AUDITING

GOVERNMENT
EXPENDITURES
SUBTITLE

GILBERT R. HUFANA
Professor
 STATE AUDIT

• State audit is an ancient and respected
branch of public administration. 
• In time, state audit developed from the need
for good government. 
• It started from a simple device to prevent ruin and
chaos in public finances and bookkeeping and serves as
an instrument for ensuring open, regular, efficient and
responsive government.
• Thus it became closely intertwined with modern
government and public accountability.
 STATE AUDIT

• the analytical and systematic examination and

verification of financial transactions, operations,
accounts, and reports of any government agency for
the purpose of determining their accuracy, integrity,
and authenticity, and classifying the requirements of
law, rules, and regulations (Government Auditing
Code of the Philippines) 
• State audit may be considered as the control and
accountability component of the fiscal administration
cycle.
 STATE AUDIT

• As a CONTROL MECHANISM
• Auditing ensures the proper and legal utilization and
management of fiscal resources in accordance with
sound financial management principles, accounting
and auditing standards, and applicable laws and
regulations.
• As a ACCOUNTABILITY COMPONENT
• Auditing seeks to ensure that public officials
entrusted with functions and resources are made
responsible for the performance and results of
operations of their office.
 ROLE OF AUDIT IN
FISCAL ADMINISTRATION

• Auditing provides inputs to the next phase which is

planning.
• Audit reports contain vital information on the
results of operations of agencies and
recommendations to improve their performance.
• These information are useful in formulating plans
and targets.
 SCOPE OF REVIEW

• The review may consist of :

1. determining whether all regulations relevant laws
have been observed in the transaction
2. Physical inspection of supplies or equipment;
3. Checking whether all necessary documents are
submitted and properly accomplished
4. Determining whether the required authority or
approval has been secured;
5. Checking mathematical accuracy
 GENERAL OBJECTIVES OF AUDIT

1. Establishing accountability for financial material and

human resources of an agency. It aims to establish how
and to what extent has the agency officials exercised
their fiscal responsibility.
2. Establishing accountability for compliance with
applicable laws, policies, rules and regulations. It means
the accountability of government officials to higher
authorities for adherence to laws, policies, and rules and
regulations.
3. The efficient, economical and effective operations of the
agency is another accountability of public officials.
 SPECIFIC OBJECTIVES OF AUDIT

1. Proper and effective use of public funds;

2. Development of sound financial management;
3. Orderly execution of administrative activities; and
4. Communication of information to public
authorities and the public through publication of
audit reports.
 TYPES OF AUDIT
AS TO ORGANIZATIONAL STATUS OF AUDITOR

• INTERNAL AUDIT – Is mainly a function of management.

• In here, the auditor heads the internal control system of
an agency and his or her activities are considered forms
of pre-audit.
• The agency can use internal audit as a tool for control
and evaluation of management operations.
• It is considered a part of the functions of the audited
agency with the view of achieving regularity, efficiency,
economy, and effectiveness in agency operations,
especially in large organizations.
 TYPES OF AUDIT
AS TO ORGANIZATIONAL STATUS OF AUDITOR

• EXTERNAL AUDIT - Is what the COA does.

• The COA Auditors are independent of the audited agency.
• Under the Constitution, external audit by the COA cannot be
replaced by internal audit or any private external audit.
• While the internal auditor may conduct audit of his agency,
only the COA is authorize to conduct government audit.
• Unlike internal audit, external audit is called upon to give a
professional opinion on the fairness of presentation of
financial statements.
 TYPES OF AUDIT
AS TO AUDIT SCOPE

• FISCAL AUDIT – is the traditional financial audit in

government. It is a combination of financial audit and
compliance audit.
• FINANCIAL AUDIT – is the most widely practiced type
of audit in the private sector.
• It is performed primarily through an examination of
financial statements in order o express an opinion on the
fairness with which the financial condition and results of
operations of an audited entity are presented.
 TYPES OF AUDIT
AS TO AUDIT SCOPE

• In the government, the constitution requires COA to

submit an annual report on the financial condition and
operation of the NG and its subdivisions,
instrumentalities, and agencies, including GOCCs.
• COMPLIANCE AUDIT - is an evaluation of the extent to
which the agency has complied with pertinent laws,
policies, and rules and regulations in the conduct of its
operations
• the auditor tests the agency’s financial transactions and
specific program, function or activity to determine their
legality or regularity.
 PERFORMANCE AUDIT

• It is a constructive examination and evaluation of the

financial and operational performance of an
organization, program, function or activity with the
objective of identifying opportunities for greater
economy, efficiency, and effectiveness in agency
operations.
 AUDIT OUTPUT RESULTS

1. Whether the agency is managing and utilizing its

resources economically and efficiently;
2. The causes of inefficiencies or uneconomical practices;
3. Whether the agency has complied with laws and
regulations concerning matters of efficiency and
economy.
4. Whether the desired results or benefits established by
the legislature or other authorizing body are being
achieved; and
5. Whether the agency has considered alternatives that
might yield desired results at a lower cost.
 THE AUDIT PROCESS

1. Preliminary survey and reporting agency actions

and decisions working knowledge to gather the
needed information on the legal, policy and
administrative environment of the agency
concerned.
2. Review of legal and policy framework within the
agency operates, and the plans, policies, objectives,
and standards it has adopted.
 THE AUDIT PROCESS

3. In depth examination of the agency’s internal

control system.
4. Preparation of draft report and presentation to
agency
5. Finalization of the report
6. Follow-up on the implementation of audit
recommendation
 COMMISSION ON AUDIT (COA)

• The Commission on Audit (COA) is the highest public

institution legally responsible for conducting
professional government audit in the country and
sometimes referred to as supreme audit institution
(SAI).
• The COA is the official external auditor of the
government.
 POWERS OF COA

1. Examine, audit, and settle all accounts pertaining

to the revenue and receipts of, and expenditures
of funds and property, owned or held in trust, by
or pertaining to, the government, or any of its
subdivisions, agencies, or instrumentalities and
such non-governmental entities receiving subsidy
or equity which are required to submit to COA
audit.
2. Keep the general accounts of the government
3. Preserve the vouchers and supporting papers
pertaining to such accounts
 POWERS OF COA

4. Define the scope of its audit and examination and

establish the techniques and methods required
5. Promulgate accounting and auditing rules and
regulations.
6. Submit to the President and the Congress an
annual report covering the financial condition and
operation of the government and such other
reports required by law;
7. Recommend measures necessary to improve
efficiency and effectiveness in government;
 POWERS OF COA

8. Decide any case or matter brought before it within

sixty days from date of its submission for decision
or resolution; and
9. Perform such other functions as prescribed by law.
 FUNCTIONS OF COA
SEC 2, ARTICLE IX-D, 1987 PHILIPPINE CONSTITUTION

• Auditorial function - covering all govt. accounts having to

do with revenues and receipts and all expenditures or uses
of public funds and property as well
• Rule-making for accounting and auditing
• COA is mandated to prescribe accounting and auditing
rules and regulations to be observed by government
agencies in the management of their financial
operations and as bases in the review and appraisal of
such operations
• Prevention of irregular, unnecessary, excessive &
extravagant expenditures
 FUNCTIONS OF COA

• Reportorial function-through the annual report of the COA,

the country’s executive and legislative arms are kept posted
on the financial state of the government three annual reports
prepared by COA:
(1) Annual Report on National Government,
(2) Annual Report on Local Governments,
(3) Annual Corporate Summary
• Recommendatory function for improving efficiency &
effectiveness
• this provides the legal basis for the modern thrust in state audit
called the three Es – economy, efficiency, and effectiveness audit
 FUNCTIONS OF COA

• Limited accounting function - COA is mandated to

perform a limited accounting function, because
ordinarily, an audit office does not carry out
accounting functions
• Quasi-judicial function - COA exercises adjudicatory
power. Any party, whether a public officer or private
person, aggrieved by the decision, order or ruling of
the Commission, may elevate the matter to the
Supreme Court for Certiorari
 FUNCTIONS OF COA

• Report on expenses of the national assembly - the

records and books of accounts of the National assembly
shall be open to the public in accordance with law and
such books shall be audited by the COA, which shall
publish annually the itemized expenditures of each
member
• Custodial function – management and custody of the
general accounts of government, custody of funds from
tax refunds, and preservation of vouchers and other
supporting papers pertaining to the general accounts.
• Other functions as may be prescribed by law
 ORGANIZATION OF COA

• The Chairman and two Commissioners comprises

the Commission Proper (CP) which is the highest
policymaking body of the COA.
• The CP exercises its powers and authority collegially
and has authority to act on any appeal brought before
it for final resolution.
• Its decision is appealable only to the Supreme Court.
• The Chairman is the presiding officer of the CP and the
chief executive officer of the Commission.
 ORGANIZATION OF COA

• The CP do not audit transactions involving

government funds and property.
• Actual audit and examination is performed by a
resident auditing unit headed by an auditor.
• COA has a resident auditor who has full authority to
perform duties in every agency.
• The Special Audit Office (SAO) conducts special
audits.
 ORGANIZATION OF COA

• Provincial and city auditors supervise the resident auditors

in their respective areas.
• They are in turn supervised by regional offices headed by
Directors who supervise and control the implementation of
auditing rules and regulations in agencies with the region.
• The COA central offices in Quezon City supervise and
control the regional offices.
• The Accountancy Office prepares the annual financial
report of the national government and verifies
appropriations of and controls funds released to national
government agencies.
 TYPES OF AUDIT
AS TO TIMING

• PRE-AUDIT – is the examination of financial

transactions before their consummation or payment.
• the auditor reviews a transaction even before such
services are rendered
• POST-AUDIT – refers to the examination of financial
transactions after payment has been made.
• the auditor reviews and approves the transaction
after the services have been rendered and
payment has been made