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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
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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
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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
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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
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- 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
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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
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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
BIR Forms Form No. Form Name Purpose Frequency Follow
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
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BIR Forms Form No. Form Name Purpose Frequency Follow
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;
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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
Monthly No 10th day of
the following
month
1601C Monthly Remittance
Return of Income Taxes
Withheld on
Compensation
As required of
withholding agents /
payors
Monthly No 10th day of
the following
month
1601E Monthly Remittance
Return of Creditable
Income Taxes Withheld
(Expanded)
As required of
withholding agents /
payors
Monthly No 10th day of
the following
month;
(Dec. due:
Jan. 15 of
following
year);
1601F Monthly Remittance
Return of Final Income
Taxes Withheld
As required of
withholding agents /
payors
Monthly No 10th day of
the following
month
1604CF Annual Information
Return of Income Tax
Withheld on
Compensation and Final
Withholding Taxes
As required of
withholding agents /
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
withholding agents /
payors
Annually No March 1 of
the following
year
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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:
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(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
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- 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
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- 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
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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.
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(Asian Development Bank, 2013)
In 2011, the ADB adopted its 10-year Water for All policy.
(Asian Development Bank, 2013)
•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
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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:
(Asian Development Bank, 2013)
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
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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)
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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
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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
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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
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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
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In summary, please see table below:
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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.
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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.
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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
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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.
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(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.
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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.
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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.
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Meanwhile, a distinction has to be made between management review
and management audit. Please see table below.
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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:
.
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