Tuesday, July 7, 2009

Pre-audit Returns; 10 Billion Advances Unliquidated

UNLIQUIDATED cash advances of national government agencies and local government units (LGUs) have ballooned to P10 billion, prompting the Commission on Audit (COA) to restore the preaudit of select government transactions starting next month.
The COA said it was restoring the practice of preaudit in a bid to check what it described as the “rising incidents of irregular, illegal, wasteful and anomalous” releases of public money and disposal of government property.

The preaudit, which scrutinizes transactions before funds are released and recorded in the government’s books, was discontinued in 1995. It was entrusted to internal auditors who are employees of the agency they examine. COA auditors were restricted to postaudit work.

The COA said in a circular, “An assessment of the risk-prone areas in government operations and the marked inadequacy in internal controls, as exemplified by the frequency of anomalies uncovered or reported, point to the need to consider preaudit as a deterrent against the resurgence of the observed maladies.”
The preaudit will resume on August 1 and will apply to certain transactions of select national government
agencies, LGUs and government-owned and -controlled corporations. National high schools, barangays and state corporations audited under the team approach are initially exempt from preaudit.

COA records showed that P7.68 billion in cash advances to officials and employees of national government agencies remained unliquidated as of December 31, 2007. The cash advances were drawn from the payroll and special purpose funds, and include fund transfers to field offices. Unliquidated cash advances of LGUs stood at P2.45 billion at the end of 2007.

Under Presidential Decree 1445, the Government Auditing Code, a cash advance should be reported on and liquidated as soon as the purpose for which it was given has been served.

But the unliquidated cash advances have ballooned partly because a COA directive prohibiting further advances to those who have not settled their accounts is repeatedly violated, according to COA auditors.

“It all boils down to a lack of political will,” a COA official said.
An audit report showed the Office of the President accounting for P632.9 million of the unliquidated cash advances in 2007. MalacaƱang released P223 million in cash advances for foreign travels that year. Although these had been mostly liquidated, the COA questioned the release of the advances to the cashier who was never a member of or party to the foreign travels, which is a violation of another COA circular.

Subject to preaudit are:
• Cash advances except those for payroll, intelligence funds, petty-cash funds and those given for local-travel expenses of officers and employees.
• The first and last salary payments and terminal leave benefits of government workers.
• Advanced payment and the first and last progress billings of contracts for infrastructure projects that fall within the threshold set by the COA, for example, P25 million and above for those of departments, bureaus, head offices, general headquarters and project management offices.
• Payments for road right of way.
• Procurement of land and building and goods and services.
• Payments made through automatic debit service.
• Release to nongovernment organizations and people organizations.
• Transfer of funds between and among government agencies.
• Releases from trust funds of local government units.
• Disposal of government property.

In early October, then-Philippine National Police comptroller Eliseo de la Paz and his wife were held at the Moscow airport for carrying €105,000 or nearly P7 million, which he told a Senate inquiry was a “cash advance” for the police delegation that had attended the 77th Interpol General Assembly.

Allegations of collusion and corruption have also dogged infrastructure projects, including those funded by the World Bank through the National Roads Improvement and Management Program.

The scandals have earned the Philippines the reputation of being one of Asia’s most corrupt countries.

Although senior COA auditors acknowledged the comeback of preaudit as a possible deterrent to financial malfeasance, they said the emphasis on financial audits since 2002, instead of compliance and performance audits, has undermined the commission’s effectiveness as guardian of the public purse.

Auditors, they said, were also discouraged from suspending and disallowing transactions even when they documented irregularities. Instead, they were limited to preparing “audit-observation memos” that were recommendatory.
The recently launched Philippine Human Development Report (PHDR) found financial audits ineffective in detecting fraud.

“While financial audits examine the accuracy and reliability of government financial reporting, they can also conceal more than reveal,” the report said. “The more detailed the rules, the easier it is for management to cheat and structure transactions to get around the rules.”

Compliance auditing reviews an agency’s adherence to legislative and regulatory guidelines, including the budget law. Performance auditing examines programs, functions, operations or the management systems and procedures to see if public funds are used with “economy, efficiency and effectiveness.”

Earlier, the COA ordered government agencies to furnish auditors a copy of their contracts and purchase orders within five working days upon their approval, noting how government officials have repeatedly violated this rule, and citing “irregularities discovered in government contracts.”

The Constitution empowers the 12,000-strong COA, a constitutional body, to define the scope and techniques for its audits and prohibits legislation that would limit its audit coverage.

I believe that pre-audit in selective government transactions should really be reinstituted to prevent the occurrence of irregular, illegal, wasteful and anomalous government transactions.


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