Reviewer: Government Accounting and Auditing in the Philippines

Summary

Introduction:

 Public office is a public trust; officials must be accountable to the people.

 The 1987 Constitution emphasizes the importance of transparency and

accountability in government.

 There is a strong need for effective accounting and auditing systems to combat
issues like budget manipulation, irregular disbursement, and corruption.

 Despite fiscal surpluses from 1994-1997, the Philippines faced fiscal challenges
post-Asian financial crisis, with deficits and ongoing corruption.

Government Accounting:

 Defined by PD 1445, it involves analyzing, classifying, summarizing, and

communicating all financial transactions.

 Objectives include providing information on past and present operations, guiding

future operations, controlling the use of funds, and reporting financial positions.

 State accounting influences fiscal planning, budgeting, debt management, and

auditing.

 It promotes public accountability, requiring officials to account for public funds

and property.

 Adheres to specific laws, rules, and regulations, with the Commission on Audit
(COA) having exclusive authority to promulgate accounting rules.

Government Auditing:

 Defined by PD 1445, it involves systematic examination and verification of

financial transactions to ensure accuracy and compliance with laws.

 Auditing and accounting are distinct but intertwined; auditing evaluates evidence
to verify financial actions against criteria.

 State auditing ensures fiscal integrity and public confidence in government

spending.

 Internal auditors focus on compliance and performance within agencies, while

external auditors (COA) provide independent reviews.
  Audits can be pre-audit (before payment) or post-audit (after payment) and can be
internal (agency-specific) or external (conducted by COA).

 Types of audits include fiscal audits (financial and compliance) to ensure legality
and accuracy.

Experiences:

 COA is the supreme state audit institution with constitutional independence.

 Historical context: Auditing practices date back to the Spanish colonial era with
institutions like the Tribunal de Cuentas.

 Established by a memorandum in 1899, the Office of the Auditor for the Philippine
Islands evolved into the Bureau of the Insular Auditor by 1901.

Keywords and Descriptions

1. Public Trust:

 Concept emphasizing that public officeholders must act responsibly,

transparently, and accountably, serving the public with integrity.

2. 1987 Constitution:

 The Philippine Constitution, highlighting the importance of government

accountability and transparency in public service.

3. Government Accounting:

 The process of managing and reporting financial transactions within the

government, ensuring proper use of public funds.

4. Presidential Decree No. 1445:

 The decree defining government accounting and auditing processes in the

Philippines.

5. Fiscal Planning:

 The use of accounting information to estimate national revenue and

expenditure, crucial for budgeting and debt management.

6. Commission on Audit (COA):

 The independent constitutional office responsible for auditing all

government accounts and prescribing accounting rules.

7. Internal Audit:
  An audit conducted within an agency to ensure compliance and
performance, aiding in management control.

8. External Audit:

 An independent audit conducted by COA to ensure the fairness and legality

of government financial statements.

9. Pre-Audit and Post-Audit:

 Pre-audit: Examination of financial transactions before payment.

 Post-audit: Examination of transactions after payment.

10. Fiscal and Compliance Audit:

 Fiscal audit combines financial and compliance audits to ensure accurate

and lawful financial reporting and operations.

11. Tribunal de Cuentas:

 The supreme auditing institution during the Spanish colonial era,

responsible for auditing financial matters in the Philippines.

12. Bureau of the Insular Auditor:

 The office established by the American government to audit financial

transactions in the Philippines, evolving from the Office of the Auditor for
the Philippine Islands.

Reviewer Summary

Bureau of Audits and its Evolution

Historical Background

 The Bureau of Audits, originally part of the Bureau of the Insular Auditor, was
established to enhance the accuracy and comprehensiveness of financial settlements
through double-entry bookkeeping.

 1905: Leadership changed from Taft to Luke E. Wright, leading to the passage of Act
No. 1402 and renaming the Bureau to the Bureau of Audits.

 1935: The 1935 Constitution established the General Auditing Office (GAO), initiating a
shift towards full Filipinization and independence from the executive branch.

Martial Law and GAO Transformation

  1972: Under Martial Law, the GAO was renamed the Commission on Audit (COA) with
expanded powers under the 1973 Constitution.

 1978: Promulgation of Presidential Decree 1445 (Government Auditing Code) and

introduction of the Standard Government Chart of Accounts to aid computerization.

 Emphasis shifted to auditing economy, efficiency, and effectiveness (the 3Es).

Post-EDSA Revolution and Further Changes

 1986: EDSA Revolution led to reforms under a new government and constitution.

 1987: The COA's independence was reaffirmed, prohibiting government agencies from
hiring private accounting firms for foreign-assisted projects.

COA’s Current Role and Responsibilities

 Constitutional mandate to audit all government transactions involving public funds.

 Exclusive authority to define audit scope and methods, establish accounting rules, and
prevent irregular expenditures.

 Functions include auditorial, rule-making, custodial, reportorial, recommendatory, limited

accounting, quasi-judicial, and auditing National Assembly expenses.

Key Officials

 Chairperson Michael G. Aguinaldo: Appointed in 2015, also serves as the external

auditor for several UN agencies.

 Commissioner Roland C. Pondoc: Appointed in 2018, a CPA and lawyer with a

background in education.

Government Accounting Systems

National Government Accounting

 Utilized by departments, bureaus, and agencies.

 Three sets of books: Bureau of Treasury, agency books, and COA books.

 Annual financial reports consolidate these records.

Local Government Accounting

 Used by provinces, cities, and municipalities.

 Focuses on recording cash accounts and operating costs.

Commercial Accounting
  Applied by government-owned corporations with proprietary functions.

General Principles of Government Accounting

1. Accounting for Appropriations, Allotments, and Obligations

 Funds must be appropriated by law and used for public purposes.

 Obligations are recorded properly in relevant books.

2. Accounting for Disbursements

 Authorized expenditures must be based on supported vouchers.

 Disbursements reported monthly and recorded in relevant books.

3. Accounting for Income and Receipts

 Collections supported by official receipts and deposited with authorized

depositories.

 Monthly reporting and proper recording of transactions.

Government Accounting Practices

Double-Entry System

 State accounting employs double-entry bookkeeping to define financial positions based

on resources, creditor claims, and government equity.

Negative Entries

 Errors are corrected by negative entries to automatically remove erroneous amounts

during total calculations.

Recording Procedures

 Transactions are recorded in journals, with special journals used for routine transactions:

 National Government: Various journals for obligations, disbursements, checks,

bills, and collections.

 Local Government: Journals for obligations, collections, disbursements, checks,

and bills.

 Government Corporations: Registers for sales, cash receipts, cash

disbursements, and checks.

Keywords and Descriptions

 1. Double-Entry Bookkeeping: A system ensuring accuracy in financial records by
recording each transaction twice.

2. GAO (General Auditing Office): The audit institution established by the 1935
Constitution.

3. COA (Commission on Audit): The supreme audit institution, transformed from GAO
under Martial Law.

4. Presidential Decree 1445: Government Auditing Code of 1978, standardizing

government accounting.

5. 3Es: Economy, efficiency, and effectiveness; key focus areas for government auditing.

6. National Government Accounting: System for recording financial operations of

national departments and agencies.

7. Local Government Accounting: System for financial records of provincial, city, and
municipal governments.

8. Commercial Accounting: Accounting system used by government-owned corporations

with business functions.

9. Negative Entries: Method to correct errors in accounting by recording the erroneous

entry negatively.

10. Special Journals: Specific journals for recording common and routine transactions to
simplify accounting processes.

Reviewer Summary: Government Accounting in the Philippines

Keywords: Government Accounting, Documentation, Standard Chart of Accounts, New

Government Accounting Systems (NGAS), Constitutional Provisions, Government Accounting
Process, Legal Framework, Responsible Agencies.

A. Documentation

 Requirement: All transactions must be supported by formal written documents with

complete and accurate descriptions, peso amount, authorization, and other
substantiating information.

B. Use of Standard Chart of Accounts

 Purpose: The State uses a Standard Government Chart of Accounts (SGCA) for
uniformity, ease of financial report consolidation, and adaptability to computerization.

C. Constitutional Provisions on Accounting and Auditing

  Authority: The Commission on Audit (COA), under Section 2(2) of the 1987 Constitution
Article IX-D, recommends accounting systems that generate realistic financial reports.

 Scope: COA has exclusive authority to define audit scope, establish techniques,
promulgate accounting and auditing rules, and prevent excessive expenditures.

 NGAS: Introduced in 2002, aims for conformity with International Accounting Standards,
system computerization, routine financial reporting, and better management decision-
making.

D. Government Accounting Process

 Books and Registries:

 Journals: General Journal, Cash Receipt Journal, Cash Disbursement Journal,

Check Disbursement Journal.

 Ledgers: General Ledgers and Subsidiary Ledgers.

 Registries: Registries of Revenue and other Receipts (RROR), Registry of

Appropriations and Allotments (RAPAL), Registries of Allotments, Obligations,
and Disbursements (RAOD), Registries of Budget, Utilizations, and
Disbursements (RBUD).

 Cycle Steps: Appropriation, Allotment, Incurrence of Obligation, Disbursement

Authority, Disbursements, Billings, Collections and Remittances, Trial Balances,
Adjusting Entries, Financial Statements preparation.

E. Legal Framework for Government Accounting

 Constitutional Mandates: Keeping government accounts, promulgating rules, auditing

reports, and submitting financial operation reports.

 State Audit Code 1978: Specifies COA's detailed powers, including prescribing chart of
accounts, issuing accounting rules, regulating reports, releasing claims, authorizing
funds transfers, approving property sales, and certifying fund availability.

 Budget Reform Decree 1977: Defines "government" inclusively.

F. Responsible Government Agencies

 Commission on Audit (COA): Audits accounts, promulgates rules, submits annual

reports.

 Bureau of the Treasury (BTr): Manages national funds, disbursements, and financial
transactions.

 Department of Budget and Management (DBM): Designs and implements

government agency accounting systems.
Keywords Descriptions:

1. Government Accounting: The system of recording, analyzing, classifying,

summarizing, and communicating financial information about the government.

2. Documentation: Formal written evidence supporting financial transactions.

3. Standard Chart of Accounts (SGCA): A uniform system for categorizing all financial
transactions.

4. New Government Accounting Systems (NGAS): Modernized accounting systems

conforming to international standards, introduced in 2002.

5. Constitutional Provisions: Legal mandates and guidelines established in the 1987

Constitution regarding government accounting and auditing.

6. Government Accounting Process: The sequence of procedures for managing

government finances, including budgeting, disbursements, and financial reporting.

7. Legal Framework: The constitutional and legal regulations governing government

accounting practices.

8. Responsible Agencies: Key government bodies like COA, BTr, and DBM involved in
the accounting and auditing processes.

Documentation

Description: All transactions must be supported by formal written documents, including a

complete description, peso amount, authorization, and other substantiating information.

Importance: Ensures transparency and accountability in financial transactions.

Standard Government Chart of Accounts (SGCA)

Description: A common chart of accounts used to achieve uniformity in accounting and

reporting, facilitate the consolidation of financial reports, and adapt to computerization.

Importance: Promotes consistency and ease in financial reporting across government entities.

Constitutional Provisions on Accounting and Auditing

Description: Mandates an accounting system that generates realistic financial reports of

government operations, as recommended by the Commission on Audit (COA).
Importance: Ensures financial accountability and transparency in government operations.

New Government Accounting System (NGAS)

Description: Introduced in 2002 to align with International Accounting Standards, facilitate

computerization, and improve the preparation and utility of financial reports.

Importance: Enhances the efficiency and accuracy of government financial reporting.

Government Accounting Process

Description: Incorporates budgetary controls and uses journals, ledgers, and registries to
maintain accurate financial records.

Importance: Ensures that government funds are properly managed and accounted for.

Books of Accounts and Registries

Description: Includes various journals (e.g., General Journal, Cash Receipt Journal) and ledgers
(e.g., General Ledger, Subsidiary Ledgers) for recording transactions.

Importance: Facilitates detailed and organized record-keeping of financial transactions.

Internal Audit

Description: Evaluates management controls, compliance with laws, and operational

performance. It involves various phases including preliminary surveys, in-depth examination,
and follow-up on recommendations.

Importance: Ensures internal controls are effective and that government operations are efficient
and compliant with regulations.

Legal Framework for Government Accounting

Description: The 1987 Philippine Constitution and subsequent laws and decrees mandate the
keeping of government accounts and the audit of financial reports.

Importance: Provides a legal basis for accounting practices and ensures accountability.

Commission on Audit (COA)

Description: Audits government accounts, promulgates accounting rules, and submits annual
financial reports.

Importance: Acts as the watchdog ensuring the proper use of government funds.

Bureau of the Treasury (BTr)

Description: Manages national funds, controls disbursements, and maintains financial

transaction records.

Importance: Central role in the cash operations of the national government.

Department of Budget and Management (DBM)

Description: Responsible for budget preparation, accounting systems design, and cash
disbursement processes.

Importance: Coordinates the financial management activities of government agencies.

Government Agencies (GA)

Description: Implement projects and functions delegated by the government, maintaining

accounting books and budget registries.

Importance: Ensure reconciliation of records with the Bureau of Treasury, COA, and DBM.

Internal Audit Principles

Description: Includes objectivity, professional competence, authority, confidentiality, evidence-

based approach, and adherence to ethical standards.

Importance: Ensures the integrity and effectiveness of internal audit activities.

Hierarchy of Auditing Standards

Description: The order of authority in determining government auditing standards, starting from
the Philippine Constitution to relevant international standards.

Importance: Provides a structured approach to applying auditing standards.

Distinction Between Internal Audit and Internal Quality Audit

Description: Internal audit covers a broad scope of operations and management controls, while
internal quality audit assesses conformance to ISO 9001:2015 standards.

1. Importance: Clarifies the different objectives and scopes of these audits, ensuring each
serves its specific purpose effectively. Annual Budget Process and Cash
Disbursement:

 Managed by the Department, ensuring compliance with appropriations and

proper monitoring.

2. Government Agencies (GA):

 Agencies maintain accounting books, budget registries, and reconcile with the
Bureau of Treasury and COA/DBM records. They must have accounting units.

3. Internal Audit:

 Evaluates management controls, compliance, and operational performance.

Comprises six phases, from preliminary surveys to follow-up on
recommendations.

4. Legal Bases for Internal Audit:

 Includes RA 3456, PD No. 1, AO 278 & AO 70, various DBM circulars, and the
Administrative Code of 1987. These provide guidelines for the establishment,
functions, and responsibilities of the Internal Audit Service (IAS).

5. Scope and Principles of Internal Audit:

 Broad scope covering all operations and management controls. Principles

include objectivity, professional competence, authority, confidentiality, evidence-
based approach, and adherence to ethical standards.

6. Comparison Between Resident and Non-Resident Audits:

 Differ based on organization, duration, site, and method of audit. Resident audits
are permanent and autonomous, while non-resident audits are conducted for
shorter periods and are dependent on COA offices.

7. Adoption of International Public Sector Accounting Standards (IPSAS):

 Transitioned from the New Government Accounting System (NGAS) to the

Philippine Public Sector Accounting Standards (PPSAS) in 2014, aligning with
international standards to enhance financial reporting quality.
 8. Government Chart of Accounts:

 Revised in 2013 to align with PPSAS. Expanded from a 3-digit to an 8-digit code
structure to facilitate detailed financial reporting and account classification.

Keywords with Descriptions:

1. Annual Budget Process:

 The systematic planning and allocation of government funds, ensuring

appropriations and compliance.

2. Government Agencies (GA):

 Entities responsible for implementing government projects, maintaining financial

records, and ensuring compliance with budgetary requirements.

3. Internal Audit:

 An independent evaluation process assessing internal controls, compliance, and

operational performance.

4. Legal Bases:

 Various laws and administrative orders establishing and guiding the functions of
internal audit in government agencies.

5. Scope of Internal Audit:

 Encompasses all aspects of operations and management controls, ensuring

adequacy and effectiveness.

6. Principles of Internal Auditing:

 Fundamental guidelines such as objectivity, competence, authority,

confidentiality, and ethical standards that auditors must follow.

7. Resident Audit:

 Continuous auditing conducted by an in-house unit, providing autonomous and

detailed auditing.

8. Non-Resident Audit:

 Short-term auditing by a team from COA central or regional offices, applying

sampling methods.

9. International Public Sector Accounting Standards (IPSAS):

  Global accounting standards adopted to improve transparency and comparability
in public sector financial reporting.

10. Philippine Public Sector Accounting Standards (PPSAS):

 Adapted version of IPSAS for use by Philippine government entities, enhancing

financial reporting quality.

11. Chart of Accounts:

 A structured list of all accounts used in the financial system, facilitating

systematic recording and reporting.

12. Coding Scheme:

 An 8-digit code structure for account classification, enhancing detailed financial

reporting and consolidation.

This reviewer ensures a comprehensive understanding of the principles, standards, and

practices of government accounting in the Philippines, facilitating better financial management
and accountability.

Government Accounting and Auditing Issues:

1. Delays and Red Tape: COA accused of contributing to bureaucratic delays in

processing transactions and contracts.

2. Graft and Corruption:

 Graft: Acts of corruption by public servants alone, not involving external

parties.

 Corruption: Involves collusion both within and outside the bureaucracy,

leading to unfair practices like bid rigging and kickbacks.

B. Common Causes of Disallowances to the Government:

1. Overpricing: Charging prices significantly higher than market rates or previous

transactions.

2. Overstocking: Purchasing supplies far exceeding actual requirements.

3. Absence of Appropriation: Contracting without the necessary budget allocations.

4. Non-compliance with Laws: Failure to follow legal and procedural requirements.

5. Unnecessary and Extravagant Expenditures: Wasteful spending not aligned with

agency objectives.

6. Ghosting: Receiving payment for non-existent resources or services.

 7. Bid Rigging: Colluding to manipulate bidding processes for personal gain.

8. Honest Graft: Exploiting insider information for private profit.

9. Diversion: Misappropriating public assets or employee services for personal use.

10. Shoddy Material: Providing low-quality supplies at the expense of the

government.

11. Kickbacks: Receiving illegal payments in exchange for awarding contracts or

favors.

C. Concerns and Difficulties of COA:

1. Resistance to Change: Officials resistant to adopting new audit techniques.

2. Lack of Competent Staff: Need for auditors with diverse professional backgrounds
and qualifications.

3. Loss of Qualified Staff: Difficulty in retaining skilled auditors due to low

compensation and limited opportunities for advancement.

4. Budget Constraints: Inadequate funds to meet the increasing demands on audit

services.

Keywords with Descriptions:

1. Delays and Red Tape: Administrative bottlenecks causing delays in processing

government transactions.

2. Graft: Corrupt acts by public servants without external involvement.

3. Corruption: Collusive practices within and outside the bureaucracy for personal
gain.

4. Overpricing: Charging excessively high prices for goods or services.

5. Overstocking: Purchasing more supplies than necessary.

6. Absence of Appropriation: Contracting without allocated budget funds.

7. Bid Rigging: Manipulating bidding processes for personal or organizational profit.

8. Ghosting: Fraudulent receipt of payment for non-existent resources or services.

9. Honest Graft: Using insider information for private profit.

10. Diversion: Misappropriation of public assets or services for personal use.

11. Shoddy Material: Providing low-quality supplies at government expense.

 12. Kickbacks: Illegal payments in exchange for awarding contracts or favors.

13. Resistance to Change: Reluctance to adopt new audit techniques or procedures.

14. Lack of Competent Staff: Insufficient skilled auditors with diverse backgrounds.

15. Loss of Qualified Staff: Difficulty in retaining skilled auditors due to low
compensation.

16. Budget Constraints: Inadequate funds to meet increasing demands on audit

services.

This reviewer provides a comprehensive overview of the challenges and complexities

surrounding government accounting and auditing in the Philippines, highlighting the
need for reforms and improvements in financial management practices.