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TWD-OGM-ICS Internal Controls Manual (Part 1) Page | 26

III. THE INTERNAL AUDIT FUNCTION

This portion is largely adapted from the Philippine Government Internal Audit

Manual (PGIAM) of the Department of Budget Management (DBM), unless

otherwise cited.

A. Hierarchy of Applicable Internal Auditing Standards and Practice

To serve as general guide in the conduct of the internal audit function in

the Philippine public sector, the following lists the relevant sources of rules,

standards, and guidelines, arranged according to order of authority.

Also indicated are the names of organizations related to TWD which,

although they do not have direct impact on the conduct of the internal audit

function, can promulgate other rules, standards and practice guidelines related to

the conduct of business of TWD which is within the scope of the internal audit

function.

Officially recognized organizations & associations

Intergovernmental organizations

Government agencies & regulatory bodies

Public governance & accountability

Constitution

Hierarchy of Authority: AUTHORITY

Article XIII (1973)

Sandiganbayan

DPWH thru LWUA

United Nations

INTOSAI

Office of the Ombudsman

DENR thru the NWRB

Environmental Organizations

COSO

Article IX & XI (1987)

Civil Service Commission

DOF thru BIR

Financial, trade & customs

organizations

IIA

Commission on Audit

DBM

ASEAN

PICPA


1. Constitution

Article XI of the 1987 Philippine Constitution is entitled “Accountability

of Public Officers” and starts with the following statements in Section 1:

“Public office is a public trust. Public officers and employees must, at all

times, be accountable to the people, serve them with utmost responsibility,

integrity, loyalty, and efficiency; act with patriotism and justice, and lead

modest lives.” The article goes on to expound provisions on impeachment

and instituting the Office of the Ombudsman. (The 1987 Constitution of the

Republic of the Philippines, 1987)

2. Public Governance & Accountability

According to Cobar (Cobar, 2010), the following are the agencies

mandated to ensure accountability and transparency in the government:

Office of the Ombudsman

(The 1987 Constitution of the Republic of the Philippines, 1987)

Article XI of the 1987 Philippine Constitution bequeaths the Office of the Ombudsman the powers, functions &

duties to:

Investigate any act or omission of any public official, employee or

agency which appears to be illegal, unjust,

improper or inefficient;

Direct any public official, employee or agency to perform and expedite

any act or duty required by law, or to stop,

prevent and correct any abuse or impropriety in

the performance of duties

Determine causes of inefficiency, red tape,

mismanagement, fraud, and corruption in the

government and recommend measures to

eliminate such and to observe high standards of ethics and efficiency


Sandiganbayan

In Sec. 5 of Article XIII of the 1973 Constitution of the Republic of

the Philippines, the Sandiganbayan was instituted as a special court to

handle “criminal and civil cases involving graft and corrupt practices and ...

other offenses committed by public officers and employees... in relation to

their office.” (1973 Constitution of the Repulblic of the Philippines, 1973)

Presidential Anti-Graft Commission (PAGC)

The PAGC was created by virtue of Executive Order No. 12 series

of 2001 and mandated to aid the President of the Philippines in prevent

eradicating corruption by means of effective deterrence and prevention

measures as well as education. This, however, was abolished in

November 24, 2010 and its functions transferred to the Office of the

Deputy Executive Secretary for Legal Affairs. (International Association of

Anti-Corruption Authorities, 2012)

Civil Service Commission (CSC)

The CSC is the central agency handling the recruitment, building,

maintenance and retention of a competent and professional government

workforce. In Article IX of the 1987 Philippine Constitution, the CSC,

along with the Commission on Elections (COMELEC) and Commission on

Audit (COA), were established.

(The 1987 Constitution of the Republic of the Philippines, 1987)

Commission on Audit (COA)

The COA, as the Philippines’ Supreme State Audit Institution, has

constitutional powers to audit all accounts pertaining to all government

revenues and expenditures, uses of government resources and to

prescribe accounting and auditing rules. It is given exclusive authority to

define the scope and techniques for its audits and enjoys a prohibition rule

against any law which would impose a limitation in its audit coverage.

(Lawphil, 2013)

Functions and Responsibilities

Strengthening of the merit and rewards

system,

Integrating all human resources development programs for all levels

and ranks,

Institutionalizing a management climate conducive to public

accountability


3. Government Agencies & Regulatory Bodies

Department of Public Works & Highways (DPWH) through the Local

Water Utilities Administration (LWUA)

The Local Water Utilities Administration (LWUA)

was created by virtue of PD 198 or the Provincial

Water Utilities Act of 1973.

Section 2, Title III of PD 198 sets forth the Local

Water Utilities Administration (LWUA) law:

• to be “a specialized lending institution for the promotion, development and financing of local water utilities”

Purpose

• prescribe minimum standards and regulations in order to assure acceptable standards of construction materials and supplies, maintenance, operation, personnel training, accounting and fiscal practices for local water utilities ;

• furnish technical assistance and personnel training programs for local water utilities;

• monitor and evaluate local water standards; and

• effect systems integration, joint investment and operations, district annexation and de-annexation whenever economically warranted. (As amended by Sec. 22, PD 768)

Duties and responsibilities

DPWH

LWUA


- Standards & Regulations

• Minimum drinking water standards (e.g. bacteriological, chemical and physical parameters);

• Uniform testing and reporting system;

Water Quality

• New or additional facilities for water supply, treatment, transmission and distribution;

• Wastewater collection, treatment and disposal;

Design and Construction

• Optimum selection and effective utilization of equipment, materials and supplies by local water and sewer utilities;

• Operations and Maintenance as they pertain to equipment & facilities;

Equipment, Materials and Supplies

• Training

Personnel

• Criteria to assure independent operation and funding of local water utilities;

Organization

• A uniform accounting system with uniform chart of accounts;

• Standards and regulations to include stipulated levels of internal reporting to local water utility management;

Accounting


Department of Environment & Natural Resources (DENR) through the

National Water Resources Board (NWRB)

The NWRB’s functions, in response to its

objectives of ensuring water resources are

allocated effectively and ensuring the

availability and access of safe and affordable

water supply is increased, include:

- Policy formulation and coordination

- Regularization on water utilization

- Regulation of water service providers

(National Water Resources Board, 2012)

•Formulation of policies

•Review of water resources projects

•Conduct of Master Plan studies, assessment of water supply and demand

•Maintenance of water resources data bank

Policy formulation and coordination

•Issuance on water permits

•Resolution of water use conflicts

•Issuance of permit to drill

•Monitoring of water sources

•Enforcement of laws, orders and notices

Regularization on water utilization

•Granting Certificate of Public Convenience (CPC) to water service providers

•Tariff setting

•Business plan reviews

•Conduct of performance audit of CPC grantees (5-year tariff methodology)

•Adjudication and resolution of cases

•Testing and calibration of water meters

•Monitoring of compliances, CPC grantees

Regulation of water service providers

DENR

NWRB


Department of Finance (DOF) through the Bureau of Internal Revenue (BIR)

According to its website, the BIR is “mandated by law to assess and collect all national

internal revenue taxes, fees and charges, and to enforce all forfeitures, penalties and fines

connected therewith, including the execution of judgements in all cases decided in its

favor by the Court of Tax Appeals and the ordinary courts (Sec. 2 of the National Internal

Revenue Code of 1997).” The tax laws of the Philippines require TWD to remit and/or file:

BIR Forms Form No. Form Name Purpose Frequency Follow

Fiscal Year?

Due On or

Before

Income Tax

Returns

1702Q Quarterly Income Tax

Return for Corporations,

Partnerships and Other

Non-Individual

Taxpayers

To declare income tax

due or overpayment for

the quarter;

Remitted with or without

payment;

Quarterly (1st

three

quarters

only)

Yes 60 days after

quarter end;

1702 Annual Income Tax

Return For Corporation,

Partnership and Other

Non-Individual

Taxpayer

To declare income tax

due or overpayment for

the year;

Remitted with or without

payment;

Annually Yes 15th day of

the fourth

month after

taxable year

end


Fiscal

Year?

Due On or

Before

Percentage

Tax

Returns

2551M Percentage Tax Returns To declare and pay

percentage tax

Monthly No 20th day of

the following

month

DOF

BIR



Fiscal Year?

Due On or

Before

Certificates

(issued to

payees)

2306 Certificate of Final

Income Tax Withheld

Accomplished and

issued to each recipient

of income payment

subjected to final tax

Annually (or

upon

withholding)

No January 31

of the

following

year

2307 Certificate of Creditable

Tax Withheld at Source

Accomplished and

issued to recipients of

income payment subject

to expanded withholding

tax, including

government money

payments made by a

government office

Expanded

withholding tax

(EWT)

Quarterly (or

upon

withholding)

No 20th day of

the month

following the

close of the

taxable

quarter

Percentage taxes

on government

money payments

Monthly (or

upon

withholding)

No 10th day of

the following

month

VAT Withholding Monthly (or

upon

withholding)

No 10th day of

the following

month

2316 Certificate of

Compensation Payment

/ Tax Withheld for

Compensation Payment

With or Without Tax

Withheld

Accomplished and

issued to each

employee receiving

salaries, wages and

other forms or

remuneration by each

employer

Annually (or

on date of

last payment

of wages)

No January 31

of the

succeeding

year;


BIR Forms Form No. Form Name Purpose Frequency Follow Fiscal

Year?

Due On or

Before

Payment /

Remittance

Forms

0605 Payment Form Annual Registration Fee Annually No January 31

of every year

1600 Monthly Remittance

Return of Value-Added

Tax and Other % Taxes

Withheld

As required under RA

Nos. 1051, 7649, 8241,

8424 and 9337


the following

month

1601C Monthly Remittance

Return of Income Taxes

Withheld on

Compensation

As required of

withholding agents /

payors


the following

month

1601E Monthly Remittance

Return of Creditable

Income Taxes Withheld

(Expanded)

As required of


payors


the following

month;

(Dec. due:

Jan. 15 of

following

year);

1601F Monthly Remittance

Return of Final Income

Taxes Withheld

As required of


payors


the following

month

1604CF Annual Information

Return of Income Tax

Withheld on

Compensation and Final

Withholding Taxes

As required of


payors

Annually No January 31

of the

following

year

1604E Annual Information

Return of Creditable

Income Taxes Withheld

(Expanded)/ Income

Payments Exempt from

Withholding Taxes

As required of


payors

Annually No March 1 of

the following

year


4. Intergovernmental Organizations

An intergovernmental organization (IGO) is defined as “an agency set

up by two (2) or more states to carry out projects and plans in common

interest” (WebFinance, Inc., 2013).

It is also known as “an organization with global mandates, generally

funded by contributions from national governments” and includes the

“International Committee of the Red Cross, the International Organization for

Migration, and the United Nations agencies” (Farlex, Inc., 2013)

United Nations

The United Nations, the most well-known

intergovernmental organization, was founded on October

24, 1945 to maintain international peace and security,

develop friendly relations among nations and promote

social progress, better living standards and human rights.

Starting with 51 founding member-countries which includes the

Philippines, it has now grown to include 193 member-states in its roster.

The following mechanisms / agencies are noted here due to its

programs concerned with water use and sustainability / conservation:

- UN-Water

According to its website, UN-Water is “not an

organization or an agency. It is the United Nations

coordination mechanism for all water-related issues. UN-

Water activities and programmes are therefore

implemented by its members, with the support of its partners.” Its

programs include:


(UN-Water, 2013)

•Held every March 22 to highlight the importance of freshwater & sustainable management of its sources

World Water Day

•The World Water Assessment Programme (WWAP)

•The UN-Water Decade Programme on Capacity Development (UNW-DPC)

•The UN-Water Decade Programme on Advocacy and Communication (UNW-DPAC)

•The World Health Organization (WHO)/ United Nations Children's Fund (UNICEF) Joint Monitoring Programme on Water Supply and Sanitation (JMP)

UN-Water Programmes

•Water and Climate Change

•Trans-boundary Waters

•Water Supply and Sanitation

•Water Quality

Thematic Priority Areas

•Country-level coordination

•Regional-level coordination

•Water security

•Water resources management

•Capacity development of water operators

•Wastewater management (soon)

Task Forces (On-going)

•Gender and Water (2003-2009)

•Sanitation (2007-2008)

•Indicators, Monitoring & Reporting (2008-2010)

Task Forces (Past)

•Rio+20: Water Resources Report

•Federated Water Monitoring System & Key Water Indicator Portal

•Water Country Briefs Project

•UN-Water Activity Information System Plus (UNW-AIS+)

Featured Projects

•Best Water Management Practices

•Best Participatory, Communication, Awareness-raising and Education Practices

Best Practices Award


- World Water Organization (WWO)

According to its website, the WWO is “a not-for-profit

international membership association of professionals

from governments, international organizations, non-

governmental organizations (NGOs), academic

institutions and multi- and transnational corporations”.

The UN and World Bank professionals serve on its Executive and

Advisory Boards. It aims to achieve worldwide water sustainability by:

(World Water Organization, 2010)

- World Health Organization (WHO)

The WHO is “the directing and coordinating authority for

health within the United Nations system... responsible for

providing leadership on global health matters, shaping

the health research agenda, setting norms and

standards, articulating evidence-based policy options,

providing technical support to countries and monitoring and assessing

health trends.”

It has established guidelines for drinking-water quality, published in

2011. These are meant to provide international norms on water quality

and human health to be used as basis for regulation and standard

setting worldwide. (WHO, 2013)

- International Monetary Fund (IMF)

In July 1944, at an international conference in Bretton

Woods, New Hampshire, United States of America, the

International Monetary Fund (IMF) and World Bank (WB)

were created. IMF’s mandate is to promote “international

monetary cooperation” and provide “policy advice and technical

assistance to help countries build and maintain strong economies” by

way of granting short- and medium-term loans and designing “policy

programs to solve balance of payments problems”. (International

Monetary Fund, 2013)

Providing a problem-solving

forum

Promoting technological advancement

Facilitating public and private

partnerships

Taking concrete action


- World Bank (WB)

The WB, along with the IMF, was created in 1944 as a

result of the Bretton Woods International Conference. Its

mandate is to promote “long-term economic

development and poverty reduction by providing

technical and financial support to help countries reform particular

sectors or implement specific projects”. Such assistance is “generally

long term” and originates from funds built up from UN member country

contributions as well as bond issuance. (International Monetary Fund,

2013)

Environmental Organizations

The following are intergovernmental organizations concerned with

environment issues:

- International Union for Conservation of Nature (IUCN)

Headquartered in Gland, Switzerland, IUCN is a network

of environmental organizations composed of 1,063

members from 140 countries with the mission to

“influence, encourage and assist societies throughout the

world to conserve the integrity and diversity of nature and

ensure that any use of natural resources is equitable and ecologically

sustainable”. Its activities are focused on the following areas:

(United Nations Environment Programme/Geneva Environment

Network, 2013)

Biodiversity policy

Climate change

Economics

Education and communication

Environmental law

Forests

Protected areas

Social policy Species survival

Sustainable use

Water resources


Founded as the International Union for the Protection of Nature

in October 1948 in France to promote nature conservation and

ecologically sustainable use of natural resources, it became known in

1956 as the International Union for Conservation of Nature and Natural

Resources (IUCN) until its name was changed to the World

Conservation Union in 1990. Since 2008, it has been known as the

International Union for Conservation of Nature (IUCN).

It has been granted observer status at the United Nations

General Assembly. It is “governed by a democratically elected

council… chosen by member organizations at each World

Conservation Congress [held every four (4) years]. [Its] funding comes

from a number of governments, agencies, foundations, member

organizations and corporations.” (Encyclopedia Britannica, 2013)

- World Nature Organization (WNO)

In 2010, a group of Pacific states and emerging African

countries initiated the formation of the WNO. Pending

the signing of the treaty, the Preparatory Commission

was established in 2011 and has since laid the essential

organizational structures, preparatory measures for the

founding conference and the tendering process for the host country in

2012. The WNO is seen as an intergovernmental organization whose

primary objective is to protect the environment (climate, air, water,

earth and biological diversity) at the international level and still support

economic development by focusing its activities on energy efficiency,

climate protection, sustainable development and sustainable energy

supply. The WNO Treaty was released in July 2012, to be opened for

signing in the 2013 conference.

(World Nature Organization, 2013)

Financial, trade & customs organizations

- Asian Development Bank (ADB)

The ADB is a multilateral development finance

institution established in 1966 to engage in mostly

public sector lending and development purposes.


(Asian Development Bank, 2013)

In 2011, the ADB adopted its 10-year Water for All policy.


•Members and associate members of the UN Economic and Social Commission for Asia and the Pacific;

•Other regional countries and non-regional developed countries which are members of the UN or any of its specialized agencies;

Members / Clients

•Providing loans

•Providing technical assistance and other related activities, in partnership with member governments, independent specialists and other financial institutions

Activities

•Infrastructure

•Environment

•Regional cooperation and integration

•Finance sector development

•Education

Core areas of operations

•“to promote water as a socially vital economic good that needs increasingly careful management:

•to sustain inclusive and equitable economic growth and reduce poverty and

•to advocate participatory approach in meeting the challenges of water conservation and protection.”

•To clearly distinguish between water “as a service that must be delivered efficiently” and “as a resource that must be managed sustainably”

Water for All Policy: Objectives

•Promote a national focus on water sector reform

•Foster the integrated management of water resources

•Improve and expand the delivery of water services

•Foster the conservation of water and increase system efficiencies

•Promote regional cooperation and increase the mutually beneficial use of shared water resources within and between countries

•Facilitate the exchange of water sector information and experience

•Improve governance and capacity building

Water for All Policy: Principal Elements


In connection with this, in 2006, the ADB launched the Water

Financing Program (WFP) which involved allocation of funds to water

investments in order to:


Association of South East Asian Nations (ASEAN)

Founded in August 8, 1967 by Indonesia, Malaysia,

Philippines, Singapore and Thailand, the Association of

Southeast Asian Nations (ASEAN) was formed to benefit the

region / member-countries by:

It was joined by Brunei Darussalam on January 7, 1984, Vietnam

on July 28, 1995, Lao PDR and Myanmar on July 23, 1997 and Cambodia

on April 30, 1999. (Association of Southeast Asian Nations, 2013)

Since 1997, the ASEAN region has promoted environmental

cooperation among member states. It currently has a Blueprint for the

ASEAN Socio-Cultural Community (ASCC) for 2009-2015. The following

Increase efficiencies in

water use

Expand wastewater

management and reuse

Embed integrated

water resources

management

Expand knowledge

and capacity development

Enhance partnerships with private

sector

• Accelerating economic growth, social progress and cultural development;

• Promoting regional peace and stability;

• Promoting active collaboration and mutual assistance in economic, social, cultural, technical, scientific and administrative fields;

• Providing training and research assistance in the educational, professional, technical and administrative fields;

• Collaborating for greater utilization of agriculture and industries, expansion of trade, improvement of communication, transportation, and living standards;

• Promoting Southeast Asian studies;

• Maintaining close and beneficial cooperation (within and outside the region)

Objectives


table enumerates the environmental priority areas of the ASEAN as well

as the lead countries in the institutional framework:

(ASEAN Cooperation on Environment, 2013)

5. Officially Recognized Organizations & Associations

International Organisation of Supreme Audit Institutions (INTOSAI)

The INTOSAI, founded in 1953, is an autonomous,

independent and non-political group which functions as an

umbrella organization for the external government audit

community. It is a non-governmental organization with

special consultative status with the Economic and Social Council

(ECOSOC) of the United Nations. It now has 191 full members including

the Philippines. (INTOSAI, 2006)


Committee of Sponsoring Organizations of the Treadway

Commission (COSO)

COSO is “a joint initiative of the five (5) private sector

organizations… dedicated to providing thought

leadership through the development of frameworks and

guidance on enterprise risk management, internal control

and fraud deterrence.” COSO was founded in 1985 by

the following five (5) private sector organizations:

Its objective was “to sponsor the National Commission of

Fraudulent Financial Reporting which was an independent private-sector

initiative that studied the causal factors that can lead to fraudulent financial

reporting. It also developed recommendations for public companies and

their independent auditors, for the SEC and other regulators, and for

educational institutions.” (The Committee of Sponsoring Organizations of

the Treadway Commission, 2012)

The Institute of Internal Auditors (IIA)

IIA is an international professional association

established in 1941 whose mission is “to provide

dynamic leadership for the global profession of internal

auditing”. In order to accomplish this mission, its main

activities include:

American Accounting Association

(AAA)

American Institute of

Certified Public Accountants

(AICPA)

Financial Executives

International (FEI)

The Association of Accountants and Financial

Professionals in Business (IMA)

The Institute of Internal Auditors

(IIA)

•Advocating and promoting the value of internal audit in organizations

•Providing professional educational and development opportunities, standards, practice guidance, and certification programs

•Researching, disseminating and promoting knowledge concerning internal auditing

•Educating practitioners and other relevant audiences on best practices in internal auditing

•Creating platforms to enable global sharing of information and experiences among internal auditors

Main activities


It now has more than 175,000 members, according to its website.

(The Institute of Internal Auditors, 2013)

The Philippine Institute of Certified Public Accountants (PICPA)

PICPA is the professional organization of Certified Public Accountants (CPAs) founded in November 1929. Its objectives include:

• Promoting and maintaining high professional and ethical standards among accountants;

• Advancing the science of accounting;

• Developing and improving accountancy education; • Encouraging cordial relations among accountants; and • Protecting the Certificate of CPA granted by the government;

It was accredited by the Professional Regulation Commission (PRC)

starting in October 1973. (Philippine Institute of Certified Public

Accountants (PICPA), 2012)

Under this umbrella organization is the Government

Association of Certified Public Accountants (GACPA)

which was registered with the SEC on February 1972. It

claims to be the biggest sectoral organization of CPAs

under PICPA with 10,000 members and 25 chapters

nationwide. Its objectives include:

(Government Association of Certified Public Accountants, 2013)

• Upholding and promoting the highest professional and ethical standards among CPAs in the Government Service through a healthy exchange of ideas and experience among themselves and their counterparts in the private sector

• Fostering good relations among members, developing the accounting practice, and enhancing fiscal management and administration to benefit the members and ultimately the public, which they serve

• Forging productive undertakings for the attainment of the visions of the country

Objectives


B. Definition of Internal Auditing

The PGIAM defines internal audit as the evaluation of management

controls and operations performance, and the determination of the degree

of compliance with laws, regulations, managerial policies, accountability

measures, ethical standards and contractual obligations. It involves the

appraisal of the plan of organization and all the coordinated methods and

measures, in order to recommend courses of action on matters relating to

operations and management control. Meanwhile, the Institute of Internal

Auditors (IIA) defines internal auditing as “an independent, objective

assurance and consulting activity designed to add value and improve an

organization’s operations. It helps an organization accomplish its

objectives by bringing a systematic, disciplined approach to evaluate and

improve the effectiveness of risk management, control and governance

processes.” (Institute of Internal Auditors, 2013)

C. Scope of Internal Auditing

Internal audit is an integral part of the internal control system of public

service organizations whose functions include, but are not limited to, appraisal of

the adequacy of internal controls, the conduct of management audit and the

evaluation of the results of operations, focusing on the effectiveness of controls

of operating systems and support services units/systems. Although the scope of

internal audit is broad and involves all matters relating to operations and

management control, distinctions have to be made and limitations defined in

order to clarify its role in the organization.

1. Internal Audit in operational activities

The IAU does not exercise direct supervision and control and is not

responsible for procedures which are essentially a part of regular operating

activities or in operations which are the primary responsibility of another unit

in the agency/organization.

2. Internal Audit is not an assurance activity

Under the Philippine setting, the IAU is not involved in assurance

activity. In TWD, the internal audit function or appraisal activity as conducted

by the ICS constitutes a separate component of internal control, the objective

of which is to determine whether other internal controls are well designed and

properly implemented. This activity does not include an assurance that


TWD’s internal controls and operations are effective, efficient, ethical and

economical.

Administrative Code of 1987 states that “the responsibility to take care

that such policy is faithfully adhered rests directly with the chief or head of the

government agency concerned.”

3. Internal Audit does not undertake process or systems improvement

In essence, the IAU does not engage itself in undertaking process or

systems improvement for, or providing assistance to, operating and support

service units in departments and agencies. Instead, it conducts root cause

analysis in cases where the controls are weak, and recommends courses of

action (corrective or preventive measures) for top management to take.

• actions to eliminate the causes of noncompliance to policies, rules and regulations in order to prevent recurrence

• actions appropriate to the effects of the nonconformitiesencountered

Corrective measures

• determined actions of the organization to eliminate the causes of potential noncompliance in order to prevent their occurrence

• actions appropriate to the effects of the potential problems

Preventive measures


In summary, please see table below:


D. Place of Internal Audit Unit in the Organization

In TWD, the Internal Control Services (ICS), which functions as the

Internal Audit Unit (IAU) in the organization, is a unit within TWD. There is no

auditor-client relationship between the ICS and its auditees, the General

Manager and Board of Directors. Rather, the ICS is subordinate to the General

Manager. It assists and performs functions authorized and delegated by the

General Manager.

E. Functions of Internal Audit Unit

In accordance with the provisions of Administrative Code of 1987 and

reiterated in the NGICS, the following are the functions of the Internal Audit Unit

in government service, as adapted to TWD:

Functions of IAS

• Advise the General Manager on all matters relating to management control and operations audits;

• Conduct management and operations audits of TWD functions, programs, projects, activities with outputs, and determine the degree of compliance with their mandate, policies, government regulations, established objectives, systems and procedures/processes and contractual obligations;

• Review and appraise systems and procedures, organizational structures, asset management practices, financial and management records, reports and performance standards of TWD;

• Analyze and evaluate management deficiencies and assist top management by recommending realistic courses of action; and

• Perform such other related duties and responsibilities as may be assigned or delegated by the General Manager or as may be required by law.


F. Principles and Standards of Internal Audit

The IIA prescribes as mandatory guidance the conformance of Internal

Auditors with the Attributes and Performance Standards as well as the Code of

Conduct included in the International Professional Practices Framework (IPPF).

These are further explained in the PGIAM’s discussion of the Principles and

Standards of Internal Audit:

Because internal auditors shall audit against performance standards that

are already in place and accepted by the agency, they are not allowed to make

the rules. If they develop the rules, they cannot impartially evaluate the

effectiveness and application of these rules.

1. Conflict of interest

• avoid conflict of interest at all times in order to maintain objectivity and impartiality and upholding public interest;

• maintain an impartial, unbiased attitude, characterized by integrity and an objective approach to work; and

• be constantly conscious of and alert to factors which may give rise to conflict of interest.

2. Objectivity and Impartiality

• Objectivity

• Possession of an unbiased mental attitude and professionalism to perform engagements with no quality compromises;

• Fairness and intellectual honesty;

• Firmness on judgment on audit matters;

• Use of relevant, reliable, sufficient and timely audit evidence and a set of criteria such as statutory policies, rules, regulations and procedures

• Impartiality

• Freedom from bias and conflict of interest;

• Refraining from using position to promote own benefits or advantage or to those of related interests

• In case of an actual or potential conflict of interest, full disclosure and act to inhibit oneself from participating in the decision making process

• Upholding public interest over and above personal interest

• No direct authority or responsibility for the activities under review

• No responsibility for developing or implementing processes or systems

• Not engaging in regular functions or activities which are the primary duties of the unit of the agency, except as noted in the NGICS.

• No vested interest in the activity being audited.


Please refer to the table below:

3. Professional Competence

• Maintain high standards of competence and professional integrity commensurate with his/her responsibilities and mandated functions;

• Commit to the highest degree of professional competence, both in the technical and ethical sense, through empowerment and continuing self-development;

• Possess and continually develop the knowledge, skills and other competencies needed to perform their responsibilities in order to continually enhance the quality of audit


All records, documentation and information accessed in the course of

undertaking internal audit activities are to be used solely for the conduct of these

activities. Moreover, auditors should respect the confidentiality of information

acquired in the course of performing the audit activities and should not use or

disclose any such information without proper and specific authority, unless there

is a legal or professional right or duty to disclose.

5. Code of Conduct and Ethics

As public servants, internal auditors are bound by the Code of Conduct

and Ethical Standards for Public Officials and Employees in the performance

of their functions. Rule X of the Rules Implementing said Code affirms as

grounds for administrative disciplinary action at least twenty-three (23) acts or

omissions declared unlawful or prohibited by the Code.

Rule X: Grounds for Administrative Disciplinary Action

Section 1

In addition to the grounds for administrative disciplinary action prescribed

under existing laws, the acts and omissions of any official or employee, whether or

not he holds office or employment in a casual, temporary, hold-over, permanent or

regular capacity, declared unlawful or prohibited by the Code, shall constitute

grounds for administrative disciplinary action, and without prejudice to criminal and

civil liabilities provided herein, such as:

4. Authority and Confidentiality

• Authority

• Should be given by the General Manager to enable the Auditor to have full, free and unrestricted access to all functions, premises, assets, personnel, records, and other documents and information that the Auditor considers necessary in undertaking internal audit activities;

• Should be based on the audit objectives; and

• Subject to compliance with the internal security policies of the organization.

• Confidentiality

• Is not only a matter of disclosure of information, but also requires that the Auditor acquiring information in the course of the audit neither uses nor appears to use that information for personal advantage or for the advantage of a third party; and

• Is the responsibility and accountability of the Auditor.


(a) Directly or indirectly having financial and material interest in any transaction

requiring the approval of his office. Financial and material interest is defined as a

pecuniary or proprietary interest by which a person will gain or lose something;

(b) Owning, controlling, managing or accepting employment as officer, employee,

consultant, counsel, broker, agent, trustee, or nominee in any private enterprise

regulated, supervised or licensed by his office, unless expressly allowed by law;

(c) Engaging in the private practice of his profession unless authorized by the

Constitution, law or regulation, provided that such practice will not conflict or tend

to conflict with his official functions;

(d) Recommending any person to any position in a private enterprise which has a

regular or pending official transaction with his office, unless such

recommendation or referral is mandated by

(1) law, or

(2) international agreements, commitment and obligation, or as part of the

functions of his office;

These acts shall continue to be prohibited for a period of one (1) year after

resignation, retirement, or separation from public office, except in the case of

paragraph (c) above, but the professional concerned cannot practice his

profession in connection with any matter before the office he used to be with,

within one year after such resignation, retirement, or separation provided that any

violation hereof shall be a ground for administrative disciplinary action upon re-

entry to the government service.

(e) Disclosing or misusing confidential or classified information officially known to

him by reason of his office and not made available to the public, to further his

private interests or give undue advantage to anyone, or to prejudice the public

interest;

Soliciting or accepting, directly or indirectly, any gift, gratuity, favor, entertainment,

loan or anything of monetary value which in the course of his official duties or in

connection with any operation being regulated by, or any transaction which may be

affected by the functions of, his office. The propriety or impropriety of the foregoing

shall be determined by its value, kinship or relationship between giver and receiver

and the motivation. A thing of monetary value is one which is evidently or manifestly

excessive by its very nature. Gift refers to a thing or a right disposed of gratuitously,

or any act of liberality, in favor of another who accepts it, and shall include a

simulated sale or an ostensibly onerous disposition thereof. Loan covers both simple

loan and commodatum as well as guarantees, financing arrangement or

accommodations intended to ensure its approval. Commodatum refers to a contract

whereby one of the parties deliver to another something not consumable so that the

latter may use the same for a certain time and return it.


G. Types of Audit

There are three (3) types of audit:

1. Compliance audit

This entails the evaluation of the degree of compliance with laws,

regulations and managerial policies and operating procedures in the agency,

including compliance with accountability measures, ethical standards and

contractual obligations. This is a necessary first step to, and part of,

management and operations audits.


2. Management audit

This is a separate evaluation of the effectiveness of internal controls

adapted in the operating and support services units/systems to determine

whether they achieve the control objectives over a period of time or as of a

specific date. It involves compliance review as well as a review and appraisal

of the systems and processes, organizational and staffing structures,

operations and management practices, records, reports and performance

standards of the agencies/units covered. The objective of this audit is to

identify issues and control weaknesses or management deficiencies in the

organization, thus providing top management with courses of action to

address the problem area.


Meanwhile, a distinction has to be made between management review

and management audit. Please see table below.


3. Operations audit

This is a separate evaluation of the following aspects to determine

whether government operations, programs and projects are effective,

efficient, ethical and economical, including compliance with laws, regulations,

managerial policies, accountability measures and contractual obligations.

Please refer to the Operations Audit Flow Diagram on the next page:

.


H. References

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http://www.chanrobles.com/1973constitutionofthephilippines.htm#.UUFsH_JYXTo

ASEAN Cooperation on Environment. (2013). Overview of ASEAN Cooperation on Environment.

Retrieved March 25, 2013, from ASEAN Cooperation on Environment:

http://environment.asean.org/about-us-2/

Asian Development Bank. (2013). About ADB: FAQs. Retrieved March 21, 2013, from Asian

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from Association of Southeast Asian Nations: http://www.asean.org/asean/about-asean/overview

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Finances. Retrieved March 14, 2013, from Pera Natin 'to! Philippine Public Transparency Reporting

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checks-and-balances-audit-and-accountability-in-philippine-public-finances-&catid=55:background-

papers&Itemid=94

Encyclopedia Britannica. (2013). International Union for Conservation of Nature (IUCN). Retrieved

March 20, 2013, from Encyclopedia Britannica, Inc.:

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IUCN

Farlex, Inc. (2013). Intergovernmental organization. Retrieved March 20, 2013, from

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2013, from Government Association of Certified Public Accountants:

http://www.gacpa.com.ph/index.php?option=com_content&view=article&id=91&Itemid=105

Institute of Internal Auditors. (2013, January). Definition of Internal Auditing. Retrieved February 28,

2013, from Institute of Internal Auditors: https://na.theiia.org/standards-guidance/mandatory-

guidance/pages/definition-of-internal-auditing.aspx

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