Internal Audit has been expanding as a profession facilitated by the realization of its value-adding function in the organization both in private and public practice. In context, internal audit is 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 has been recognized not only locally but also in abroad.
The International Organization of Supreme Audit Institutions (INTOSAI), an organization of 184 countries issued guidelines for Internal Control Standards for the Public Sector which the Philippines anchored its policy framework for internal audit. The Philippines has been initiating the establishment of an Internal Audit Unit in all agencies and departments of the government as early as 1960s with the enactment of Republic Act No. 3456 (Internal Auditing Act of 1962). However, more than half a century later, compliance with the national mandate has yet to be substantially accomplished.
This study presents a description as to the level of compliance, specifically, of the Provincial Government of Negros Occidental with the thrust of the administration to require the Local Government Units to have its own Internal Audit Unit. Likewise, the discussion includes the initiatives of the province as to the establishment of this function, the various impediments that it encountered, and the potential of this unit in the furtherance of the endeavors of Negros Occidental.
Internal audit has traditionally been regarded as review, examination, and analysis of documents and assets and reporting to management of results. However, as managers have recognized the value-adding functions of internal audit in improving organizational performance, international initiatives to standardize the process were introduced.
At present, the profession has been subjected to global developments not only to amass practices that improve the quality of audit but to further step-up these practices and establish a standard. Organizations like the Institute of Internal Auditors (IIA) and the International Organization of Supreme Audit Institutions (INTOSAI) have been actively promoting through well-established frameworks for internal audit as a systematic approach to evaluate and improve risk management and control throughout the world.
As technology revolutionized how the everything works, this has led to complex situations wherein the profession has to cope up with time. This has resulted to the increasing need for public transparency and accountability in the use of public money in the most effective and efficient means that would yield positive returns to the organization.
In the Philippines, Article IX-D of the 1987 Constitution vests in the Commission on Audit (COA) the exclusive authority to promulgate auditing rules and regulations. Further, it provides that where the internal control system of the audited agency is inadequate, the Commission may adopt measures necessary and appropriate to correct deficiencies.
In line with the goal of the COA to empower and enable government agencies through the improvement of Internal Control System and effective functioning of internal audit services, the Internal Auditing Research and Development Committee (IARDC) was created pursuant to COA Office Order No. 2016-301, tasked to develop Internal Control Framework (ICF) and the Philippines Internal Auditing Standards (PIAS).
In compliance with the aforesaid Office Order, the IARDC conducted a review of the provisions of international frameworks related to internal auditing issued by the Institute of Internal Auditors (IIA), Committee of Sponsoring Organizations of the Treadway Commission (COSO), International Organization of Supreme Audit Institutions (INTOSAI). Likewise, the Philippine Government Internal Audit Manual (PGIAM), National Guidelines on Internal Control System (NGICS), Government Accounting and Auditing Manual (GAAM) Volume III and other relevant laws, rules and regulations were reviewed which led to the adoption of the Philippine Internal Auditing (PIA) and Philippine Internal Control (PIC) Frameworks for Public Sector.
However, the efforts of the government have yet to be appreciated by the various agencies. Based on a survey commissioned by Presidential Anti-Graft Commission (PAGC) and conducted by a private auditing firm, SGV & Co. showed that a relatively large number of government agencies do not have Internal Audit Units: 44% in NGAs, 48% in SUCs, 27% in GOCCs 65% in provincial and city government and 100% in municipal government. The survey reflects the apparent lack of compliance to government issuances.
In the Provincial Government of Negros Occidental, a province in the Philippines located in the Western Visayas region, with the city of Bacolod as its capital, an Internal Audit Unit has been established thought the efforts of the administration to comply with the national directives albeit still in its early stages.
This study aims to present a description as to the level of compliance, specifically, of the Provincial Government of Negros Occidental with the thrust of the administration to require the Local Government Units to have its own Internal Audit Unit. Likewise, to discuss the initiatives of the province as to the establishment of this function, the various impediments that it encountered, and the potential of this unit in the furtherance of the endeavors of Negros Occidental.
SCOPE AND LIMITATIONS
The primary focus of this study is the compliance of the Provincial Government of Negros Occidental in the various issuances passed by the legislative and executive departments not only in the establishment of Internal Audit Unit in the government but also the standardization of processes and appropriate staffing.
This research is limited only to the relevant laws related to internal audit in the Philippines, since the available jurisprudence is insufficient to supplement the needs of the research.
This study employs a descriptive research design as this paper discusses the level of compliance of the Provincial Government of Negros Occidental to national directives on the establishment of internal audit in the public sector.
Descriptive method is appropriate for this study as it describes the characteristics of each law related to internal audit in which will be the basis in identifying the direct and indirect adherence of the provincial government to the same laws.
The researcher maximized the use of academic literary works and government issuances published on reliable online sources which include legal articles and other information. Moreover, interviews with the personnel of the Internal Audit Division of the Provincial Government of Negros Occidental were conducted to have an exhaustive and comprehensive view of the situation of internal audit in the local scene.
Internal Audit in the Philippines
Internal audit is an integral part of the internal control system of public service organizations. The scope of internal audit is broad and involves all matters relating to operations and management control.
Among others, internal audit encompasses the 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.
Realizing the importance of such function as early as 1962, the legislative branch of the government has enacted Republic Act 3456 or (Internal Auditing Act), as amended by RA No. 4177, which created and organized an Internal Audit Service/Unit in all government agencies to help management achieve an efficient and effective fiscal administration and assist in the performance of agency affairs and functions.
To further bolster the adoption of the internal audit in the public sector, a chronological summary of issuances on the organization, staffing, functions, and activities of internal audit is provided as follows:
- Presidential Decree No. 1 (Reorganizing the Executive Branch of the National Government), which abolished the IAS/U created under RA No. 3456, as amended by RA No. 4177. The function was subsequently merged with the Management Division of the Financial and Management Service in the Departments pursuant to Item 3, Article IV, Chapter I, Part IV of the P.D.
- Section 1 of Administrative Order (AO) No. 119 dated 29 March 1989, which mandated government entities to strengthen their internal control systems and organize systems and procedures in coordination with DBM.
- Memorandum Order No. 277 dated 17 January 1990, directing the DBM to promulgate the necessary rules, regulations, and circulars for the strengthening of the internal control systems of government offices, agencies, government-owned or controlled corporations (GOCCs), and LGUs.
- Section 3(b) of RA No. 7160 (The Local Government Code of 1991), which mandated the establishment of an accountable, efficient, and dynamic organizational structure and operating mechanisms that will meet the priority needs and service requirements of its communities in every LGU. Section 474(b) further provides for the qualifications, powers, and duties of an Accountant, among which is the mandate to take charge of both the accounting and internal audit services of the LGU.
- AO No. 278 dated 28 April 1992 [Directing the Strengthening of the Internal Control Systems of Government Financial Institutions (GFIs) and LGUs, in their Operations], which provided for the functions, duties, and activities of the IAS/U. It also provides that IAS shall be detached from all functions of routine operating character.
- AO No. 70 dated 14 April 2003 [Strengthening of the Internal Control Systems of Government Offices, Agencies, GOCCs, including GFIs, State Universities and Colleges (SUCs) and LGUs], which reiterated the authority for the creation of the IAS/U and its functions.
- DBM Budget Circular No. 2004-4 dated 22 March 2004 (Guidelines on the Organization and Staffing of IAUs) which provided for the policy guidelines in the organization, staffing, positions, and salary grades of the IAS/U in Departments/Agencies/GOCCS/GFIs/LGUs concerned.
- DBM-CSC Joint Resolution No. 1 dated 12 May 2006 (Rationalization Program’s Organization and Staffing Standards and Guidelines), which provided for the creation of the IAS/U with its functions in line with Executive Order No. 366, as supplemented by CSC MC No. 12 s. 2006 issued on 22 June 2006.
- DOJ Opinion No. 007 dated 29 January 2007 (in response to the query on whether or not RA No. 3456, as amended by RA No. 4177, is still the enabling law on the establishment of the internal audit function in government agencies), which cited the evolution of the IAS/U from RA No. 3456, as amended by RA No. 4177 and P.D. No. 1. The IAS/U was abolished but its functions were merged with the Management Division under the FMS. It also recognized DBM Budget Circular (BC) No. 2004-04 in setting the Guidelines on the Organization and Staffing of IAUs. However, the DOJ opined that the query should be coursed to the Office of the Government Corporate Counsel (OGCC) and/or DBM.
- OGCC Opinion No. 099 dated 30 May 2007, which stated that P.D. No. 1 recognized that the IAS/U had been abolished but that its functions had been merged with the Management Division under the FMS and DBM BC 2004-04.
- DBM Circular Letter No. 2008-5 dated 14 April 2008 (Guidelines in the Organization and Staffing of an IAS/U and Management Division/Unit in Departments/Agencies/ GOCCs/GFIs concerned), which provides the guidelines in the organization of the IAS/U, clarifies its functions, and specifies the rank and salary grade of the head of the IAS/U. The circular states that the head of the IAS/U shall directly report to the Department Secretary/Head of the Agency in the case of Departments and regularly attached agencies, and to the Audit Committee of the Governing Board in the case of GOCCs/GFIs.
- DBM Circular Letter No. 2008-8 dated 23 October 2008 [National Guidelines on Internal Control System (NGICS)], which provides guidance to heads of departments and agencies in designing, installing, implementing, and monitoring their respective ICS, taking into consideration the requirements of their organizations.
Notwithstanding the series of issuances by the legislative and executive branches of the government, there still remains a low compliance rate of the government agencies as to the creation of an independent internal audit unit within their own agencies. In a survey commissioned by the Presidential Anti-Graft Commission (PAGC) and conducted by a private auditing firm, SGV & Co. showed that a relatively large number of government agencies do not have IAUs: 44% in NGAs, 48% in SUCs, 27% in GOCCs 65% in provincial and city government and 100% in municipal government.
Furthermore, in a study by Ruth Carlos, et. al, entitled: Internal Audit in the Philippine Provincial Government Office (PGO), the authors’ findings include that the Provincial Government Office represented in their study consisting of fifty provinces from Luzon, six provinces in Visayas and sixteen provinces in Mindanao with a total of 72 respondents, that the current state of Internal Audit Unit in the PGO is characterized by the following: Internal Audit Units consists of the college course taken with Bachelor in Accountancy have a percentage of 27, with CPA licensed percentage of 23, with designation as Internal Auditor with percentage of 50. The respondents with college course taken of Bachelor of Science in Accountancy have the highest frequency of 27 which is evident that the internal audit in the government is the primary course to consider in the post. The other course taken are business courses such as Bachelor of Science in Commerce, Bachelor in Business Administration major in Marketing Management and Engineering courses that are necessary for the performance of some IA functions.
INTERNAL AUDIT IN THE PROVINCIAL GOVERNMENT OF NEGROS OCCIDENTAL
The Internal Audit Division which is under the Office of the Governor is the Internal Audit Unit of the Provincial Government of Negros Occidental. This division was created on March 26, 2014, through SP Ordinance No. 010 series of 2014 in compliance with the different legislative and executive issuances.
Currently, the IAD is headed by an Accountant IV who is a CPA and has five (5) internal auditors (Accountant III, Internal Auditor III, Accountant II, Internal Auditor II, and Accounting Clerk III). Their personnel are dominated by business-related course graduates and 3 positions are for CPAs.
Moreover, the IAD has three (3) sections namely: Management Audit Section, Operations Audit Section, and Administrative Support Section.
The Management Audit Section has the task to evaluate the realization of the control objectives which includes the protection of assets, examining the accuracy and reliability of the accounting data, observance to managerial policies, and conformity with laws, rules and regulations by utilizing internal audit methods.
The Operations Audit Section is responsible for the assessment of the degree of compliance and the determination of the effective, efficient, ethical and economical execution of operations by utilizing internal auditing methods.
The Administrative Support Section is responsible for the preparation of PR for logistical requirements, preparation of payroll and attendance and the management of office records.
The functions of the IAD pursuant to the Administrative Code of 1987, and as reiterated in Item 3.5.4 of the NGICS and Section 3.2 of the Scope of Internal Audit of the PGIAM, are as follows:
- Advise the Local Chief Executive (LCE) or Sanggunian on all matters relating to management control and operations audit of the executive or legislative branches;
- Conduct management and operations audit of LGU functions, programs, projects, activities, and 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 the LGU;
- 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 LCE or as may be required by law.
Moreover, the internal auditors of the Provincial Government of Negros Occidental adhere to the following internal audit principles:
Objectivity and Impartiality
To be objective and impartial, the internal auditor shall at all times uphold public interest over and above personal interest. He/she shall have no direct authority or responsibility for the activities he/she reviews nor any responsibility for developing or implementing processes or systems. He/she shall not have a vested interest in the activity being audited. The internal auditor is not allowed to make the rules: he/she shall have audit performance standards that are already in place and accepted by the LGU. If the rules are developed, he/she cannot impartially evaluate the effectiveness and application of these rules.
The internal auditor shall respect the confidentiality of information acquired in the course of performing the audit activities. Unless there is a legal or professional right or duty to disclose, the Internal Auditor shall not use or disclose any such information without proper and specific authority. Likewise, confidentiality is not only a matter of disclosure of information but includes the prohibition on the use information for personal advantage or for the advantage of a third party.
The Head of Internal Audit and the individual internal audit staff are responsible and accountable for maintaining the confidentiality of the information they receive during the course of their work.
The internal auditor shall maintain high standards of competence and the highest degree of professional integrity, both in the technical and ethical sense, commensurate with his/her responsibilities and mandated functions. He/she must possess and continually develop the knowledge, skills, and other competencies needed to perform their responsibilities to enhance the quality of the audit.
Proficiency is a collective term that refers to the knowledge, skills, and other competencies required of internal auditors to effectively carry out their professional responsibilities. It encompasses consideration of current activities, trends and emerging issues to enable relevant advice and recommendations.
Due Professional Care
Internal auditors must be alert to the significant risks that might affect objectives, operations, or resources. However, assurance procedures alone, even when performed with due professional care, do not guarantee that all significant risks will be identified.
Due professional care includes conforming with the Code of Ethics and, as appropriate, with the agency’s code of conduct as well as the codes of conduct for other professional designations the internal auditors may hold.
Relations with the Management
The Internal Audit Division has unrestricted access to all records, funds, property, and personnel in line with the performance of its functions and as directed by the Governor. It is important that IAD respects the confidentiality of such information and its communication to others be made on a strictly need-to-know basis. In situations where managers consider that such information is being used inappropriately, the reputation and credibility of the IAD is to be adversely affected.
The Internal Audit Staff of PGNO develop a professional and constructive relationship with the Local Chief Executive as well as with the other departments in the Provincial Government of Negros Occidental. The Internal Audit Staff interact on a regular basis with them and build a relationship that is based on cooperation, mutual respect and adherence to the highest degree of professionalism.
While interacting on a regular basis, the auditors are privy to the information that might impact on the professional and, at times, personal reputations. Confidentiality of such information and its communication to others are made on a strictly need-to-know basis. The internal auditors of IAD must observe the standards as mandated by the Code of Conduct and Ethical Standards for Public Officials and Employees and other laws, rules and regulations.
Relations with the External Auditors – COA
The IAD is primarily responsible for coordinating the external audit relationship. An attitude of cooperation and collaboration best describes the relationship of internal auditing to the external auditors. The IAD is concerned with a comprehensive continuing program of audits which places emphasis on risk management, control, governance, processes, and efficient profitable operations.
The Commission on Audit has the Constitutional authority and duty to examine, audit and settle accounts in accordance with the law and regulations and the IAD of PGNO cannot interfere with the powers, functions and authority of COA instead they must establish a close coordination and constructive cooperation with them.
The IAD is an integral part of the Provincial Government and assists in the management and effective discharge of the responsibilities of the Office without intruding into the authority and mandate of the COA.
Relations with Other External Bodies
The Head of the Internal Audit can coordinate in behalf of, and with authority from the Governor for performing these audit activities, with other external reviewers as part of the organization’s governance arrangements. There are benefits in formalizing protocols for such activities as exchange of information and reports in coordinated manner. This arrangement can be applied where internal audit needs to work closely with its programs in other public service sector organizations as a result of inter-agency agreements, as may be authorized by the Governor.
Coordination of internal audit activities with other external bodies mainly involves checking and working together to ensure that the audit coverage is attained, there is an exchange of information, a minimum duplication of effort and expense and a cost-effective reliance on the work of the IAD.
Issues and Impediments in the creation and functions of the Internal Audit Division
When asked about the reasons why the office was established only in 2014, it was shared to the researcher that there is already an internal audit unit that was established under the Accounting Office before, in compliance with the mandate of the Local Government Code which provides that the local accountant shall also perform internal audit services. However, the unit’s functions are only limited to audit of accounting system and audit of vouchers which are restricted when internal audit encompasses matters in the entire organization which need the expertise of the internal auditors to improve internal controls or supply some deficiencies in the process.
In 2014, when the Internal Audit Division was created through SP Ordinance No. 010, it was already an independent unit from the Accounting Office and is now situated under the Office of the Governor. It initially started with a team of five (5) members and joined with the Inspection Division of the Administrator’s Office but later split because it violates the internal auditors’ independence and impartiality. The IAD should be separate from other functions of the organization which will be subject to future evaluation by the same internal auditors.
Upon establishment of the office, the personnel being new to their functions, faced the question of what they should work on or perform as internal auditors as there are no procedures nor handbooks to guide them in doing their work. There is the Philippine Government Internal Audit Manual (PGIAM) issued by the Department of Budget and Management (DBM) in 2011 to guide government agencies to conduct internal audit in a systematic, economic, effective and efficient methods but most of its processes have the National Agencies, GOCCs and SUCs in mind. The clamor of the LGUs to have their own manual due to the difficulty in applying the PGIAM in their organization, DBM issued the Internal Audit Manual for Local Government Units in 2016. This addressed the concerns of the LGUs to streamline the PGIAM and tailor it specifically for the exclusive processes enshrined in the Local Government Code of 1991.
To equip the internal auditors with the skills and be acquainted with internal auditing, they attended seminars and workshops provided by the Association of Government Internal Auditors (AGIA) which is a Non-Government Organization (NGO) that aims to provide quality seminars and trainings to internal auditors in the Philippines.
AGIA was first organized in 1959 upon the motivation of then Chief Supervising Auditor Cecilio L. Dizon of the General Auditing Office (now COA). In 1962, the Internal Auditing Act (R.A. 3456) was passed requiring internal auditing in the National Government. This was amended in 1965 by R.A. 4177 to include government-owned and/or controlled corporations & local government in its coverage.
On April 28, 1992, then President Corazon C. Aquino, through Administrative Order No. 278, directed the strengthening of internal control systems of government institutions. In this Malacañang Order, the AGIA, among others, was instructed to “ensure that internal audit practices, methods and procedures are improved and updated through continuing education and that all audit works for each government agency are conducted in conformity with the standards of the internal audit profession.”
Capacity building providers for internal auditors in the public sector are limited, with only AGIA trainings attended by the internal auditors of IAD. The issue here is that the trainings offered by AGIA are similar since IAD joined its trainings in 2014 until the present.
Moreover, the IAD being dominated by business graduates, a common misconception of internal auditing is that it is accounting-focused mainly because the name and function were previously affiliated with the Accounting Office. Although there is some truth to it that it involves review of accounting systems, internal audit goes beyond balance sheets and debit and credit but looks at the organization as a whole. As shared by the internal auditors in the interview, they have conducted audit engagements of the various programs of the provincial government which include inventory of medical supplies and medicines, road inventory of the province, review of contracts, system audit, management audit and operations audit. Further, they shared the difficulty in conducting audit where their expertise in the aforesaid engagements is limited which requires engineering, information technology, medical and other courses. There is clearly a mismatch of skill in the IAD.
In Internal Auditing in Philippine Government: Initiatives, Issues and Prospects by Rufo R. Mendoza, the author discussed the issues in internal auditing in the public sector which contributed to the low compliance rate:
Enabling law(s) in the creation of IAU. The series of legislative and executive issuances has resulted in a fragmented set of policies and rules in internal auditing. This led to the question of which of these issuances has become the enabling law in the creation of IAUs. Are RA No. 3456 (Internal Auditing Act of 1962) and its subsequent amendments in RA No. 4177 still enforced or were they repealed by PD No. 1 and EO No. 292 (Administrative Code of 1987)?
Internal auditing as assurance service. The International Standards for the Professional Practice of Internal Auditing (ISPPIA) defines internal auditing as both assurance and consulting services. Assurance is contextualized as the communication of results of the internal auditor’s work to both the management (as auditee) and the board. In the absence of a board like in the case of the national government, the auditor reports directly to the agency head who becomes the principal or the governing board. Thus, the internal auditor performs his audit functions on the operating or functional units of an agency. This creates an issue since there is a belief that assurance is the responsibility of the operating or functional units of a government agency and it is by virtue of such assurance that the head of office relies upon his subordinates in the operation and function of the units. This means that the head of the operating or functional units provides assurance to the agency head and that assurance serves as the basis of trust on the part of the agency head. Following this thought, the internal auditor does not provide assurance hence, internal auditing in the government is not an assurance service.
Provision of consulting services by internal auditors. Are internal auditors in the government supposed to provide consulting services to the agency? Consulting services refer to advisory and related client service activities, the nature and scope of which are agreed upon with the client and which are intended to add value and improve an organization’s operations. These include activities that have long been performed as part of the internal audit function, such as conducting internal control training, providing advice to management about the control concerns in the new system, drafting policies, and participating in quality teams. There is an issue in the provision of consulting services because it is believed that consultancy contracts are not considered as government service since somebody who has no employee-employer relationship with the government agency provides these services. It is also asserted that consulting service is covered by the law on procurement hence, it is not within the parlance of internal auditors.
Internal audit charter in government agencies. The first attribute standard in the ISPPIA advocates that the purpose, authority, and responsibility of the audit activity be formally defined in a charter. The charter also provides a formal written agreement with the management and the auditor about the role and responsibilities of the internal audit activity within the organization. The issue here is that the role and responsibilities of IAU in the government may not be the subject of an agreement between the management and the auditor since laws, rules, and regulations govern them. Hence, there is a general belief that a charter is not applicable to the government internal audit. The agency charter, service guide, and other documents related to the agency mandates and functions should be used instead.
Auditees as customers of the internal auditors. In the private sector, customer orientation has been gaining importance as an approach to quality service delivery. This implies that a customer (or client) who is requesting for services from an auditor, is given much value by the auditor hence the auditor is more than willing to provide the best service. The issue is that in the government, the conduct of internal audit is not upon the idea of the operating or functional units as auditee but in pursuance to the power of the agency head to exercise administrative supervision and that task is delegated to the internal auditor. This indicates that the auditee does not in fact request for the rendition of internal audit services. Following this thought, the auditees are not customers who request for internal audit services and the head of agency is not a client of the auditor.
Overlapping functions of internal and external auditors. The various legislative and executive issuances always remind internal auditors on the possible intrusion into the authority and mandate of the external auditors. The complementation of the functions of these two types of auditors is regarded as the ideal situation. Indeed, the external auditor has to look into the scope of work that the internal auditor has accomplished and consider it in the conduct of his audit so as to refrain from duplicating the same. Thus, there should be no overlap or duplication of audit functions. There is, however, a contention that internal auditors can audit the work of the external auditors since external auditing is also part of the governance process. This is, however, not acceptable to certain external auditors.
Internal control framework in the public sector. AO No. 70 provides that internal auditors shall conduct their work in conformity with ISPPIA. Corollary to this is the use of the Integrated Framework on Internal Control developed by the Committee on Sponsoring Organization and provided in the ISPPIA. On the contrary, the GAAM has a different view in terms of the internal control definition and components. Hence, there is a confusion whether the government auditors should follow the international definition and framework or the one provided in the GAAM.
Internal audit in local governments. The Local Government Code of 1991 provides that the local accountant shall also perform internal audit services. This is entirely questionable and unacceptable. Thus, the provisions of AO No. 70 and DBM Budget Circular No. 2004-4 mandating LGUs to create a separate IAU equivalent to a department level are both honored and hailed. However, there are sectors whose legal conviction is that the Code should be followed instead.
Pre-audit as a function of internal auditors. AO No. 278 is clear that pre-audit of vouchers is not a function of the internal auditors. It is an inherent function of the accounting unit to ensure that disbursements are in compliance with the laws, rules, and regulations and that they are properly documented. However, until today, there are a great number of agencies whose auditors still perform pre-audit contrary to the provisions of the administrative order.
Conflict with international standards and local practices. There is a clear disparity between what the ISPPIA provides and what the government agencies do in their day-to-day operations. This implies that some of the policies and rules in the Philippine government are either outmoded or obsolete. Clearly, internal auditors should follow ISPPIA if the provisions are not in conflict with local policies and rules. However, the extent of compliance with outmoded standards remains an issue facing internal auditors.
Disparity on practices among government agencies. The issue of disparity is not only seen in the international-local dichotomy. This is equally apparent in the practices across and within levels of government. The discrepancy happens not only in organizational structure and staffing but also in the scope and nature of services rendered. This situation creates problems on benchmarking and performance measurement among individual auditors and audit groups.
Organizational independence of IAUs. Independence is a primary standard in the professional conduct of auditing. This is however hampered if the internal auditors become personally familiar with the persons who are performing the day-to-day operating activities in an agency. The issue here is in the organizational placement of the IAUs in regional offices and branches of national agencies. If the IAUs are placed directly under the supervision of a regional official, familiarity and collegiality become an issue. Therefore, there is a general belief that all internal auditors should be placed under the direct supervision of the department secretary and should not be placed under the supervision of a regional official.
Vulnerability of internal auditors. There is a common sentiment that an internal auditor is vulnerable to abuse by the agency head in terms of transferring him to other positions in case he uncovers certain malpractices in the agency. This limits the range of services that an internal auditor may cover and also warns him of the risk of being misplaced in case he discovers fraud or other situations that may create negative image on the agency as a whole and the head in particular. Thus, the issue of protection among internal auditors remains in the air.
The Future of Internal Audit in the Provincial Government of Negros Occidental
Five (5) years after its creation, or in 2019, the internal audit team’s vision to further improve its skillset and proficiency in internal auditing has led to the creation of the Internal Audit Manual of the Provincial Government of Negros Occidental specifically to cater to the province’s exclusive processes and practices. This is a milestone for the IAD since an internal audit manual is being encouraged by the Department of the Interior and Local Government (DILG) and the Department of Budget and Management (DBM) to cover the increasing need for public transparency and accountability in the use of public money in the most effective and efficient means that would yield positive returns to the organization.
This was made possible by the initiative of their division head and the help of a consultant who is a retired member of the Commission on Audit and is also a resource person of various trainings offered by AGIA.
The Internal Audit Manual of the Provincial Government of Negros Occidental includes the prospect of the office into the coming years. Departmentalization and expansion are its primary goals. Currently a division under the Office of the Governor, the IAD endeavors to become an independent department and have its own department head with eleven (11) competent internal auditors accustomed to the demand of the profession. This is with the view that being a department will enable them to have financial and human resources that will result to more quality audit engagements.
In the same study by Mendoza, the current crop of internal auditors is up in terms of the need to develop their competency. The Association of Government Internal Auditors has been in the forefront of training individual auditors by way of offering both customized training programs and courses open to the public. The significant increase in the number of government officials and employees attending professional development programs indicates the growing awareness on the need to professionalize the practice of internal audit.
These are all indications that there is a future in government internal audit in the country. Hope is in the air for the advocates of government internal audit. However, simultaneous with the support from international funding agencies, the Philippine government has to synchronize its actions by coming up with updated and comprehensive policies in the form of standards. Since the DBM is the primary agency in charge of providing guidelines on internal control systems, it has to make sense in the grant coming from AusAid. These guidelines should provide teeth to DBM to call the attention of the heads of agencies to strengthen their internal controls and institutionalize internal audit. Indeed, the “tone at the top” is a concept that should be operationalized by DBM, otherwise any upcoming issuance becomes a mere paper on file.
The recognition of the importance of internal audit is evident in the Medium-Term Philippine Development Plan (2007-2010). This is supplemented by the inclusion of internal audit as an agenda in the National Anti-Corruption Plan and the Philippine Development Forum. Given these attentions to internal auditing from national initiatives, it can be safely said the internal audit in Philippine government has a bright prospect.
CONCLUSION AND RECOMMENDATION
It is evident that the Provincial Government of Negros Occidental has established its own Internal Audit Unit in the form of the Internal Audit Division under the Office of the Governor in 2014 per SP Ordinance No. 010 series of 2014 which is in contrast to the surveys and studies by different authors that there is low compliance of the government agencies with the legislative and executive issuances. This submission to the national mandate is reinforced by the constant guidance and recommendation of the Department of the Interior and Local Government and the Department of Budget and Management. In addition, the establishment of the IAD is anchored on the confidence of the administration that internal audit can provide that where the internal control system of the audited department of the agency is inadequate, the internal auditors may adopt measures necessary and appropriate to correct deficiencies resulting to an improved organizational performance.
The creation of the IAD is more than just for compliance, but the internal auditors took it as a challenge to learn and attempt in uncharted territories wherein their work is particularly alien in comparison to their previous posts. They utilized available resources like the Philippine Government Internal Audit Manual, the Internal Audit Manual for the Local Government Units, the Internal Auditing Standards for the Philippine Public Sector, the Internal Control Standards for the Philippine Public Sector and other relevant issuances and resources to initiate their activities in doing their engagements.
The IAD has attended several trainings and workshops to equip themselves with the skillset to economically, effectively, efficiently and ethically perform internal audit. However, they view it as inadequate as AGIA is their only training provider and the training offers are similar since they joined in 2014.
Moreover, the internal auditors of the Provincial Government of Negros Occidental are gradually involving themselves more than just accounting and financial audit theories and are expanding their comprehension of medical, engineering, law, information technology, data banking, agriculture and other courses relevant in their line of work.
Upon completion of the study, the researcher finds that the issues faced by the IAD is not only restricted to their own office. Other government agencies, not only LGUs but NGAs, SUCs and GOCCs are experiencing the same difficulties in the establishment of their own internal audit units as well.
It is commendable for the administration to finally answer to the call for the establishment of an internal audit unit for after almost half a century later. In view of the importance of the profession in adding value to its services and serving better its constituents, it is recommended that the administration with the coordination of the internal auditors shall not settle with only the creation and establishment of the office but keep track of the developments in the national and international scene to update the standards and frameworks of internal audit in the public sector. This will not only improve the results of audit but the overall process will be streamlined as best practices are being adopted making the work less burdensome for the internal auditors.
Moreover, the shortage of capacity building trainings and seminars on internal auditing which are only offered by AGIA should not restrict the internal auditors in attending seminars offered by different organizations like Philippine Institute of Certified Public Accountants which has accounting standards and tax updates. Internal auditors should also grab the opportunity to join workshops offered by DILG that relates to the work of internal auditors as to the projects and programs of their respective LGUs as DILG is now seeking the involvement of the internal audit units in the process. Other organizations which offer basic training related to engineering, law, medicine, IT or agriculture must likewise be maximized by the IAD.
Looking forward to the future of internal audit in the Provincial Government of Negros Occidental, its planned departmentalization and expansion should be supported by the administration. The advancement in technology has become unprecedented that it has brought complex situations to resolve. This planned transformation from a mere division to an independent department is parallel to the growth of society. Human resources as well as financial capital are indispensable to keep up with the demands to offer public transparency and accountability in the use of public money.
Carlos, Ruth P., Sarmiento, Sylvia Alcala, Dela Merced-Litonjua, Lilian. (2018) Internal Audit in the Philippine Provincial Government Office (PGO). Retrieved from: http://25qt511nswfi49iayd31ch80-wpengine.netdna-ssl.com/wp-content/uploads/papers/aceid2018/ACEID2018_39770.pdf
Mendoza, Rufo R. State of Compliance and Implementation of National Internal Audit Mandates by Local Government Units in the Philippines. Retrieved from: https://www.academia.edu/16640105/State_of_Compliance_and_Implementation_of_National_Internal_Audit_Mandates_by_Local_Government_Units_in_the_Philippines
Mendoza, Rufo R. Internal Auditing In Philippine Government: Initiatives, Issues, And Prospects. Retrieved from: https://www.academia.edu/16640103/Internal_Auditing_in_Philippine_Government_Initiatives_Issues_and_Prospects
Philippine Government Internal Audit Manual. Retrieved from: https://www.dbm.gov.ph/wp-content/uploads/2012/03/PGIAM.pdf
Internal Audit Manual for Local Government Units. Retrieved from: https://www.dbm.gov.ph/wp-content/uploads/Issuances/2016/Local%20Budget%20Circular/LBC-110-INTERNAL%20AUDIT%20MANUAL%20FOR%20LOCAL%20GOVERNMENT%20UNITS%282016%29.pdf
Internal Audit Manual of the Provincial Government of Negros Occidental
Internal Auditing Standards for the Philippine Public Sector
Internal Control Standards for the Philippine Public Sector
I would like to express my appreciation to all the people that participated and assisted me in the completion of this paper:
To Ms. Ma. Elisa D. Yanson, Division Head of the Internal Audit Division of the Provincial Government of Negros Occidental and the internal auditors of the Internal Audit Division who agreed to be interviewed and accommodated all my queries regarding their office.
To Atty. Jocelle Batapa Sigue, for her guidance from the start until the completion of this paper and sharing her expertise in Legal Research and for her encouragement extended to the researcher.
To my classmates, friends and family for the support and willingness to help in any way possible.
Above all, to the Great Almighty, for providing me the opportunity to step in the excellent world of law and of Legal Research.
Researcher: Britt John D. Ballentes JD1