not only to the Department Secretary (DS) only to the Department Secretary (DS) or Head of Agency (HoA) but to a or Head of Agency (HoA) but to a collegial body composed of the top collegial body composed of the top three three in the Department or in the Department or agency.” agency.” [ underscoring supplied] (Item 1.1.1 [ underscoring supplied] (Item 1.1.1 Objectivity and ImpartialityObjectivity and Impartiality, Comments on the , Comments on the PGIAM, dated 23 June 2009, p.3)PGIAM, dated 23 June 2009, p.3)

NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISSPIAIIA/ISSPIA NGICS/PGIAM NGICS/PGIAM vis–à–visvis–à–vis IIA/ISSPIAIIA/ISSPIA

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“ “31. on the 3rd paragraph –31. on the 3rd paragraph –

The statement regarding The statement regarding supervisor-supervisor-subordinate relationshipsubordinate relationship of the auditor of the auditor with the DS/HOA or GBA/Audit with the DS/HOA or GBA/Audit Committee has to be clarified with Committee has to be clarified with regards (sic) to the regards (sic) to the operational operational independence of the IASindependence of the IAS. . [underscoring [underscoring supplied]supplied] (Item 2.2. (Item 2.2. Reporting RelationshipsReporting Relationships, , Comments on the PGIAM, dated 23 June 2009, p.5)Comments on the PGIAM, dated 23 June 2009, p.5)

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““45.45. on item 4.2.1.a, 1st paragraph, last on item 4.2.1.a, 1st paragraph, last sentence ‘The final selection of internal sentence ‘The final selection of internal audit topics is ultimately a matter of audit topics is ultimately a matter of DS/HoA . . .’ – While this may impair the DS/HoA . . .’ – While this may impair the independence of the internal auditindependence of the internal audit, this , this may create bias in the selection of audit may create bias in the selection of audit thrust areas. As commented earlier, the thrust areas. As commented earlier, the internal audit should not be accountable internal audit should not be accountable to the DS or HoA alone, but it should be a to the DS or HoA alone, but it should be a collegial body in order to achieve collegial body in order to achieve independence and objectivityindependence and objectivity.” .” [underscoring supplied] (Item 4.2.1 [underscoring supplied] (Item 4.2.1 Developing a Good Developing a Good Internal Audit Annual Work PlanInternal Audit Annual Work Plan, Comments on the PGIAM, , Comments on the PGIAM, dated 23 June 2009, p.7)dated 23 June 2009, p.7)


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3. Under the Administrative Code of 19873. Under the Administrative Code of 19873. Under the Administrative Code of 19873. Under the Administrative Code of 1987

““(1)(1)Advise the SecretaryAdvise the Secretary [or the Governing [or the Governing Board thru the Audit Committee in the Board thru the Audit Committee in the case of GOCCs/GFIs,] on all matters case of GOCCs/GFIs,] on all matters relating to management control and relating to management control and operations audit; operations audit;

(2)(2) Conduct management and operations Conduct management and operations performance auditperformance audit of Department [/ of Department [/ Agency/ GOCC/GFI] activities and units Agency/ GOCC/GFI] activities and units and determine the degree of compliance and determine the degree of compliance with established objectives [their with established objectives [their mandate], policies, methods [systems] mandate], policies, methods [systems] and procedures [/processes] government and procedures [/processes] government regulations, and contractual obligations regulations, and contractual obligations of the Department; of the Department;

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(3)(3) Review and appraiseReview and appraise systems and systems and procedures, organizational structure, procedures, organizational structure, assets management practices, assets management practices, accounting and other records [financial accounting and other records [financial and management records], reports and and management records], reports and performance standards (such as budgets performance standards (such as budgets and standards costs) of the Department and standards costs) of the Department Proper, Bureaus and Regional Offices Proper, Bureaus and Regional Offices [agencies/units covered]; [agencies/units covered];

3. 3. Under the Administrative Code of Under the Administrative Code of

1987 1987 (Continuation)(Continuation)



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(5)(5) Perform such other related duties and Perform such other related duties and responsibilities as may be responsibilities as may be assigned or assigned or delegateddelegated by the Secretary [or the by the Secretary [or the Governing Board thru the Audit Governing Board thru the Audit Committee,] or as may be required by Committee,] or as may be required by law.” law.” [[underscoring supplied]underscoring supplied] (Sec. 8, Ch. 3, Title V (DPWH), (Sec. 8, Ch. 3, Title V (DPWH), Bk. IV, EO 292 s. 1987, The “Administrative Code 1987” and Bk. IV, EO 292 s. 1987, The “Administrative Code 1987” and words in brackets are the terms added under DBM Circular Letter words in brackets are the terms added under DBM Circular Letter No. 2008-5, 14 April 2008).No. 2008-5, 14 April 2008).

(4)(4) Analyze and evaluate management Analyze and evaluate management deficiencies and assist top deficiencies and assist top management to solve the problems management to solve the problems by by recommending realistic courses of recommending realistic courses of actionaction; and ; and





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4. 4. Working Definition of Internal AuditWorking Definition of Internal Audit4. 4. Working Definition of Internal AuditWorking Definition of Internal Audit

Internal audit is the conduct of management and operations Internal audit is the conduct of management and operations performance audit and determine the degree of compliance performance audit and determine the degree of compliance with laws, regulations, policies and contractual obligations. with laws, regulations, policies and contractual obligations. It is the appraisal of the plan of organization and all the It is the appraisal of the plan of organization and all the coordinate methods and measures; and recommend coordinate methods and measures; and recommend courses of action to the head of agency on all matters courses of action to the head of agency on all matters relating to management control and operations audit. relating to management control and operations audit. (Sec. 8, (Sec. 8,

Ch. 3, Title V (DPWH), Bk. IV, EO 292 s. 1987, The “Administrative Code 1987” and Sec. Ch. 3, Title V (DPWH), Bk. IV, EO 292 s. 1987, The “Administrative Code 1987” and Sec. 123, PD 1445 “Government Auditing Code of the Philippines”) 123, PD 1445 “Government Auditing Code of the Philippines”)

3434

5. 5. IAS not to participate in activities IAS not to participate in activities and operations of another unitand operations of another unit

5. 5. IAS not to participate in activities IAS not to participate in activities and operations of another unitand operations of another unit

““(I)t shall not be responsible for or required to (I)t shall not be responsible for or required to participate in procedures which are essentially a participate in procedures which are essentially a part of regular operating activities or in operations part of regular operating activities or in operations which are the which are the primary responsibility of another unitprimary responsibility of another unit in the organization.” in the organization.” [underscoring supplied] (Sec. 2.0, AO 278 s. [underscoring supplied] (Sec. 2.0, AO 278 s.

1992, “Directing the Strengthening of the Internal Control Systems of 1992, “Directing the Strengthening of the Internal Control Systems of Government Offices, Agencies, Government-Owned and/or Controlled Government Offices, Agencies, Government-Owned and/or Controlled Corporations, Including Government Financial Institutions and Local Corporations, Including Government Financial Institutions and Local Government Units, in their Operations, 28 April 1992) Government Units, in their Operations, 28 April 1992)

3535

Internal Auditing is an independent, Internal Auditing is an independent, objective objective assurance and consulting assurance and consulting activityactivity designed to add value and designed to add value and improve an organizations operations.improve an organizations operations. It helps an organization accomplish its It helps an organization accomplish its objectives by bringing a systematic, objectives by bringing a systematic, disciplined approach to evaluate and disciplined approach to evaluate and improve the effectiveness of risk improve the effectiveness of risk management, control, and gover-management, control, and gover-nancenance.”.” [underscoring supplied] (Item 1.1 [underscoring supplied] (Item 1.1 Definition Definition of Internal Auditingof Internal Auditing, Comments on the PGIAM, dated 23 , Comments on the PGIAM, dated 23 June 2009, pp. 2-3)June 2009, pp. 2-3)

““13. Consider adopting the definition of 13. Consider adopting the definition of internal auditing developed by the IIA:internal auditing developed by the IIA:


3636

“ “28. x x x Consulting services – Advisory and 28. x x x Consulting services – Advisory and related related client services activitiesclient services activities, the , the nature and scope of which are nature and scope of which are agreed agreed upon with the clientupon with the client and which are and which are intended to add value and intended to add value and improve an improve an organization’s operationsorganization’s operations. The term . The term ‘Advisory services’ is used for ‘Advisory services’ is used for consulting services.” consulting services.” [underscoring supplied] [underscoring supplied] (Item 1.3. Types of (Item 1.3. Types of Audits Audits , Comments on the PGIAM, dated , Comments on the PGIAM, dated 23 June 2009, p.5)23 June 2009, p.5)


3737

“ “28.28. x x x Assurance services – an x x x Assurance services – an objective examination of evidence for objective examination of evidence for the purpose of providing an the purpose of providing an independent assessment on risk independent assessment on risk management, control, or governance management, control, or governance processesprocesses of the organization. of the organization. Assurance services are referred to as Assurance services are referred to as ‘audit services’ which services involve ‘audit services’ which services involve the internal auditor’s objective the internal auditor’s objective assessment of evidence to provide assessment of evidence to provide an an independent opinion or conclusionsindependent opinion or conclusions regarding a process, system, or other regarding a process, system, or other subject matter. subject matter. [underscoring supplied] [underscoring supplied] (Item 1.3. (Item 1.3. Types of AuditsTypes of Audits, Comments on the PGIAM, , Comments on the PGIAM, dated 23 June 2009, p.5)dated 23 June 2009, p.5)


3838

6.1. “6.1. “Section 32. Definition of internal Section 32. Definition of internal controlcontrol. - Internal control comprises . - Internal control comprises the plan of organization and all the the plan of organization and all the methods and measures adopted within methods and measures adopted within an agency an agency to ensureto ensure that resources are that resources are used consistent with laws, regulations used consistent with laws, regulations and policies; resources are and policies; resources are safeguarded against loss, wastage and safeguarded against loss, wastage and misuse; financial and non-financial misuse; financial and non-financial information are reliable, accurate and information are reliable, accurate and timely; and operations are economical, timely; and operations are economical, efficient and effective.”efficient and effective.” [underscoring [underscoring supplied] (Title 2-Internal Control System, Vol. III, GAAM supplied] (Title 2-Internal Control System, Vol. III, GAAM COA Circular No. 91-368, dated 19 December 1991, p. 63)COA Circular No. 91-368, dated 19 December 1991, p. 63)

6. 6. Internal Control to Ensure/AssureInternal Control to Ensure/Assure6. 6. Internal Control to Ensure/AssureInternal Control to Ensure/Assure

3939


6.2. “Internal control. Integral component of 6.2. “Internal control. Integral component of an organization’s management that an organization’s management that provides reasonable assuranceprovides reasonable assurance that the that the following objectives are being following objectives are being achieved: achieved: ●● effectiveness and efficiency of effectiveness and efficiency of

operations;operations;● ● reliability of financial reporting; andreliability of financial reporting; and●● compliance with applicable laws and compliance with applicable laws and

regulations.” regulations.” [underscoring supplied] (US [underscoring supplied] (US Government Accountability Office [formerly US General Government Accountability Office [formerly US General Accounting Office until renamed in 2004] “Standards Accounting Office until renamed in 2004] “Standards for Internal Control in the Federal Government”, for Internal Control in the Federal Government”, November 1999)November 1999)

4040

6.3. “[T]he globality of the policies and 6.3. “[T]he globality of the policies and procedures conceived and put in place procedures conceived and put in place by an organisation’s management by an organisation’s management to to ensureensure the economic, efficient and the economic, efficient and effective achievement of its objectives; effective achievement of its objectives; the adherence to external rules and to the adherence to external rules and to management policies and regulations; management policies and regulations; the safeguarding of assets and the safeguarding of assets and information; the prevention and information; the prevention and detection of fraud and error, and the detection of fraud and error, and the quality of accounting records and the quality of accounting records and the timely production of reliable financial timely production of reliable financial and management information”. and management information”. [underscoring supplied] (Revision of the Internal Control [underscoring supplied] (Revision of the Internal Control Standards and the Underlying Framework –Strengthening Standards and the Underlying Framework –Strengthening Control Effectiveness-, 16 October 2007, Commission of Control Effectiveness-, 16 October 2007, Commission of the European Communities, citing the “The Reform White the European Communities, citing the “The Reform White Paper of 2000”) Paper of 2000”)


4141

6.4. “Internal control is an integral process 6.4. “Internal control is an integral process that is effected by an entity’s that is effected by an entity’s management and personnel and is management and personnel and is designed designed to address risksto address risks and and to provide to provide reasonable assurancereasonable assurance that in pursuit of that in pursuit of the entity’s mission, the following general the entity’s mission, the following general objectives are being achieve:objectives are being achieve:

● ● Executing orderly, ethical, Executing orderly, ethical, economical, efficient and effective economical, efficient and effective operations;operations;

●● Fulfilling accountability obligations;Fulfilling accountability obligations;●● Complying with applicable laws and Complying with applicable laws and

regulations;regulations;●● Safeguarding resources against loss, Safeguarding resources against loss,

misuse and damage.”misuse and damage.” [underscoring [underscoring supplied] (INTOSAI “Guidelines for Internal Control supplied] (INTOSAI “Guidelines for Internal Control Standards for the Public Sector”, 2004,Standards for the Public Sector”, 2004, p. 6)p. 6)


4242

6.5.6.5. “ “Title 2, Volume III of the Government Title 2, Volume III of the Government Accounting and Auditing Manual Accounting and Auditing Manual (GAAM) deals with internal control (GAAM) deals with internal control system and provides guidelines system and provides guidelines therefor. However, these are not therefor. However, these are not mandatory as they are simply mandatory as they are simply advisory advisory or suggested / recommended or suggested / recommended guidelinesguidelines. x x x. The . x x x. The COA merely COA merely assesses the adequacy of the agency’s assesses the adequacy of the agency’s internal control systeminternal control system and may adopt and may adopt measures that are deemed necessary measures that are deemed necessary and appropriate to correct the and appropriate to correct the deficiencies of such system.” deficiencies of such system.” [underscoring [underscoring

supplied]supplied] (Letter to then AES Alberto A. Bernardo, from (Letter to then AES Alberto A. Bernardo, from COA Assistant Commissioner Emma M. Espina, dated 26 COA Assistant Commissioner Emma M. Espina, dated 26 March 2004)March 2004)


43434343

7. Relationship in a Three-Dimensional Matrix Internal Control Objectives

Internal ControlComponents

Control Environment

Risk Assessment

Control Activities

Information and Communication

Monitoring

Public

Service

O

rganizations

1) Public

Entity

Safeguard

ing A

ssets

Check A

ccura

cy and

R

eliabili

ty of A

ccountin

g

Data

Ensu

re Eco

nomica

l,

Effi

cient a

nd Effect

ive

Operatio

ns

Comply

with

Laws

and R

egulatio

ns

Adhere

nce to

Manageria

l Polic

ies

2) Private

Entity

Provid

ing Public

Services

4444

Effective

Extent to which outputs/ outcomes match objectives or

intended effects

Efficient

Minimum inputs to achieve a given quantity and

quality of outputs

Getting the right amount of resources, of the right

quality, delivered at the right time and place, at the lowest

cost

Policy, mandate, program, organization,

staff, system, resources, and citizen’s needs ’

Input

Impact or change

Outcomes

Products, services, or

benefits

Outputs

Implementation, monitoring and

compliance

Process

Economical

InputEvaluation

Outcome Evaluation

Output Evaluation

ProcessEvaluation

Quality at Start Quality at

Transformation Quality of Results

Ethical

Conforming to accepted standards and consistent with the Code of Conduct

8. Relationship between the 4Es

4545

9. Internal Audit is part of Internal 9. Internal Audit is part of Internal Control.Control.

9. Internal Audit is part of Internal 9. Internal Audit is part of Internal Control.Control.

““Sec. 33. Distinction from other systems Sec. 33. Distinction from other systems within the organizationwithin the organization. – . – Except for the Except for the Internal Audit Office which is part of the Internal Audit Office which is part of the internal control system, internal controls are internal control system, internal controls are not separate specialized systems within an not separate specialized systems within an agency. They consists of agency. They consists of control features control features interwoven into and made an integral part of interwoven into and made an integral part of each systemeach system that management uses to that management uses to regulate and guide its operations. In this regulate and guide its operations. In this sense, internal controls are management sense, internal controls are management controls.” controls.” [underscoring supplied] (Title II-Internal Control [underscoring supplied] (Title II-Internal Control System, Vol. III, GAAM COA Circular No. 91-368 dated 19 December System, Vol. III, GAAM COA Circular No. 91-368 dated 19 December 1991, p. 64.)1991, p. 64.)

4646

““The internal audit function or appraisal The internal audit function or appraisal activityactivity as exercised by the internal audit as exercised by the internal audit office or unit constitutes a separate office or unit constitutes a separate component of internal control the objective component of internal control the objective of which is to determine of which is to determine whether other whether other internal controls are well designed and internal controls are well designed and properly operatedproperly operated.” .” [underscoring supplied] (Sec. 8(3), [underscoring supplied] (Sec. 8(3), Ch. 3, Title V, Book IV, EO 292 s. 1987, the “Administrative Code Ch. 3, Title V, Book IV, EO 292 s. 1987, the “Administrative Code of 1987” and Section 55 (b), Title II-Internal Control System, Vol. of 1987” and Section 55 (b), Title II-Internal Control System, Vol. III, GAAM COA Circular No. 91-368 dated 19 December 1991)III, GAAM COA Circular No. 91-368 dated 19 December 1991)

10. 10. Internal Audit in government is not Internal Audit in government is not an assurance service.an assurance service.

10. 10. Internal Audit in government is not Internal Audit in government is not an assurance service.an assurance service.

4747

11. 11. Internal Audit in government is not a Internal Audit in government is not a consulting service.consulting service.


11.1. “a. The contract covers lump sum work or services 11.1. “a. The contract covers lump sum work or services such as janitorial, security, or consultancy such as janitorial, security, or consultancy services where no employer-employee services where no employer-employee relationship exist;relationship exist;

x x xx x x

c. The contracts of services and job orders are c. The contracts of services and job orders are not covered by Civil Service Law, Rules and not covered by Civil Service Law, Rules and Regulations, but covered by COA rules;Regulations, but covered by COA rules;

x x x”x x x”

(Sec. 2, CSC MC No. 01 s. 2007, “Repeal of CSC (Sec. 2, CSC MC No. 01 s. 2007, “Repeal of CSC Memorandum Circular Nos. 17 and 24, s. 2002”, 12 Memorandum Circular Nos. 17 and 24, s. 2002”, 12 January 2007)January 2007)

4848

11.2.11.2. “As a result of recent, high profile “As a result of recent, high profile breakdowns in auditing and breakdowns in auditing and corporate governance, there has corporate governance, there has been widespread realization that, in been widespread realization that, in many cases, it is not appropriate for many cases, it is not appropriate for an auditor to provide both audit and an auditor to provide both audit and certain non-audit (consulting) certain non-audit (consulting) services for the same client.” services for the same client.” (US (US Government Accountability Office [formerly US General Government Accountability Office [formerly US General Accounting Office until renamed in 2004] Exposure Accounting Office until renamed in 2004] Exposure Draft of Proposed New and Amended Standards for the Draft of Proposed New and Amended Standards for the Professional Practice of Internal Auditing, 30 May 2003)Professional Practice of Internal Auditing, 30 May 2003)



4949

11.3.11.3. “GAGAS [generally accepted government “GAGAS [generally accepted government auditing standards] define audit services as auditing standards] define audit services as financial audits, attestation engagements, financial audits, attestation engagements, and performance audits. In nonaudit and performance audits. In nonaudit services, audit organizations perform tasks services, audit organizations perform tasks requested by management that directly requested by management that directly support the entity’s operation.” support the entity’s operation.” [words in bracket [words in bracket supplied]supplied] (Item 10, Government Auditing Standards (Item 10, Government Auditing Standards Answers to Answers to Independence Standards QuestionsIndependence Standards Questions, US Government , US Government Accountability Office [formerly US General Accounting Office until Accountability Office [formerly US General Accounting Office until renamed in 2004] , July 2002)renamed in 2004] , July 2002)



5050

11.4.11.4. ““3.293.29 Compliance with supplemental Compliance with supplemental safeguards will not overcome safeguards will not overcome independence impairments in this independence impairments in this category. By their nature, certain category. By their nature, certain nonaudit services directly support the nonaudit services directly support the entity’s operations and impair the entity’s operations and impair the audit organization’s ability to meet audit organization’s ability to meet either or both of the overarching either or both of the overarching independence principles in paragraph independence principles in paragraph 3.22 for certain types of audit work. . 3.22 for certain types of audit work. . . . . .



5151

11.4. 11.4. (continuation)(continuation)

Examples of the types of services under Examples of the types of services under this category include the following: this category include the following:

x x xx x xi.i. developing an entity’s policies, developing an entity’s policies,

procedures, and internal procedures, and internal controls; controls;

x x x.”x x x.”(Item 3.29, Chapter 3 (Item 3.29, Chapter 3 General Standards, General Standards, Government Auditing Standards, US Government Auditing Standards, US Government Accountability Office [formerly US Government Accountability Office [formerly US General Accounting Office until renamed in General Accounting Office until renamed in 2004], July 2007 Revisions, p. 38)2004], July 2007 Revisions, p. 38)



5252

““SEC. 4. SEC. 4. Personnel ComplementPersonnel Complement. Agencies . Agencies without IAS shall immediately organize one. The without IAS shall immediately organize one. The head of the agency shall review the head of the agency shall review the organizational structure and personnel organizational structure and personnel complement and convert existing vacant complement and convert existing vacant positions and/or parallel positions of incumbents positions and/or parallel positions of incumbents in the agency necessary for the in the agency necessary for the creation/strengthening of the IAS.creation/strengthening of the IAS.

x x x.”x x x.”(AO 70 s. 2003, “Strengthening of the Internal Control Systems of (AO 70 s. 2003, “Strengthening of the Internal Control Systems of Government Offices, Agencies, Government-Owned and/or Controlled Government Offices, Agencies, Government-Owned and/or Controlled Corporations, Including Government Financial Institutions, State Corporations, Including Government Financial Institutions, State Universities and Colleges and Local Government Units”, 14 April 2003)Universities and Colleges and Local Government Units”, 14 April 2003)

5353

1.1. “Each Department of the Executive Each Department of the Executive Branch is authorized to establish its Branch is authorized to establish its own own IAS to coverIAS to cover audit areas in the audit areas in the Office of the Secretary, bureaus, Office of the Secretary, bureaus, offices and agencies, including offices and agencies, including region/field offices, regulatory region/field offices, regulatory agencies,agencies, and other agencies under and other agencies under the supervision and control or the supervision and control or administrative supervision of a administrative supervision of a DepartmentDepartment consistent with the consistent with the provisions of the Administrative Code provisions of the Administrative Code of 1987 on administrative relationship”of 1987 on administrative relationship” [underscoring supplied] (DBM-CSC Joint Resolution No. 1 s. [underscoring supplied] (DBM-CSC Joint Resolution No. 1 s. 2006, Rationalization Program’s Organization and Staffing 2006, Rationalization Program’s Organization and Staffing Standards and Guidelines, 12 May 2006 and ItemStandards and Guidelines, 12 May 2006 and Item 2.1, DBM 2.1, DBM Circular Letter No. 2008-5, “Guidelines of the Organization Circular Letter No. 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit and and Staffing of an Internal Audit Service/Unit and Management Division/Unit in Departments/ Management Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned” 14 April 2008)Agencies/GOCCs/GFI Concerned” 14 April 2008)

1.1. Organizational Structure Organizational Structure 1.1. Organizational Structure Organizational Structure

5454

1. Organizational Structure 1. Organizational Structure 1. Organizational Structure 1. Organizational Structure

1.2. “In the case of regular agencies attached 1.2. “In the case of regular agencies attached to a Department for policy and program to a Department for policy and program coordination, their respective coordination, their respective board/council shall deter-mine the board/council shall deter-mine the propriety of establishing a separate unit propriety of establishing a separate unit for the purpose or the availment of the for the purpose or the availment of the services of the IAS of the Department” services of the IAS of the Department” (Item(Item 2.6, DBM Circular Letter No. 2008-5, “Guidelines of the 2.6, DBM Circular Letter No. 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit and Organization and Staffing of an Internal Audit Service/Unit and Management Division/Unit in Departments/ Management Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned”, 14 April 2008.)Agencies/GOCCs/GFI Concerned”, 14 April 2008.)

5555

2. Head of IAS2. Head of IAS2. Head of IAS2. Head of IAS

““It shall be headed by a Director IV or It shall be headed by a Director IV or as may be provided by the as may be provided by the Administrative Code of 1987 or other Administrative Code of 1987 or other special laws. The Director IV shall be special laws. The Director IV shall be occupied by a career official with 3occupied by a career official with 3rdrd level eligibility.”level eligibility.” (Item(Item 2.5, DBM Circular Letter No. 2.5, DBM Circular Letter No.

2008-5, “Guidelines of the Organization and Staffing of an 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit and Management Division/Unit Internal Audit Service/Unit and Management Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned”, 14 April in Departments/ Agencies/GOCCs/GFI Concerned”, 14 April 2008)2008)

2.1.2.1. In departments covering Department-In departments covering Department-Proper, Bureaus, Regional Offices and Proper, Bureaus, Regional Offices and Regulatory AgenciesRegulatory Agencies

5656

2.2. Head of IAS Head of IAS 2.2. Head of IAS Head of IAS

““The head of the IAU of a regular The head of the IAU of a regular agency attached to a Department for agency attached to a Department for policy and program coordination shall policy and program coordination shall have the rank equivalent to the fourth have the rank equivalent to the fourth ranking official of the agency.”ranking official of the agency.” (Item(Item 2.6, 2.6,

DBM Circular Letter No. 2008-5, “Guidelines of the DBM Circular Letter No. 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit Organization and Staffing of an Internal Audit Service/Unit and Management Division/Unit in Departments/ and Management Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned”, 14 April 2008.)Agencies/GOCCs/GFI Concerned”, 14 April 2008.)

2.2. Attached agencies2.2. Attached agencies

5757

2. Head of IAS2. Head of IAS 2. Head of IAS2. Head of IAS

2.3. In GOCCs2.3. In GOCCs

““In case of GOCCs/GFIs, the IAU shall In case of GOCCs/GFIs, the IAU shall be a Department or its equivalent be a Department or its equivalent organizational unit which shall be organizational unit which shall be headed by a Department Manager headed by a Department Manager with a Salary Grade of 26 or its with a Salary Grade of 26 or its equivalent position.” equivalent position.” ((Item 2.7, DBM Circular Item 2.7, DBM Circular Letter No. 2008-5, “Guidelines of the Organization and Letter No. 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit and Staffing of an Internal Audit Service/Unit and Management Division/Unit in Departments/ Management Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned”, 14 April 2008.)Agencies/GOCCs/GFI Concerned”, 14 April 2008.)

5858


a)a) “SEC. 7. Assistant Secretaries. – “SEC. 7. Assistant Secretaries. – The Secretary shall be assisted by The Secretary shall be assisted by six (6) Assistant Secretaries six (6) Assistant Secretaries appointed by the President of the appointed by the President of the Philippines upon recommendation Philippines upon recommendation of the Secretary; one (1) to be of the Secretary; one (1) to be responsible for the Internal Audit responsible for the Internal Audit Services; x x x”Services; x x x” (Ch. 2, Title V-DPWH, Book IV, (Ch. 2, Title V-DPWH, Book IV,

EO 292 s. 1987, the “Administrative Code of 1987”)EO 292 s. 1987, the “Administrative Code of 1987”)

2.4.2.4. As may be provided by the As may be provided by the Administrative CodeAdministrative Code

5959


b)b) The President appointed the The President appointed the Deputy Executive Secretary for Deputy Executive Secretary for Internal Audit Service pursuant to Internal Audit Service pursuant to the “Continuing Authority of the the “Continuing Authority of the President to Reorganize His President to Reorganize His

Office.”Office.” (Sec. 31, Ch. 10, Title III-Functions, (Sec. 31, Ch. 10, Title III-Functions,

Book III-Office of the President, EO 292 s. 1987, the Book III-Office of the President, EO 292 s. 1987, the “Administrative Code of 1987”)“Administrative Code of 1987”)

2.5.2.5. As may be provided by the As may be provided by the Administrative CodeAdministrative Code

6060

3. Reporting Line 3. Reporting Line 3. Reporting Line 3. Reporting Line

““The IAS of the Department shall The IAS of the Department shall report directly to the Department report directly to the Department Secretary or his equivalent.” Secretary or his equivalent.” ((Sec. 2.5, Sec. 2.5, DBM Circular Letter No. 2008-5, “Guidelines of the DBM Circular Letter No. 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit Organization and Staffing of an Internal Audit Service/Unit and Management Division/Unit in Departments/ and Management Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned” 14 April 2008.)Agencies/GOCCs/GFI Concerned” 14 April 2008.)

3.1.3.1. In departments covering Department-In departments covering Department-Proper, Bureaus, Regional Offices and Proper, Bureaus, Regional Offices and Regulatory AgenciesRegulatory Agencies

6161


““The IAU shall report to the head of The IAU shall report to the head of the agency.” the agency.” ((Sec. 2.6, DBM Circular Letter No. Sec. 2.6, DBM Circular Letter No. 2008-5, “Guidelines of the Organization and Staffing of an 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit and Management Division/Unit Internal Audit Service/Unit and Management Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned” 14 in Departments/ Agencies/GOCCs/GFI Concerned” 14 April 2008.)April 2008.)

3.2.3.2. Attached agenciesAttached agencies

6262

3. 3. Reporting Line Reporting Line 3. 3. Reporting Line Reporting Line

3.3.3.3. In multi-headed attached agenciesIn multi-headed attached agencies

““In case of multi-headed attached In case of multi-headed attached

agencies, said IAU may report directly to agencies, said IAU may report directly to

the governing body. The governing body the governing body. The governing body

may opt to organize an Audit Committee may opt to organize an Audit Committee

from among its members to which the IAU from among its members to which the IAU

shall directly report.” shall directly report.” ((Sec. 2.6, DBM Circular Letter Sec. 2.6, DBM Circular Letter

No. 2008-5, “Guidelines of the Organization and Staffing of an No. 2008-5, “Guidelines of the Organization and Staffing of an

Internal Audit Service/Unit and Management Division/Unit in Internal Audit Service/Unit and Management Division/Unit in

Departments/ Agencies/GOCCs/GFI Concerned” 14 April 2008.)Departments/ Agencies/GOCCs/GFI Concerned” 14 April 2008.)

6363

““The IAS/IAU of GOCCs/GFIs shall The IAS/IAU of GOCCs/GFIs shall report to the respective Audit report to the respective Audit Committee of the Governing Board of Committee of the Governing Board of the corporation.” the corporation.” ((Sec. 2.7, DBM Circular Letter Sec. 2.7, DBM Circular Letter

No. 2008-5, “Guidelines of the Organization and Staffing No. 2008-5, “Guidelines of the Organization and Staffing of an Internal Audit Service/Unit and Management of an Internal Audit Service/Unit and Management Division/Unit in Departments/ Agencies/GOCCs/GFI Division/Unit in Departments/ Agencies/GOCCs/GFI Concerned” 14 April 2008.)Concerned” 14 April 2008.)


3.4. In GOCCs3.4. In GOCCs

6464

4. Staffing4. Staffing4. Staffing4. Staffing

4.1.4.1. Notice of Organization, Staffing and Notice of Organization, Staffing and Compensation Action (NOSCA) Compensation Action (NOSCA) (DBM (DBM Budget Circular No. 2004-4 dated 22 March 2004 and Budget Circular No. 2004-4 dated 22 March 2004 and DBM Circular Letter No. 2008-5 dated 14 April 2008)DBM Circular Letter No. 2008-5 dated 14 April 2008)

4.2.4.2. Qualifications Standards (QS)Qualifications Standards (QS) (Rule IV, (Rule IV, CSC Omnibus Rules Implementing Book V of EO 292 s. CSC Omnibus Rules Implementing Book V of EO 292 s. 1987, the “Administrative Code of 1987”, 14 February 1987, the “Administrative Code of 1987”, 14 February 1992; CSC MC 12 s. 2006, “Qualification Standards for 1992; CSC MC 12 s. 2006, “Qualification Standards for IAS Positions)IAS Positions)

6565

“ “It is hereby reiterated that no government agency It is hereby reiterated that no government agency shall enter into a contract with any private person or shall enter into a contract with any private person or firm to undertake studies and/or render services firm to undertake studies and/or render services pertaining to government auditing, pertaining to government auditing, including the including the internal audit servicesinternal audit services, much less disburse public , much less disburse public funds pertaining thereto, unless the Commission on funds pertaining thereto, unless the Commission on Audit shall have Audit shall have certified in writing its prior decisioncertified in writing its prior decision not to undertake such contract. Payment for contracts not to undertake such contract. Payment for contracts entered into without the required certification shall be entered into without the required certification shall be disallowed in audit.” disallowed in audit.” [underscoring supplied] (COA Circular no. 93-[underscoring supplied] (COA Circular no. 93-214A, “Government Contracts for Internal Audit Services,” 4 March 1993; COA 214A, “Government Contracts for Internal Audit Services,” 4 March 1993; COA Circular No. 83-214, dated 8 September 1983)Circular No. 83-214, dated 8 September 1983)

5. 5. Internal audit studies, services, and Internal audit studies, services, and seminars by private persons or firmsseminars by private persons or firms

5. 5. Internal audit studies, services, and Internal audit studies, services, and seminars by private persons or firmsseminars by private persons or firms

6666

““In view thereof, the Supervising Auditors and Audit In view thereof, the Supervising Auditors and Audit Team Leaders are required to submit to their Team Leaders are required to submit to their respective Cluster Directors or Regional Directors all respective Cluster Directors or Regional Directors all consultancy contracts for the consultancy contracts for the establishment/strengthening of IAS/IAUestablishment/strengthening of IAS/IAU under their under their audit jurisdictions for purposes of evaluating their audit jurisdictions for purposes of evaluating their appropriateness and monitoring the extent of the appropriateness and monitoring the extent of the implementation of the said implementation of the said DBM Circular LettersDBM Circular Letters. x x . x x x.”x.” [underscoring supplied] (COA Memorandum No. 2009-011, “Submission of [underscoring supplied] (COA Memorandum No. 2009-011, “Submission of Consultancy Contracts pursuant to DBM Circular Letter Nos. 2008-5 and 2008-8 Consultancy Contracts pursuant to DBM Circular Letter Nos. 2008-5 and 2008-8 dated April 14, 2008 and October 23, 2008, respectively”, dated 26 March 2009)dated April 14, 2008 and October 23, 2008, respectively”, dated 26 March 2009)

6. 6. Consultancy Contracts for IAS/IAUConsultancy Contracts for IAS/IAU 6. 6. Consultancy Contracts for IAS/IAUConsultancy Contracts for IAS/IAU

6767


““30. Paragraph 2 states that IAS shall perform 30. Paragraph 2 states that IAS shall perform functions delegated by the DS/HOA or functions delegated by the DS/HOA or GB/Audit Committee. The standards GB/Audit Committee. The standards prescribed that the functions, authority prescribed that the functions, authority and responsibility of internal audit and responsibility of internal audit activity should be prescribed activity should be prescribed in a in a chartercharter. . [underscoring supplied] (Item 2.2. [underscoring supplied] (Item 2.2. Reporting Reporting Relationships Relationships Comments on the PGIAM, dated 23 June 2009,Comments on the PGIAM, dated 23 June 2009, p.5)p.5)

6868

““If a question should arise, the charter also If a question should arise, the charter also provides a provides a formal, formal, written agreementwritten agreement with with management and the board about the role management and the board about the role and responsibilities of the internal audit and responsibilities of the internal audit activity within the organization.” activity within the organization.” [emphasis [emphasis supplied] (Practice Advisory 1000-1: Internal Audit Charter, supplied] (Practice Advisory 1000-1: Internal Audit Charter, Interpretation of Standard 1000 from the International Standards for Interpretation of Standard 1000 from the International Standards for the Professional Practice of Internal Auditing (ISPPIA), p. 13 ) the Professional Practice of Internal Auditing (ISPPIA), p. 13 )


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Operating Units, Bureaus, Regional and

Field OfficesManagement Division Internal Audit Service

1) Performance review and improvement of opera-tions, processes and activities; and

2) Compliance review and improvement of operations, processes and activities.

1) Review whether in-ternal controls are applied at all levels within and across the agency and sector; and

2) Recommend mea-sures for manage-ment improvement.

1) Appraise whether controls are well designed and pro-perly implemen-ted; and

2) Appraise the ade-quacy of internal control or whether it is achieving the objectives.

1. Nature and Purpose of Review

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Operating Units, Bureaus, Regional and Field Offices Management Division Internal Audit Service

1) Performance is reviewed on a regular basis. If actual accomplishments do not meet established objectives or standards, the processes and activities established to achieve the objectives should be reviewed to determine if improve-ments are needed; and

1) Organizational struc-ture, manpower, and operations;

2)Existing methods, sys-tems and processes;

3)Develop new and im-proved management system and staffing standards;

1) Management and operations perfor-mance audit and determine the deg-ree of compliance;

2) Determine the con-trol effectiveness of operating systems and support systems for a specific period or date;

2. Scope, Coverage and Frequency

7171



2) Operations, proces-ses and activities are periodically reviewed to ensure that they are in compliance with current regulations, policies and other requirements.

4) On-going and re-curring activities; and

5) Ingrained in the operations

3) Determine whether operations are con-ducted effectively, efficiently, ethically, and economically; and

4) Takes place “after the fact” and covers a complete cycle of operations.

2. Scope, Coverage and Frequency (Continuation)

7272



1) Institute improvements to meet objectives or standards to achieve efficiency and effectiveness in operations; and

1) Report management review to the Financial & Manage-ment Service (FMS) Head;

2) Submit recommenda-tions for management improvement to the FMS Head, as necessary; and

1) Submit an Internal Audit Report to the Head of Agency or Audit Committee of the Governing Board;

2) Advise the Depart-ment Secretary or the Audit Committee of the Governing Board on all matters relating to management con-trol and operations audit; and

3. Actions To Be Taken

7373



2) Institute improvements to achieve compliance with regulations, policies and other requirements in operations.

3) Conduct trainings on the application of improvements; and provide staff supervision over the implementa-tion of manage-ment improve-ments.

3) Analyze and eva-luate management control deficiencies and assist top management by re-commending rea-listic courses of ac-tion.

3. Actions To Be Taken (Continuation)

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4. ORGANIZATIONAL CHART OF THE OFFICE OF THE SECRETARY4. ORGANIZATIONAL CHART OF THE OFFICE OF THE SECRETARY

““SECTION 3.SECTION 3. Department Proper. — (1) Unless otherwise provided in this Department Proper. — (1) Unless otherwise provided in this Code or by law, the Department proper shall include the Office of the Secretary Code or by law, the Department proper shall include the Office of the Secretary and the staff units directly under it. The Office of the Secretary shall consist of and the staff units directly under it. The Office of the Secretary shall consist of the Secretary and the Undersecretary or Undersecretaries, together with the the Secretary and the Undersecretary or Undersecretaries, together with the personnel in their immediate offices;personnel in their immediate offices;

x x xx x x

SecretarySecretary

UndersecretariesUndersecretaries UndersecretariesUndersecretaries

Asst. SecretariesAsst. Secretaries Asst. SecretariesAsst. Secretaries

Internal Audit ServiceInternal Audit Service

(3)(3) Whenever necessary, Assistant Secretary position or positions may be Whenever necessary, Assistant Secretary position or positions may be created to form part of the Department proper;” created to form part of the Department proper;” (Ch. 1, Bk IV, EO 292 s. 1987, (Ch. 1, Bk IV, EO 292 s. 1987, the “Administrative Code of 1987”)the “Administrative Code of 1987”)

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Admin.Admin.ServiceService

PlanningPlanningServiceService

Technical Technical ServiceService

Legal Legal ServiceService

Office of the SecretaryOffice of the Secretary

““Except as otherwise provided for by law, each Department may have units Except as otherwise provided for by law, each Department may have units which shall perform which shall perform planning, financial, management and administrative services, planning, financial, management and administrative services, internal audit,internal audit, and and other support to operations functionsother support to operations functions.” .” [underscoring [underscoring supplied] (DBM-CSC Joint Resolution No. 1 dated 12 May 2006, p.5)supplied] (DBM-CSC Joint Resolution No. 1 dated 12 May 2006, p.5)

““(4)(4) In the absence of special provisions, the major staff units of each In the absence of special provisions, the major staff units of each department shall be the services which shall include: the department shall be the services which shall include: the Planning ServicePlanning Service, the , the Financial and Management ServiceFinancial and Management Service, the , the Administrative ServiceAdministrative Service, and when , and when necessary, the necessary, the Technical and Legal ServicesTechnical and Legal Services. . [underscoring supplied][underscoring supplied] (Sec. 3, Ch. (Sec. 3, Ch. 1, Bk IV, EO 292 s. 1987, the “Administrative Code of 1987”)1, Bk IV, EO 292 s. 1987, the “Administrative Code of 1987”)

Financial and Financial and Management ServiceManagement Service

5. ORGANIZATIONAL CHART OF THE DEPARTMENT PROPER5. ORGANIZATIONAL CHART OF THE DEPARTMENT PROPER

7676

6. ORGANIZATIONAL CHART OF THE OPERATING UNITS6. ORGANIZATIONAL CHART OF THE OPERATING UNITS





Bureaus/Bureaus/OfficesOffices

Department WideDepartment WideRegional/FieldRegional/Field

OfficesOffices

““The core/major/vital functions of a department shall be performed The core/major/vital functions of a department shall be performed by its operations units. These operations units may include line and by its operations units. These operations units may include line and staff bureaus and field units.” staff bureaus and field units.” (DBM-CSC Joint Resolution No. 1 dated 12 (DBM-CSC Joint Resolution No. 1 dated 12 May 2006, p. 5)May 2006, p. 5)


Internal Audit ServiceInternal Audit ServiceOffice of the SecretaryOffice of the Secretary

RegionalRegionalOfficesOffices

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7. ORGANIZATIONAL CHART OF THE INTERNAL AUDIT SERVICE7. ORGANIZATIONAL CHART OF THE INTERNAL AUDIT SERVICE





Office of the SecretaryOffice of the Secretary

““The IAS of the Department shall report directly to the Department The IAS of the Department shall report directly to the Department Secretary. It shall be headed by a Director IV or as may be provided by Secretary. It shall be headed by a Director IV or as may be provided by the Administrative Code of 1987 or other special laws. The Director IV the Administrative Code of 1987 or other special laws. The Director IV shall be occupied by a career official with 3rd level eligibility. The IAS of shall be occupied by a career official with 3rd level eligibility. The IAS of the Department shall have two (2) divisions, an Operations Audit the Department shall have two (2) divisions, an Operations Audit Division and a Management Audit Division, which shall each be headed Division and a Management Audit Division, which shall each be headed by and Internal Auditor V (SG 24).” by and Internal Auditor V (SG 24).” (Item 2.5., DBM Circular Letter No. 2008-(Item 2.5., DBM Circular Letter No. 2008-5, 14 April 2008) 5, 14 April 2008)



Bureaus/Bureaus/OfficesOffices

Department WideDepartment WideRegional/FieldRegional/Field

OfficesOffices

RegionalRegionalOfficesOffices

7878

8. ORGANIZATIONAL CHART OF THE PROVINCIAL OFFICE8. ORGANIZATIONAL CHART OF THE PROVINCIAL OFFICE

Planning& Planning& Dev’t. OfficeDev’t. Office

Office of the Secretary to theOffice of the Secretary to the Sanggunian PanlalawiganSanggunian Panlalawigan

AdministratorAdministrator

Budget OfficeBudget Office

Office of the Vice Governor Office of the Vice Governor Sangguniang PanlalawiganSangguniang Panlalawigan

Office of the GovernorOffice of the Governor

AccountingAccountingOfficeOffice

Office of Office of the Treasurerthe Treasurer

ProvincialProvincialHealth Health OfficeOffice

Office ofOffice ofthe Provincialthe Provincial

EngineerEngineer

Office of theOffice of theProvincialProvincial

AgriculturistAgriculturist

Social WelfareSocial Welfare& Dev’t. Office& Dev’t. Office

Office ofOffice ofthe Assessorthe Assessor Legal OfficeLegal Office

General General ServiceServiceOfficeOffice

Office of theOffice of theProvincialProvincial

VeterenarianVeterenarian

Env’t. & NaturalEnv’t. & NaturalResourcesResources

OfficeOffice

InformationInformationOfficeOffice

Component Cities/Component Cities/MunicipalitiesMunicipalities

BarangaysBarangays

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Thank you!Thank you!

1 structure and functions of internal audit service presented by: alberto a. bernardo, cpa, esq.,...

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