Brief Outline on the Selective Pre-audit on Government Transactionstions (Part II)

Transfer of funds between and among government agencies
- all transfers of funds either thru funding check or bank transfer between and among bank accounts of agencies or between different bank accounts of the same government agency.

Exceptions:
- Routinary fund transfers between government banks
- Transfers of funds to address an emergency or existing calamity
- Releases of NCAs and NTAs

Disbursements from trust funds of LGUs
- Only disbursements of trust funds released by the national government or by GOCCs are subject to pre-audit
Disposal of real property, unserviceable property and those no longer needed
- Include only those undertaken through negotiated sale for NGAs/GOCCs and private sales for LGUs
- Real property - at least P1 million for NGAs and GOCCs regardless of amount for LGUs
Unserviceable property/those no longer needed
- at least P500,000 for NGAs/GOCCs
- acquisition/transfer cost of at least P50,000 for provinces/cities and P25,000 for municipalities/barangays
Acquired assets of GFIs – at least P50M
Exception: Disposal to previous owners in the exercise of the right of redemption

RESPONSIBILITY TO CONDUCT PRE-AUDIT
 The head of the auditing unit or audit team shall be responsible to conduct pre-audit.
 The head may either be a Supervising Auditor or an Audit Team Leader depending on the agency involved

DUTIES AND RESPONSIBILITIES OF AGENCY OFFICIALS
 no transactions are paid without evidence of the pre-audit action
 all disbursement vouchers, advices/instructions, MOAs, MOUs, contracts, purchase/letter orders, loan agreements, bond flotation/certificates of indebtedness, appraisal reports and their supporting documents are submitted
 disbursement vouchers for infrastructure projects are accompanied by duly accomplished relevant checklist for technical review
 copies of delivery documents are furnished to the auditor within 24 hours after acceptance of deliveries
 the agency’s Annual Procurement Plan and its amendments are submitted within the first quarter
 a separate logbook of transactions subject to and submitted for pre-audit is maintained.

EVIDENCE OF AUDIT ACTION
 Pre-audit action is evidenced by a pre-audit stamp impressed upon the face of the disbursement voucher and its supporting documents with the following statement:
Pre-audited pursuant to COA Circular
No. 2009-002 dated May 18, 2009

 In case of deficiencies or defects, the disbursement voucher and its supporting documents should be returned to the head of the agency within 24 hours from such determination informing him of the action taken and indicating the reasons therein

 Credit Notice for cash advances

APPEAL
 Adverse action of the auditor may be appealed to the Cluster/Regional Director
 Decision of the Cluster/Regional Director shall not be subject to appeal to higher authorities
 Agency may pursue the proposed transaction notwithstanding the adverse action of the auditor or director.
 Appeal is permitted as an extraordinary remedy to afford the aggrieved party another opportunity to ventilate its cause.
 Appeal is limited to the Cluster/Regional Director because the proposed transaction is not yet consummated and the CP does not act on hypothetical issues.

OVERSIGHT COMMITTEE
 The Assistant Commissioners’ Group
 Authority and responsibility
- recommend to CP the inclusion/exclusion of transactions subject to pre- audit
- develop mechanism for evaluating progress of agencies in enhancing/improving their internal control
- develop mechanism/process by which agencies may be exempted from pre-audit using the risk-calibrated agency audit framework

PENAL PROVISIONS

 Non-liquidation of cash advances subjects the accountable officer to liability under Sec. 128 in relation to Sec. 89 of PD 1445 and/or other applicable laws and administrative regulations.
 Non-submission of transaction for pre-audit before consummation is a ground for initiating administrative disciplinary action in accordance with Section 127 of PD 1445 and Section 55, Title I-B, Book V of EO No. 292, without prejudice to disallowance, if warranted.

This briefing on the Selective Pre-audit on Government Transactions was given by COA Assistant Commissionner Lourdes M. Castillo, Administration Sector, on July 1, 2009 and which I attended together with other COA Region VI audit team leaders.

Brief Outline on the Selective Pre-audit on Government Transactions (Part I)

There are two reasons why Selective Pre-audit on Government Transactions was reinstituted by the Commission on Audit:

1. Rising incidents of illegal, irregular, wasteful and anomalous disbursements of huge amounts of public funds
2.Marked inadequacies in internal controls as exemplified by anomalies uncovered or reported after assessment of risk-prone areas in government operations

Not all government agencies are subject to pre-audit.

Not all transactions of the government are subject to pre-audit - only 10 transactions are initially identified.

DEFINITION AND GENERAL SCOPE OF PRE-AUDIT
Pre-audit is the examination of documents supporting a transaction or series of transactions before these are paid for and recorded.

Pre-audit operates to-
- determine that the proposed expenditure is in compliance with appropriation law and other specific statutory authority and regulations
- assure that sufficient funds are available
- initially determine that the transaction is not illegal, irregular, extravagant, excessive, unconscionable or unnecessary
- determine that the transaction is approved by proper authority and supported by authentic underlying evidences

As used in the circular “initially determine” emphasize that determination of the auditor is not yet final and could be modified in post-audit
- In cases of technical matters, the auditor may possess some degree of competency in determining the reasonableness of price but still needs the assistance of a technical expert.

PRE-AUDIT VS. POST-AUDIT
 Pre-audit is a review before a transaction is paid for or recorded. Post-audit refers to review after the transaction is recorded or consummated.

 Pre-audit is an upfront auditing procedure undertaken on the documents supporting a transaction prior to its payment or recording.

COVERAGE of the Selective Pre-audit on Government Transactions
Agencies - national government agencies, local government units and GOCCs with original charter
Exception: national high schools, GOCCs audited on an engagement basis and barangays

Transactions
- cash advances
- payments of salaries and terminal leave benefits
- payments for infrastructure projects
- payments for road right-of-way
- procurement of capital assets, goods and services
- payments thru ADA
- releases of funds to NGOs/POs
- transfer of funds between government agencies
- disbursements from trust funds of LGUs
- disposal of real property and unserviceable property

SPECIFIC SCOPE OF PRE-AUDIT
Cash advances - all cash advances including those for foreign travel funded out of local funds

Exceptions: cash advances for payroll fund, intelligence funds, petty cash funds, revolving funds and local travel expenses

Payment of salaries and terminal leave benefits
- payment of first salary after appointment by transfer or reinstatement and last payment of salary prior to transfer
- all payments of terminal leave benefits
Infrastructure projects

- Only the advance payments to contractors and the first and last progress billings are subject to pre-audit
- First progress billing covers first collection on work accomplishment
- Pre-audit of last progress billing must consider all previous payments

Variation orders

 all first payments under variation orders related to contracts within the monetary threshold are subject to pre-audit
 First payment and last progress billing under variation orders which bring a contract within the monetary threshold are subject to pre-audit
Price escalation
 All claims for price escalations are subject to pre-audit

Infrastructure projects

National Government Agencies
- Dept./Bureau/Agency Main/Central/Head Offices,
- General Headquarters, PMOs – P 25M above
- Regional Offices or their equivalents – P 10M above
- Provincial/District/Satellite Offices or their equivalents – P 2M above
- Tertiary and/or specialized hospitals – P 5M above
Local Government Units
- Cities within MM, other highly urbanized cities, first class provinces – P 5M above
- Provinces/cities below first class – P 3M above
- Municipalities – P 1M above
GOCCs
- Head Offices, PMOs – P 25M above
- Regional/Provincial Branches/Field Offices – P 10M above
- Tertiary and/or specialized hospitals – P5M above

Payments for road right-of-way

 All claims for road right-of-way to be pre-audited based on its compliance with the requirements of RA No. 8974 and its implementing rules and regulations

Procurement of capital assets, goods and services
- capital assets (land and building)
- supplies, materials, general support services (rentals, janitorial, security, solid waste management) labor
- procurement of construction materials for projects implemented by administration
- only first payment for general support services is subject to pre-audit
Procurements subject to pre-audit:
- at least P 2M for NGAs, GOCCs, cities within MM, other highly urbanized cities and first class provinces
- at least P 1M for provinces/cities below first class
- at least P500,000 for municipalities

Exception:
- Procurement between government agencies
- Procurement of life saving medicines, food and other items necessary to address natural calamities or emergencies

Payments thru ADA
All ADA payments are subject to pre-audit
 In instances where ADA is the mode of payment in transactions similarly covered by pre-audit such as payments for infrastructure projects or procurements, all payments shall be subject to pre-audit.
Releases to NGOs/POs
- All releases are subject to pre-audit taking into consideration the requirements and guidelines provided in COA Circular No. 2007-001 (October 25, 2007)

COA Reinstitutes Selective Pre-audit

The reinstitution of selective pre-auditing effective July 1 is seen to curb anomalies in government transactions, according to the director of the Commission on Audit-Regional Office 13. Lawyer Roy Ursula said that the COA will implement a selective pre-audit on government transactions nationwide based on COA Circular 2009-002 dated May 18 of this year as there have been “documented cases that have proven to be weak in internal control.”The pre-audit is an examination of documents supporting a transaction or series of transactions before these are paid for and put on records, such as cash advances, payments of salaries and terminal leave benefits, payments for infrastructure projects, payments for road right-of-way, payments for procurement of capital assets, goods, and services; payments made through automatic debit advice, releases of funds to non-government organizations/people’s organizations; transfers of funds between government agencies, disbursements from trust funds of local government units and disposal of real property and unserviceable property.It was further learned from Ursula that selective pre-auditing was already practiced then but was lifted in 1995 because at that time, studies showed there was good governance then. But currently, there have been several cases where COA found anomalies in, he said. — Barbara Anne B. Ocaba, STC Masscom intern/MEEV (THE FREEMAN)

I believe that selective reinstitution of pre-audit is necessary to prevent further occurence of anomalies in the government. Checking of documents and inspection of projects before payment is done should really pass by COA's examination to ensure that what is being paid for is reasonable, regular and in accordance with rules and regulations.

Selective Pre-audit

Selective Pre-audit on Government Transactions

Starting July 1, 2009, the Commission on Audit through COA Circular no. 2009-002 dated May 18, 2009, is reinstituting selective pre-audit on government transactions. This is because of recent developments which gave rise to incidents of irregular, illegal, wasteful and anomalous disbursements of huge amounts of public funds and disposal of public property. Indeed corruption is everywhere nowadays, you can see or hear it in the news everyday pointing to the need to consider restoring pre-audit as a deterrent against resurgence of the observed maladies. For a full text of COA Circular no. 2009-002, please click below:

COA Circular No. 2009-002