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PHILIPPINE ARMY MANUAL 11 - 07

ARMY INTERNAL AUDIT

Proponent: Office of the Army Internal Audit


Issued: ____________________

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PHILIPPINE ARMY MANUAL 11-07

ARMY INTERNAL AUDIT

Philippine Army Manual 11-07 (PAM 11-07) dated 06 May 2014 is promulgated
on authority of the Commanding General, Philippine Army

LTGEN HERNANDO DCA IRIBERRI AFP


Commanding General, Philippine Army

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CONDITIONS OF RELEASE

1. This document contains Armed Forces of the Philippines information.

2. The materials contained in this Manual are releasable to military


students from foreign countries on a case-to-case basis with the permission
from the AC of S for Intelligence, G2, PA.

3. The following conditions apply when the materials are supplied to


foreign entities and personalities. The recipient is to ensure the information
will:

a. be safeguarded under designed rules equivalent to the security


standards maintained by the AFP;

b. not to be released to a third party without Philippine consent;

c. not to be used other than military purposes;

d. not to be divulged to non-defense organization unless that the


organization is sponsored and cleared by an accepted defense
organization. Sponsoring means giving an assurance that the
organization has a need to know for defense purposes while
clearing means guaranteeing security; and

e. not to be downgraded or declassified without the Philippine


Governments approval.

Released to : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Released by : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Signature Above Printed Name and Designation)
...................................................

Date Released : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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AMENDMENT CERTIFICATE

1. Proposals for amendment or additions to the text of this manual should


be made through the normal channels to the sponsor. A sample format of an
amendment proposal is found in Annex P of PAM 8-01.

2. It is certified that the amendments promulgated in the mentioned


amendment listed below have been made in this manual.

Amendment List Amended by Date of


Number Date (Printed Name and Initials) Amending
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

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DISTRIBUTION
Unit/Office Nr of Copies
OJ3, GHQ, AFP 3
OJ2, GHQ, AFP 3
AFP Doctrine Development Center 2
AFPCGSC Library 3
GHQ Library 2
DND Library 1
PMA Library 2
Doctrine Center, TRADOC 10
ACSS, TRADOC 5
TRADOC Library 10
CAS, TRADOC 5
CSS, TRADOC 5
CSSS, TRADOC 10
OCS, TRADOC 5
NCOA, TRADOC 5
OG1, PA 2
OG2, PA 2
OG3, PA 2
OG4, PA 2
OG5, PA 2
OG6, PA 2
OG7, PA 2
OG8, PA 2
OG9, PA 2
ARMO 3
MFO, PA 3
ASPA, PA 3
PAPC 3
APMC 2
ASR, PA 1
ISG,PA 5
ARESCOM 5
SOCOM 5
ASCOM 5
LAD, PA 5
1ID 15
2ID 15
3ID 15
4ID 15
5ID 15
6ID 15
7ID 15
8ID 15
9ID 15
10ID 15
Total 279
Note: This is just a sample distribution list.

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PREFACE

1. Purpose

This manual serves as guide to all Army Internal Auditors in the


performance of their mandated task in order to safeguard Army resources and
add value to the operational efficiency and effectiveness of the Philippine
Army. This likewise provides basis for all stakeholders on Internal Audit
purposely to increase awareness on Internal Control that would safeguard
Army assets, set direction on Internal Auditing and ensure compliance to
existing accounting and auditing laws, rules and regulations and directives of
the Army.

2. User Information

The proponent of this manual is the Office of the Army Internal Auditor
which serves as a personal staff to the Commanding General, Philippine
Army.

3. References

This manual used the following references:


a. RA Nr 3456, an act providing for the Creation, Organization, and
Operation of Internal Audit Service in all Department, Bureaus and Offices of
the National Government, as amended by RA Nr 4177, an Act to Amend
Sections Two, Three and Four of RA Nr 3456, known as Internal Auditing Act
of 1962.
b. Administrative Order Nr 119 dated 29 March 1989, Subject:
Directing the Strengthening of the Internal Control System of Government
Offices, Agencies, Government Owned or Controlled Corporations, and Local
Government in their Financial Institutions and Local Government in their
Operations.

c. Administrative Order Nr 278 dated 28 April 1992, subject:


Directing the Strengthening of the Internal Control System of Government
Offices, Agencies, Government Owned or Controlled Corporations, including
Government Financial Institutions and Local Government in their operations.

d. Administrative Order Nr 70 dated 268 April 2003, subject:


Directing the Strengthening of the Internal Control System of Government
Offices, Agencies, Government Owned or Controlled Corporations, including
Government Financial Institutions, State Universities and College and Local
Government Units.

e. HPA GO Nr 48 dated 21 January 2004, Subject: Activation of


the Army Internal Auditor effective 16 January 2004.

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f. Department of Budget and Management Budget Circular Nr


2004 dated 22 March 2004, Subject: Guidelines on the Organization and
Staffing of Internal Audit units.

4. Rescission

All publications, manuals and directives inconsistent with this


manual are hereby rescinded.

5. Gender

Unless this publication states otherwise, masculine nouns and


pronouns do not refer exclusively to men.

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CONTENTS

Title Page i
Promulgation Note ii
Conditions of Release iii
Amendment of Certificate iv
Distribution v
Preface vii
Contents ix

Section Title Page

CHAPTER 1 INTRODUCTION

1-1 Background 1-1


1-2 Role of Auditing in the Budget Process 1-1
1-3 Relationship with External Auditors, Office of the Inspector 1-3
General, Resource Management Office, Management and
Fiscal Office, Logistics Offices,Finance Service Units,
Accounting Office and Property Accountable Office

CHAPTER 2 INTERNAL AUDIT SERVICE

2-1 Nature, Purpose and Coverage 2-1


2-2 Functions 2-1
2-3 Standards of the Internal Auditing Profession 2-2
2-4 Functions Related to Internal Control among the PA Units 2-3
2-5 Qualification Standards and Duties and Responsibilities of 2-4
Internal Auditors

CHAPTER 3 INTERNAL AUDITING

3-1 Internal Audit as an Integral Process 3-1


3-2 Objectives of Internal Audit 3-1
3-3 Internal Audit Reports 3-1
3-4 Components of Internal Control 3-2
3-5 The Role of COA in the Assessment of the Internal 3-2
Audit System

CHAPTER 4 AUDIT PROCESS AND PROCEDURES

4-1 Pre-Planning or Survey Phase 4-1


4-2 Preparation of Audit Program 4-2
4-3 Operation Phase 4-4
4-4 Coordination and Critique Phase 4-6
4-5 Reporting Phase 4-6
4-6 Follow-up Phase 4-7

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CHAPTER 5 METHODOLOGIES

5-1 Accountability Approach 5-1


5-2 Program Audit Approach 5-13
5-3 Financial Audit Approach 5-14

CHAPTER 6 THE OFFICE OF THE ARMY INTERNAL


AUDITOR

6-1 Mandate 6-1


6-2 Responsibility, Organization and Functions 6-1
6-3 Limitations of Internal Audit 6-4
6-4 Authority 6-4
6-5 Accountability 6-5
6-6 Types of Audit in the Philippine Army 6-5
6-7 Responsibilities of Audit Team Members 6-7

ANNEXES

A Code of Ethics for Government Internal Auditors A-1


B Qualification Standards for IAS Positions B-1
C Duties and Responsibilities of Internal Auditors C-1
D IAS Form Nr 1- Cash Count Sheet D-1
E IAS Form Nr 2 Reconciliation Statement E-1
F IAS Form Nr 3 Statement of Cash Accountability F-1
G Cashbook Certification G-1
H IAS Form Nr 4 Demand Letter H-1
I Journal Entry Voucher I-1
J Working Paper - Physical Count of Inventory J-1
K Written Report Format K-1
Glossary

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CHAPTER 1
INTRODUCTION

Section 1-1 Background

The Internal Audit Service (IAS) commenced by virtue of Republic Act


No. 3456 on June 16, 1962 (Internal Auditing Act) during the incumbency of
former President Diosdado Macapagal. The Act provided for the creation,
organization and operation of Internal Audit Services in all departments,
bureaus and offices of the National Government. It was organized as an
independent staff unit and correspondingly performed staff functions. It was
responsible for instituting and conducting program of internal audit for the
agency.

The government then expanded its coverage through the promulgation


of Republic Act No. 4177 dated 26 March 1965 (An Act amending Section 2, 3
and 4 of RA No. 3456) to include all government-owned and/or controlled
corporations.

The government under the incumbency of former President Corazon C


Aquino recognized the importance of Internal Audit Service in all agencies;
hence, the promulgation of Administrative Order No. 278 dated 28 April 1992.
It was an act directing the strengthening of the internal control system of
government offices, agencies, government-owned or controlled corporations,
including government financial institutions and local government units in their
operations.

During the tenure of former President Gloria Macapagal Arroyo,


Administrative Order No. 70 dated 15 April 2003 was promulgated to
complement the previous laws and administrative issuance to include State
Universities and Colleges in its coverage.

In compliance with above AO, the Philippine Army activated the Office
of the Army Internal Auditor on 16 January 2004, the first in the AFP.

Section 1-2 Role of Auditing in the Budget Process

One of the key areas in Philippine Defense Reform (PDR) is the


improvement in resource management system, focusing on the optimization
of the defense budget and the improvement of management controls.

One of the salient features of the PDR is the implementation of


Defense System of Management (DSOM) through Department Circular Nr 5
dated 29 September 2008. DSOM has four sub-systems namely: Defense
Strategic Planning System (DSPS), Defense Acquisition System (DAS),

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Defense Capability Assessment and Planning System (DCAPS), and the


Defense Resource Management System (DRMS).

DRMS has two sub-components and these are the Planning,


Programming and Budgeting System (PPBS) and the Financial Management
System (FMS).

Since the introduction of PPBS in 1976, it has followed a cycle of


budget process. In the Budget Cycle, the Budget Preparation, Budget
Authorization and Budget Execution are taken up in the PPBS. On the other
hand, the Budget Accountability Phase consisting of relief from fund and/or
property accountabilities of accountable officers and full liquidation of financial
transactions are being addressed by the IA office of the agency.

Aside from the PDR, another step was the decentralization of


comptrollership function. This was implemented after the Secretary of
National Defense (SND) signed the memo on 14 January 2005 to deactivate
the Office of the Deputy Chief of Staff for Comptrollership OJ6 and its
equivalent office in the subordinate units, and reorganize and decentralize the
comptrollership function.

The Comptrollership reorganization has led to the creation of the


Resource Management Office (RMO), the Management and Fiscal Office
(MFO), the Internal Audit Office, and the Accounting Office (AO).

In the implementation of the DSOM by the PA, the Army Resource


Management Office (ARMO) and the MFO, being the Armys Resource
Managers, are in-charge of the Budget Preparation. This includes Planning
and Programming, Budget Authorization including Formulation, Consolidation
and Approval of AFP Budget Proposal thru GHQ, DND, DBM, Congress and
finally the Presidents approval of the Appropriations Act and the Budget
Execution otherwise known as the Budget System. This phase starts from the
issuance of DBM Guidance, Final Operating Programs and Budget Guidance,
Operating Programs and Budget and finally it ends at the application of the
Modified Disbursement Scheme in fund allocation, utilization and payment.

The Office of the Army Internal Auditor (OAIA), the Internal Audit Office
(IAO) in the Philippine Army, plays a vital role in DSOM implementation
specifically in the budget accountability phase. In this budget cycle, the
checks and balances in the management of resources are installed and are
analyzed by the internal auditors as to propriety, legality, completeness,
reliability and validity of all financial transactions. The adequacy of existing
internal controls as to application of policies / implementation of system is
regularly subjected to evaluation as to their responsiveness for better
operational efficiency and effectiveness. It integrates linkages among units /
offices and other systems and procedures for monitoring, system
improvement and tightened control. The accountability, transparency,
responsibility and ethical concerns of all stakeholders (Accountable and Non-
Accountable Officers) are clearly identified in order to promote stricter

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practices geared towards transparency, and control as well as zero


accountability in government services.

Section 1-3 Relationship of OIAA with External Auditors, Office. of The


Inspector General (OTIG), Army Resource Management Office (ARMO),
Management and Fiscal Office (MFO), Finance Service Unit (FSU),
Accounting Service Units (ASU), and Property Accountability (PAO).

The OAIA maintains a lateral relationship with the External Auditors,


OTIG, ARMO, MFO, FSUs ASUs and PAO.

Interrelationship and interdependency exist among these offices to


complete the budget process and execute Internal Control System. FSUs,
ASUs, ARMO, and MFO provide the inputs on financial management. The
OAIA examines and evaluates financial, administrative and operational
activities of all Army units in order to assist the Commander with information
in the management of assets for which he is responsible. The OTIG is
responsible for the conduct of investigations and inquiries on issues, concerns
and incidents that significantly affect the Armys performance of mission,
operational readiness, efficient utilization of resources, morale and welfare of
troops and state of discipline. On the other hand, the Office of the Assistant
Chief of Staff for Intelligence, OG2 complements the work of the OTIG by
conducting separate investigation and surveillance pertaining to irregularities.
Its finding related to any irregularity in the management of resources is
subject to validation of the OAIA. The PAO provides OAIA with the status of
unit Property, Plant and Equipment (PPE) and inventories. The records of
PPE shall be validated if there are actual deliveries of procured items. The
information generated from the units and offices serves as basis of the CGPA
in the management of their resource

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CHAPTER 2
INTERNAL AUDIT SERVICE

Section 2-1 Nature, Purpose and Coverage

In accordance with the Administrative Code of 1987, the head of the


agency is directly responsible for the operational control of the
agency/department/unit, bureaus and offices under him.

The role of the Internal Audit Service (IAS) is to assist management in


achieving an efficient and effective fiscal administration and performance of
Agency/Department/Unit affairs and functions, without intruding into the
authority and mandate of Commission on Audit (COA) by providing an
independent and objective examination and evaluation of the adequacy and
effectiveness of internal control, quality of performance and by providing
objective analyses and constructive recommendations. Management retains
full control over the implementation of these recommendations.

Section 2-2 Functions

The Chief Audit Executive will insure that:

a. Organizations within the agency and those within the control of


the agency are audited at appropriate intervals. These audits will review the
adequacy of operational and administrative procedures used to carry out
responsibilities of planning, custody, control and accounting in accordance
with policies and instructions, and to determine that:

1) these procedures are consistent with Agency objectives


and high standards of administrative practice; and,

2) all echelons of management are providing higher


management with accurate and properly prepared accounting and operating
data, budget proposals, etc.

b. Audits of contracts are conducted in keeping with managements


evaluation of risks associated with large project expenditures. Contract audit
will also be conducted as needed to insure compliance with agency policies.

c. The findings of the examination by auditors, their opinions and


recommendations are reported promptly to management. Reports of such
matters are to be designed to promote expeditious action by those concerned.

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Section 2-3 Standards of the Internal Auditing Profession

The Office of the Army Internal Auditor conforms to the standards set
forth by the Association of Government Internal Auditors (AGIA).

Audit standards are a comprehensive set of guidelines for auditors to


follow the audit process. Standards usually address the following areas:

a. Audit staff qualifications

b. Independence

c. Due professional care

d. Quality control

e. Audit planning

f. Fieldwork

g. Reporting

Audit standards were developed and are followed for the following
reasons:

a. To provide uniform guidance to auditors;

b. To build credibility and confidence in the auditing profession;

c. To inform customers (the public, public officials, management,


stockholders, etc) about the role of auditing; and

d. Establish a basis for conducting internal and external reviews of


quality audits.

The following groups benefit from the existence of audit standards in a


variety of ways:

a. Auditors receive guidance on the conduct of their work.

b. Customers receive increased assurance that proper audit


methods will be used.

c. Elected officials and the public received increased assurance


that public funds are being effectively used and monitored.

d. Management receives increased assurance that fraud or other


organizational deficiencies will be detected and corrected.

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e. External parties and reviewers are provided with usable


measurement guidelines.

All government internal auditors shall adhere to the Code of Ethics


promulgated by the AGIA (Annex A)

Section 2-4 Functions Related to Internal Control among PA Units

THE ARMY
MANAGEMENT
REFERENCE INSPECTOR INTERNAL
FISCAL OFFICE
GENERAL AUDIT
Nature and 1) Performan 1) Reviews 1) Appraises
Purpose of ce review and whether internal whether
Review improvement of controls are applied controls are
operations, at all levels within well
processes and and across the designed
activities; and agency and sector; and properly
2) Complianc and implemented
e review and 2) Recommends ; and
improvement of measures for 2) Determines
operation, management the
processes and improvement adequacy of
activities. internal
control or
whether it is
achieving the
objectives.
Scope, 1) Performan 1) Organizational 1) Management
Coverage ce is reviewed structure, audit and
and on a regular manpower, and operations
Frequency basis. If actual operations; audit are
accomplishmen 2) Existing conducted to
ts do not meet methods, systems determine
established and the extent of
objectives or procedures/processe compliance.
standards, the s; and 2) Depends
process and 3) On-going and primarily on
activities recurring activities. the
established to assessment
achieve the of the risks,
objectives the
should be effectiveness
reviewed to of the on-
determine if going
improvements monitoring,
are needed; and the
and adequacy of
2) Operation internal
s, processes control; and
and activities 3) Takes place

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are periodically after the


reviewed to fact and
ensure that covers a
they are in complete
compliance cycle of
with current operations to
regulations, determine
policies, the control
processes and effectiveness
other over a
requirements. specific time.

Actions To 1) Institute process 1) Report 1) Submits an


Be Taken improvements to management Internal Audit (IA)
meet objectives reviews results Report to CGPA
or standards to to CGPA thru
achieve PBAC Head; 2) Advises the
efficiency and 2) Submits CGPA on all
effectiveness in recommendation matters relating to
operations; and s for management
2) Institutes management control and
process improvement to operations audit;
improvements to PBAC, as and
achieve necessary;
compliance with 3) Conducts 3) Analyzes and
regulations, trainings on the evaluates
policies, application of management
procedures and improvements; deficiencies and
other and assist top
requirements. 4) Provides staff management by
supervision over recommending
the realistic courses of
implementation action.
of management
improvements.

Section 2-5 Qualification Standards and Duties and Responsibilities of


Internal Auditors

The OAIA follows the qualification standards for Internal Audit Service
positions to include the specific duties and responsibilities as prescribed by
the Civil Service Commission. (Annex B & C)

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CHAPTER 3
INTERNAL AUDITING

Section 3-1 Internal Audit as an Integral Process

Internal Auditing is an independent, objective assurance and consulting


activity designed to add value and improve an organizations 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.

Internal Auditing is a staff or advisory function. It is a type of


examination performed under management supervision of CGPA aimed to
appraise the effectiveness of the existing controls and early detection of any
weakness in resource management. Further, internal auditing is a continuing
responsibility to ensure the efficiency and maximum utilization of resources;
thus, contributing to the overall management effectiveness.

Section 3-2 Objectives of Internal Audit

In fulfilling its mandates and mission, the IA office must achieve the
objectives of internal control in their respective agencies.
A public office is a public trust that demands a higher set of general
objectives be established, a step beyond the internal control practices that
prevail in private sector organizations. Hence, internal control in any agency
must conform with five (5) general objectives as stipulated in the National
Guidelines on Internal Control Systems (NGICS):

a. Safeguard assets;

b. Check accuracy and reliability of accounting data;

c. Ensure economical, efficient and effective operations;

d. Comply with laws and regulations; and

e. Adhere to managerial

Section 3-3 Internal Audit Reports

Internal Audit Reports will be submitted to CGPA and subordinate


commanders by AIA for each regular and special audit performed. The
subordinate commanders and Head of offices will be held responsible for
insuring that corrective actions are acted upon as soon as possible.

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Section 3-4 Components of Internal Control

Internal Auditing as a management tool of CGPA is vital in determining


the effectiveness of Internal Control. Specifically, internal auditing appraises
the five components, namely: 1) control environment; 2) risk assessment; 3)
control activities; 4) information and communication; and 5) monitoring.

1. Control Environment

Control environment refers to the organizational structure, functions,


systems and procedures, and deployment of managerial policies and other
regulations.

2. Risk Assessment

Risk assessment is the overall process of risk identification, analysis


and evaluation to ascertain existing and potential risks and determine the
appropriate response that may affect the successful achievement of agency
objectives

3. Control Activities

Control activities are the policies and procedures established to


determine and address the identified risks that may adversely affect resource
management.

4. Information and Communication

Information and communication are vital in attaining the control


objectives by continuous monitoring and the application of other feedback
mechanism.

5. Monitoring of Internal Audit System

Monitoring the internal auditing systems is aimed at ensuring that


controls are operating as intended and that they are modified appropriately for
changes in conditions.

Section 3-5 The Role of COA in the Assessment of the IA System

The Constitution, as well as the Administrative Code of 1987 provides


that: where the ICS of the audited agencies is inadequate, the COA may
adopt such measures, including temporary or special pre-audit, as necessary
and appropriate to correct the deficiencies. It is still the primary responsibility
of CGPA, as the Head of the agency, through OAIA, to install, implement and
monitor the internal control system. Therefore, the role of COA, as external

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auditor is to assess the adequacy of the ICS and adopt measures that are
deemed necessary and appropriate to correct the deficiencies of such system.

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CHAPTER 4
AUDIT PROCESS AND PROCEDURES

The audit process follows the specific phases as shown in the diagram below:

Section 4-1 Pre-Planning or Survey Phase

The main objective in the first phase of audit process is to identify problem
areas which need additional review and to obtain information for the preparation of
audit program.

1. Gathering / Updating General Information about the Unit. The auditor


obtains basic information about the unit to be audited on all significant areas of
operations such as fund support (PS, MOOE, Capital Outlay, and other sources),
programs, projects and activities. Such basic data include but are not limited to the
following information:

a. Brief history, background and mission / functions;

b. Organization structure;

c. Nature, size and location of field offices;

d. Financial data;

e. General policies on major program/projects;

f. Financial performance audit reports;

g. Management reports; and

h. Manual of Operations.

2. Identification of Audit Areas. The result of the preliminary testing will be


one of the bases for the auditors identification of the following audit priority areas:

a. Mission and Functions. The audit team must review the mission
and functions of the unit / priority area.

b. Organizational Set-up. The audit team determines whether the


units organizational set-up is consistent with its overall objectives. The development
of an effective organizational set-up is one of the most important steps leading to
sound internal control. It is designed to provide a clear-cut delegation of
authority and definite assignment of responsibility, determine accountability and span
of control. Internal Auditing determines the soundness of internal control in the
different management areas:

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1) Personnel - There should be a clear-cut policy on selection,


recruitment, promotion, training and attrition of personnel. There should be proper
delineation of authority, duties and responsibilities among personnel. There should
be no overlapping and duplicating of functions by an office and/or no individual shall
be performing multi-functions for purposes of check and balance.

2) Physical and Mechanical Facilities- To properly safeguard


assets, physical and mechanical facilities should be maintained. A cashier, for
instance, should have a safe for cash possessions, records and other devices which
will enhance the internal control of a unit.
3) Directing and Controlling - This audit area determines
whether the administrative and operational controls are in place and adequate in the
attainment of management plans and objectives. The evaluation of the units control
process includes a broad spectrum of control mechanisms, such as policies,
programs, procedures, forms and files, performance standards, budgets and
protective controls.

4) Planning - The planning process includes policies,


procedures, schedules and priorities which have been established to fulfill the
primary management and operational objectives of the unit. In order to reach the
various goals set by higher authorities, each major operating unit must have an
Operating Program to enable the overall organization and functional units to
coordinate and accomplish their major objectives.

5) Systems and Procedures - In developing systems and


procedures, the essential requirements are simplicity, efficiency, effectiveness and
economy. These should spell out to the individual employees the things that need to
be done and the most effective way of doing them with the least effort.

6) Concept of Operations - It is a verbal or graphic statement


in broad outline of a unit commanders assumptions or intent with regard to an
operation or series of operations. The concept of operations frequently is embodied
in campaign plans and operation plans. In the latter case, particularly when the plans
cover a series of connected operations to be carried out simultaneously or in
succession. The concept is designed to give an overall picture of the operation. It is
included primarily for additional clarity of purpose. It is a clear and concise statement
of the line of action chosen by a commander in order to accomplish his units
mission.

7) Programs and Projects These are various activities


embodied in the units approved APB and APP which indicate the units Major
Programs and Key Projects/Activities.

Section 4-2 Preparation of Audit Program

The audit program serves as a guide during the conduct of actual audit. It
enables the auditor to keep his objectives in sight. It is the basis for the
division/distribution of work among the audit staff, and it serves as a record of work
done or as a measure of the progress of work as it indicates completion of steps
performed.

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1. Contents of the Audit Program

a. Scope of the audit The auditor determines the extent of audit


procedures; period covered and type of examination to be performed. The clear
definition of the audit scope is important to keep the audit work in focus and to enable
the auditor to correctly formulate the objectives and procedures to be included in the
audit program.

b. Audit objectives These are what the audit aims to achieve. The
audit objectives must be clearly defined at the outset so that only necessary
procedures are included in the audit program.

c. Staff assignment the members of the audit staff who will carry out
each procedure is indicated. The particular skills of each member are considered in
deciding who is to be assigned to do what. Care is taken that the assignment of work
is clear and concise to facilitate the pinpointing of responsibility and evaluation of
performance.

d. Working paper reference to facilitate review and evaluation of the


audit, column is provided for cross referencing of all working papers that will result
from carrying out the audit procedures.

e. Audit procedures set forth in specific terms the steps to be followed


for each audit objective.

f. Time budget the estimated time required to carry out each audit
procedure is indicated. The total time budget approximates the total man-hours
available.

g. While time estimates will undoubtedly need to be revised as the actual


audit progresses, an original estimate is still necessary so that audit priorities can be
laid out in advance.

2. Guides for Audit Program Preparation

The following are the guidelines, to wit:

a. The objectives must be specific and attainable;

b. Each audit procedure must be clearly stated;

c. The audit program must be designed so that the most important


objectives will be achieved despite time constraints and intervening factors; and

d. The audit program must be flexible so that as the audit progresses,


the auditor can exercise initiative and sound judgment in modifying it whenever it is
so needed.

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Section 4-3 Operation Phase

The second phase of the audit process primarily involves implementing the
audit program. The main activities of the operation phase are as follows:

1. Carrying Out the Audit Procedures. The audit program already spells
out the procedures, how to carry them out, when to do so, and who will do the task.
What the auditor does at this point is to follow the program. Frequently; however, as
the audit progresses, the auditor discovers some deficiencies uncovered in the
survey phase. At this point, the auditor may have to add more objectives to the audit
program, make some procedures more detailed or changes some altogether,
changes staff assignment and the time-frames and take other necessary steps.
However, this does not mean that a new audit program will be made. What is
important is that the additions or modifications also follow the guidelines for
determining audit objectives, procedures and other requirements set-forth in the
preparation of the audit program.

2. Evaluating the Evidence. After the procedures to attain one objective are
carried out, the auditor may now be in a position to make a conclusion on the
particular area covered by that objective. He must then determine whether the
evidences he has on hand are adequate to support his conclusion. He must
ascertain that he has obtained sufficient and competent evidential matter to afford
himself a reasonable basis for his opinion, judgment, conclusions and
recommendations.

3. Finalizing the Audit Working Papers. As the audit progresses, raw


data are generated in the form of evidence and materials prepared or collected by
the auditor. These are potential auditor working papers and the task of the auditor at
this point is to analyze, evaluate and compile them so they can be used to support
audit observations, conclusions and recommendations.

4. Determining Causes and Effects. As the audit activity progresses, the


auditor forms some tentative findings regarding the condition of the units accounts,
systems and other resources provided. Such findings will be firmed up after the
evaluation of evidence and finalization of the audit working papers and after the
condition is compared to the criteria. When the condition is found to be a deviation
from the criteria, the auditor determines the causes and effects of such deviation.

The causes identified the reasons for the deviation and who or what are
responsible for the identified deviation / deficiency. A cause may be a continuing
practice such as poor internal control, or a single event, such as an erroneous journal
entry. It is usually a combination of events that produces a deviation.

The effect is the result of the deviation. It may be intended or unintended,


beneficial or more usually adverse. Failure to achieve an objective and loss of funds
and properties are some examples of an adverse effect.

Determining the causes and effects are the following:

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a. Determination of causes and effects requires the ability to make


logical inferences and value judgments from data collected during the survey and
execution phases;

b. The cause or the effect may either be an isolated or part of a pattern


indicating potential breakdown of the system;

c. Causes and effects are interrelated and the knowledge of one assists
understanding of the other;

d. Adverse effects of control weaknesses should be quantified when


practical, determining actual or potential loss or savings given emphasis and
underscore significance of the findings; and

e. Causes maybe external to the system or organization under audit,


such as lack of funds or directives from higher offices which may hamper the
operation of the lower units. Similarly effects may extend beyond the system of
organization under audit.

5. Developing Audit Findings and Recommendations. Developing audit


findings and recommendations requires: 1) Organizing the data gathered; 2)
analyzing them by using the standard forms for analysis of audit findings and for
analysis of recommendations, respectively; and 3) formulating statement which
communicates the auditors findings and recommendations.

6. Audit Findings. These are the qualities of meaningful audit findings


regardless of subject matter:

a. A statement of condition It is a fact, backed up by evidence and


verifiable, as opposed to a mere supposition or opinion. It may be an actual
occurrence or an existing state of affairs.

b. A statement of criteria It is the standards against which a condition is


compared. The criteria may be accounting and auditing laws, rule and regulations,
COA prescribed standards, AFP and PA implementing guidelines, policies and
procedures.

c. A statement of effects It is a statement where the results are usually


adverse of the discovered condition. The extent and seriousness of the effects
largely determine significance of the condition.

d. A statement of causes It is a statement which describes the reason


for the condition, why something happened and who or what is responsible. Explicit
and detailed causes help the auditor make the recommendation more constructive.

7. Audit recommendations. A recommendation is usually a course of action


or a set of procedures which a specified person or persons must carry out.

A good recommendation should have the following qualities:

a. It is practical; it can be readily and economically implemented;

b. It eliminates the cause of the condition;

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c. It will prevent the recurrence of the condition;

d. It is clearly worded and specifies what action should be taken and who
should do it. A good recommendation avoids a statement like appropriate action
should be taken as soon as possible; and

e. It is in accordance with laws and regulations.

Section 4-4 Coordination and Critique Phase

This procedure is usually done right after accomplishing the audit mission
with the view of informing the auditee of the findings of the audit team, both
propitious or adverse, to thresh out problems that can be corrected by management
in the operating levels or to shove to higher authorities problems that cannot be
resolved by management or the internal auditors; thereby, eliminating friction and
insuring harmony between the auditor and auditee.

1. Conducting the Exit Conference. Except where the possibility of fraud and
other compelling reasons require otherwise, the auditor then arranges for the holding
of an exit conference. The purpose of the conference is to inform the auditee of the
auditors findings and recommendations.

The auditor may present copies of the draft beforehand or prepare a


summary of the findings and recommendations, to serve as the agenda for the
conference. The exit conference is conducted on a strictly professional level and
with utmost objectivity. The auditor make clear that the primary objective of the audit
report is to devise means for improving the unit / office operations, not to find fault
with the way the unit / office is run.

2. Objectives of Exit Audit Conference

a. To rectify errors/ inaccuracies in audit findings;

b. To enable management to present their side on the issue raised in the


report; and

c. To see that recommendations are discussed as exhaustively as


possible so that their workability and adaptability to the particular work situation are
ensured.

Section 4-5 Reporting Phase

The third phase of the audit process involves reporting the result of the audit
through an audit report submitted to the audited unit/office and other authorized
bodies. This includes summarization of the work that was conducted, a description
of the scope of the audit, a detailed account of the major findings and a discussion of
the alternatives which are available to upper management for eliminating the problem
conditions which exist.

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1. Drafting the Audit Report. The initial draft of the audit report is the
responsibility of the auditor, who prepares the draft on the basis of the updated
permanent file, audit working papers, accomplished forms for analysis of findings and
recommendations. The auditor must ensure that the audit findings and
recommendations are understood by mastering three important writing skills:

a. Using works which make sense;

b. Framing sentences which give ideas; and

c. Grouping sentences which provide meaning.

2. Finalizing the Audit Report. The final draft incorporating the matters
discussed or agreed upon in the exit conference, as well as relevant facts arising
thereafter, is prepared by the auditor and discussed with his team members to
evaluate the proposed reports conformity with the prescribed reporting standards
and requirements.

The auditor should also learn to appreciate the value of preparing the outline
before he starts writing the report. With an outline, he is unlikely to forget important
details and writing becomes focused on activity with direction, rather than a random
activity.

3. Submission of Final Report. This is a write up on all the data


gathered during the course of audit, embodying scope of audit, findings, observations
and recommendations for the purpose of appraising.

4. Transmittal Letter. It is imperative to see to it that reports reach their


intended destination. The CGPA must be informed of the significant findings
disclosed by the audit, especially points or defects requiring their immediate actions.
Reporting is said to be the cream of the audit engagement and that it serves not only
the top planners and policy makers of the Army but also the major subordinate units.

Section 4-6 Follow-up Phase

The duty of the internal auditors does not end on the submission of the report
as they go to the extent of making follow-up on previous recommendations made if
there were actions done to assure that the results are satisfactory.

The purposes of follow-up phase are as follows:

a. To ascertain that recommendations are being implemented;


b. To ascertain that the implementation is in accordance with the
recommendation as conceived and intended by the internal auditor; and

c. To see whether the implementation is in accordance with the generally


accepted accounting and auditing laws, rules and regulations.

The follow-up work is done in either of the following ways:

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a. By independent follow-up campaign.

b. By special reviews.

c. By succeeding audit.

The better approach to follow-up work is an independent follow-up campaign.


An internal auditor or a team, whose primary concern is to monitor the
implementation of recommendations, is assigned to this job which is more or less a
continuing activity. Regular reports are submitted to the CGPA conveying the
reported actions taken by the auditee/s on the recommendations either on the
recommendations either by a separate communication or by inclusion in succeeding
audit reports.

Follow-up by special reviews is done when further study is necessary. It is for


purpose of getting new pieces of evidence or for pushing through deeper into the
area because of suspected irregularity. This follow-up work is performed by the team
itself as it goes along the special examination. Actions taken on previous
recommendations may be reported separately or together with the report on the
special examination being conducted. The reporting aspect depends upon the
requirement of the Internal Auditing Office.

Follow-up work is also performed during succeeding audits of the same area.
The first job of the audit team is to check on actions taken on recommendations
made during the last audit. This approach is used in cases where the first two
approaches are impossible to perform or are too expensive to resort to. This is true
when the follow-up assignments are in connection with field units audits which are
too far from the headquarters office making the travel too expensive just for that
purpose.

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CHAPTER 5
METHODOLOGIES

There are audit methodologies/approaches most often employed by


AFP internal auditors to achieve the objectives in the conduct of the audit.

Section 5-1 Accountability Approach

It is a comprehensive examination and review of records and


transactions of Accountable Officers, either on funds or property to determine
whether managements established controls are adequate and effectively
maintained and whether applicable policies, rules and regulations are
implemented accordingly in the performance of activities and operation.

1. Appropriated Funds

a. Finance and Disbursing Officers

1) Hands in demand IAS AFP Form Nr 1 (Annex D) and


require the FO/DO to properly acknowledge such demand;

2) Conducts cash count and inventory of cash and cash


items and properly accomplish IAS AFP Form Nr. 1;
3)
4) Returns cash items and have them properly
acknowledged by the FO/DO;

5) Confirms the bank balances;

6) Requires the FO/DO to close his cash book and have him
certify as to the correctness of the cash book transactions up to and including
the last day of audit by affixing his signature thereon;

7) Gets hold of the cash book and ascertain the balance by


deducting total disbursements from total receipts;

8) Compares cash book balance with the actual cash


counted including all other cash items inventoried; verified and confirmed;

9) Prepares the working papers for the total receipts and


disbursements for a certain period, usually from the date of the last audit, if
any, to the date of the present audit, then require the FO/DO to sign the
prepared working paper;

10) Obtains a certified statement from the Chief Accountant


of the Subsidiary Ledger balance of the FO/DO and reconcile the cash

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balance with that of the Subsidiary Ledger Balance obtained. Prepare a


Reconciliation Statement (IAS AFP Form Nr 2, Annex E);
11) Prepares a Statement of Cash Accountability (IAS AFP
Form Nr 3, Annex F);

12) Checks on the designation papers and bond, i.e., bond


number, date of bond, amount of bond, minimum and maximum
accountability;

13) Certifies the cash book; (Annex G)

14) Prepares the audit report;

15) In case of shortage, prepares a Demand Letter (IAS AFP


Form Nr. 4, Annex H) and a Statement of Cash Accountability (IAS AFP Form
Nr. 3) in sufficient copies. Have the Demand Letter acknowledged properly.
Secures the signature of two disinterested witnesses on the Statement of
Cash Accountability and submit a report to CGPA. In case of refund, requires
the FAO to deposit same to the Collecting Officer, FCPA/FSU. Submit a
report to CGPA (Attn: OAIA).

16) Sealing of a Safe and Opening of a Sealed One In


extreme cases, an internal auditor may be forced to seal the safe of a fund
accountable/responsible officer that is, when the internal auditor has a strong
suspicion that the FO/DO is short or is deliberately evading audit. In such
cases, the following steps should be taken:

(a) Reports the case to the FAO/DO or the


Commanding Officer;

(b) Have two persons witness the sealing in the


presence of the Commanding Officer;

(c) Be equipped with a durable kind of paper and


sealing wax;

(d) Inscribes on the paper the words Break not this


seal under penalty of law;

(e) Pastes the inscribed paper immediately to the safe


such that the entrance of the cash receptacle is covered by the paper in its
center. The idea is that when the safe is forced open, the seal will be broken;
and therefore, the internal auditor will know for a fact the safe was forcibly
opened;

(f) Requires the Commanding Officer to post a guard


detail to preclude the FAO/DO/SDO from having access to the safe or its
premises;

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(g) The opening of the safe must be witnessed by the


FAO/DO/SDO or in his absence, his nearest of kin and two disinterested
persons in the presence of the FAO/DO/SDO or the Commanding Officer;
(h) Once opened, inventory the contents of the safe to
include cash and cash items;

(i) In case of the absence of the FAO/DO/SDO


concerned, deposit the cash counted to a Collecting Officer and take note of
the Official Receipt Number.

(j) Entrusts the cash items; i.e., paid vouchers and


Memorandum Receipts, to his Commanding Officer for appropriate action;
and,

(k) Proceeds with the procedures enumerated in the


audit of Financial/Disbursing Officer.

17) Cash on Hand and In Bank Any or all of the following


steps may be taken by the internal auditor in the cash examination of funds
accountable/responsible officer that he may deem necessary under the
circumstances.
(a) Obtains a cut-off statement as of the date of audit;

(b) Counts and lists all cash and cash items on hand;

(c) Compares undeposited checks on hand with data


from cash remittance list and with entries in the cash receipts journal;

(d) Checks all checks and currencies on hand to


subsequent deposit tickets and to the Bank Statement;

(e) Obtains all bank statements, duplicates deposit


tickets, and paid checks;

(f) Prepares bank reconciliation statement;

(g) Compares paid checks with outstanding checks


per prior bank reconciliation and with the cash disbursements book;

(h) Lists all checks payable to the order of cash,


bearer, payroll, banks, officers and employees, etc;

(i) Lists and investigates long outstanding checks;

(j) Vouches disbursements in the cash disbursements


journal for debits to accounts payable;

(k) Compares daily receipts entries with duplicate


deposit tickets, bank statements, invoices, cash register tapes, sales slip, etc;

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(l) Examines the treatment of customers checks


returned by the bank;
(m) Obtains confirmation of deposit tickets as to detail
on a few days before and after the close of the period;

(n) Examine cash receipts for bonafide nature;

(o) Determine proper cash receipts and cash


disbursements cut-off;

(p) Tests discounts;

(q) Tests for lapping and kiting;

(r) Investigates bank overdrafts; and

(s) Verifies special funds.

b. Procurement Officer

1) Follows the same pattern of approaches (Steps a to l) in


the accountability audit of a Finance Officer/Disbursing Officer;

2) Checks on the total allotments received and


disbursements made;

3) Scrutinizes the Expenditure Program/Annual


Procurement Plan (APP) for the calendar year and determine the allotment
releases to make sure that the expenditure program is backed up by funds;

4) Makes sure that all disbursements are covered by funds


and a Registry of Allotment and Obligations (RAO);

5) Determines the propriety, legality and reasonableness of


the disbursements or procurements on selected transactions;

6) Makes sure that the total disbursements does not exceed


the allotment releases;

7) Tests proof the existence of equipment purchased, if any,


by checking the physical existence of the equipment in the storeroom;

8) Confirms selected procurement by going to the dealer


concerned to determine the veracity of the amount appearing in the canvass
report; and

9) Prepares the report.

c. Mess Officer

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1) Follows the same pattern of approach (Steps 1 to 12) in


the Accountability audit of a Finance/Disbursing Officer;

2) Extends verification to Finance or Disbursing Officer


where the Mess Officer draws his cash advances;

3) Counter-checks disbursements against Patrol Sheets,


Open Market Purchases and Subsistence Purchase Vouchers;

4) In a unique mess like the AFPMC, requires the Mess


Officer to submit a Trial Balance, and then prepares the Statement of Mess
Operation and Balance Sheet Statement;

5) Analyzes the individual accounts in the statements;

6) Comments on the managerial aspects in the statements;


and
7) Prepares the audit report.

2. Non-Appropriated Funds (In General)

a. Follows the same pattern of approach (Steps a to h) in the


accountability audit of Finance/Disbursing Officer;

b. Checks entries recorded in the cash book or books of account


against the source documents by the process of vouching;

c. Checks on the disbursements (selective) and make sure that


they conform to existing policies and regulations adopted by the
Board/Council;

d. Requires the Custodian to prepare a Trial Balance;

e. Prepare the Profit and Loss and Balance Sheet Statements;

f. Confirms accounts receivable and accounts payable and


reconcile;

g. Ages accounts receivable and accounts payable and reconciles


them;

h. Certifies the cash book in the same manner as he would certify


that of the Finance/Disbursing Officer;

i. Employs the techniques of analysis of the individual accounts in


relation with other accounts; i.e., current assets against current liabilities, ratio
of profit against gross sales, overhead expenses against gross profit, etc;

j. Checks on the designation papers;

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k. Looks into the organizational set up of the office of the


Custodian of Funds;

l. Gets hold of the Constitution and By-Laws and minutes of


Board/Council meetings; and

m. Ascertain the degree of compliance with prescribed rules,


policies, and regulations promulgated by the governing body board or
council as the case may be.

n. For Purchases

1) Gets hold of the Purchase Journal;

2) Vouches individual entries against the source documents;

3) Tests checks accuracy of computation on selected


invoice;
4) Refers to the General Journal for purchase of equipment;

5) Foots and cross-foots the Purchase Journal to test


accuracy of totals; and

6) Compares total with the control account.

o. For Sales

1) Gets hold of the Sales Journal;

2) Vouches individual entries against the sales invoices,


cash sales slips and cash register tapes;

3) Tests-checks the veracity of computation on selected


invoices
4) Foots and cross-foots totals in the Sales Journal;

5) Compares total with total in the control account; and

6) Cross-checks entries in the Sales Journal against stock


cards for the individual item.

p. For Inventories

1) Compares original count tag or sheets with inventory


summaries;

2) Verifies extension, footings and total summaries;

3) Compares inventory summaries with subsidiary and


controlling ledger account;

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4) Tests quantities of inventories;

1) Determines proper cut-off for purchases;

5) Determines proper cut-off for sales;

6) Ascertains the treatment of goods consigned in the out;

7) Ascertains the propriety of the treatment of goods in


transit;

8) Confirms merchandise in the storeroom or warehouse;

9) Segregates items other than inventory;

10) Examines purchase commitments;

11) Tests the pricing of the inventory;

12) Compares inventory prices and sales prices;


13)
14) Eliminates inventory profits;

15) Segregates pledge inventories;

16) Applies the gross profit tests;

17) Ascertains inventory quality;

18) Computes the inventory turnover;

19) Examines scrap materials procedure;

20) Determines the propriety and adequacy of issuance


coverage;

21) Audits the inventories by comparison; and

22) Obtains an inventory certificate.

q. For Accounts Receivable.

1) Compares a trial balance of the accounts receivable with


the balance of the controlling account;

2) Ages the accounts receivable;

3) Confirms the accounts receivable;

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4) Determines accounts receivable validity;

5) Determines proper cut-off of sales records;

6) Verifies collection on delivery accounts;

7) Tests discount;

8) Tests returns and allowances;

9) Reclassifies consignment accounts;

10) Segregates and eliminates accounts receivable from


affiliated companies;

11) Gives proper treatment to branch accounts;

12) Examines the treatment of foreign receivables, if any;

13) Segregates receivables from officers, directors, and


stockholders;

14) Analyzes and segregates other non-trade receivables;

15) Lists past due accounts not paid on the date of


completing the examination;

16) Examines the treatment of credit memoranda;

17) Determines pledge accounts and determine customers


equity;
18) Determines account collectability; and

19) Verifies and determines the adequacy of the allowance


for uncollectible accounts.

r. For Accounts Payable


1) Compares a trial balance of the accounts payable with
the balance of the controlling account;

2) Ages accounts payable;

3) Confirms the accounts payable;

4) Determines the accounts payable validity;

5) Determines proper cut-off of purchase records;

6) Verifies payments of accounts;

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7) Tests purchase returns and allowances;

8) Determines the business paying capability; and

9) Foots and cross-foots totals for accounts payable.

s. For Current Liabilities

1) Prepares schedules for accounts payable;

2) Compares scheduled trial balance with the balance of the


controlling account;

3) Vouches credits and debits in accounts payable;

4) Examines statements of creditors;

5) Examines debit balances in accounts payable;

6) Investigates old unpaid items;

7) Tests invoice with receiving and stores records;

8) Examines records of subsequent period;

9) Examines invoice distribution;

10) Examines discounts;

11) Examines the liability for consigned merchandise;

12) Determines liability for purchase commitments; and

13) Lists separately amounts due officer, etc.,

t. For Notes Receivable

1) Prepares a schedule listing the items;

2) Reconciles controlling account and subsidiary account


balances;

3) Inspects all items on hand;

4) Confirms notes receivable;

5) Corresponds with holders of notes not in office;

6) Examines past due notes;

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7) Verifies collateral held with notes;

8) Verifies genuineness;

9) Investigates renewed noted;

10) Determines collectible value of notes by checking credit


of makers;

11) Traces receipts from discounted notes;

12) Obtains executive approval of notes charged to bad


debts;

13) Reviews allowance provided for notes;

14) Verifies accrued interest receivable, prepaid interest, and


interest earned; and

15) Separates other-than-customer notes.

u. For Investment In Funds

1) Examines authorization for fund;

2) Confirms cash and securities held by trustee;

3) Verifies income earned by the fund;

4) Determines that the trust agreement is observed; and

5) Traces final disposition of the fund.

v. Prepare the audit report

3. Property

a. Property Accountable Officer (PAO) checks the Field Property


Accountable Officer (FPAO) designation papers, bond, i.e., bond number,
date of bond, amount of bond, minimum and maximum accountability and
audit the following areas:

1) Receipts

(a) Sees to it that the supplies procured are delivered,


receipted for, duly inspected/accepted/approved and received by the Field
Property Accountable Officer (FPAO).

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(b) Sees to it that these deliveries are debited to the


Accountability of the FPAO and are supported by duly accomplished Journal
Entry Voucher (Annex I) in case of Republic Property and Shipping
Documents to test check the accuracy of the posting to the Stock Cards; and

(c) Picks at least 20 Stock Cards for selected items of


which the balances are compared with the actual stock card balances do not
tally with the physical count, there is no need of conducting a 100% physical
inventory. If on the other hand, 5 to 7 stock card balances do not agree with
the actual count, a detailed inventory is imperative. Takes cognizance of the
existing differences between the stock card balance and that of the actual
count by listing them in a Working Paper-Physical Count of Inventory (NGAS
FORM Nr Annex J) showing the difference noted. This comparative listing
will serve as an enclosure to support the significant finds embodied in the
report. It is very important; however, that every means must be exhausted to
find out the causes why the differences existed before rendering the final
report.

2) Storage

Storage is correlated with receipts in that where there are


receipts, there must be storage. In looking into this area, one should
concentrate more on the ocular scheme with the view of ascertaining the
degree or measure of safeguards employed by the FPAO in storing his/her
properties. In this connection, the following points are considered:

(a) Are bins provided and adequate for storage of


properties?

(b) If the bins are adequate, are the properties


properly and neatly arranged?

(c) Are the bins labeled for proper identification of


properties?

(d) Are dunnages provided in the storeroom?

(e) Are spoiled and unserviceable properties mixed


with serviceable one? If so, this must be brought to the attention of the FPAO
for corrective action;

(f) Are the storerooms provided with good ventilation?

(g) Is the supply room and armory secured?

(h) Are hazardous supplies stored properly?; and


(i)
(j) Are stock cards/property book balances reconciled

(k) periodically with stocks on hand?

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NOTE: The audit of this area is management in nature but is discussed


here in order that internal auditors will not lose sight of or neglect a very
important area in the audit of property accounts of the FPAO/RSO/RSNCO.

3) Issuances
Issues appear as credits in the stock cards of the FPAO
and in the Property Book of the RSO/RSNCO. Internal auditors should check
on the basis of the credit entries, excluding disposals, the supporting
documents of which are:

(a) Invoice Receipts, Gen Form Nr 30(A);

(b) Requisition and Issue Voucher, Gen Form Nr


45(A);

(c) Requisition Slip, AFP AGO Form Nr 446;

(d) Statement of Charges, FS Form Nr 3;

(e) Individual Clothing and Equipment Record, PA


Form Nr 32(A);

(f) Records of Consumption;

(g) Property Turn-In-Slip, AFP AGO Form Nr 447;

(h) Single Line Item for Requisition, Issue and Turn-In


(SLIRIT);

(i) Inventory Adjustment Report;

(j) Pick at random, either one of the documents


mentioned above, (a) to (i), to test check the reliability and accuracy of the
postings in the stock cards of the FPAO and property book of the
RSO/RSNCO;

(k) Note down differences and bring it to the attention


of the FPAO/RSO/RSNCO so that appropriate adjustments could be made in
their property records. It is emphasized here that internal auditors must learn
the use of these forms, together with the property records maintained by the
PAO/RSO/RSNCO to enable them to answer questions that may be
propounded by the auditee in their course of audit;

(l) Verify if issues of equipment, supplies and


materials are duly approved by the Unit Commander or his authorized
representative;

(m) Check if there were issues made outside the


supply jurisdiction of subject FPAO/RSO/RSNCO and on whose authority;

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(n) Check if records of consumption are properly


maintained;

(o) Verify whether POL supply issues are


accompanied by Trip Tickets; verify whether individual clothing and equipment
record (AFP AGO Form 32(a) is properly maintained and within the
Authorized allowances; and

(p) Check on the Ammunition Status Report,


ammunition expended, i,e., firing, target practice, etc.

4) Disposals

The practical approach in the audit of this area is similar


to that of auditing issues. The only difference lies in the forms used, among
which are:

(a) Inventory and Inspection Report, Gen Form Nr


17(a);

(b) Report of Survey, AFP Gen Form Nr 15;

(c) Report of Waste Material, Gen Form Nr 64(A); and

(d) Request for relief under Section 638 of the


Revised Administrative Code. Again, the Internal Auditor must learn by heart
the use of the above-mentioned forms to answer any query from the auditee.

5) Accounting

The accounting of funds and property is undertaken by


respective Accounting Offices and Property Accountability Offices for booking
in the Army Book of Accounts.

Section 5-2 Program Audit Approach

This type of audit determines whether the desired results or benefits


are achieved; whether the objectives established are met; and whether the
entity/unit has considered alternatives which might yield desired results at a
lower cost. The following are the procedures in conducting program audit:

a. Gather data of programs prepared by Program Directors based


from expenditure programs submitted by Fiscal Officers;

b. Take note of the projects and objects. One must observe that
the programs are sub-classified by projects and objects;

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c. Compare programs submitted to Management Fiscal Office


(MFO) Against Advice of Allotment from the Department of Budget
Management (DBM);

d. Check the Allotment Advices issued by the Management Fiscal


Officer (MFO);

e. Check fund releases from the Management Fiscal Office (MFO);

f. Reconcile, evaluate, and analyze the following:

1) Program vs. Allotment Advices;

2) Allotments Advices vs. Fund Releases; and

3) Fund releases vs. actual expenditures

4) In the reconciliation, evaluation and analysis of the above


data the officer must be guided by the following questionnaires:

5) Are allotment releases from the DBM aligned with the


Annual Procurement Plans submitted by the Program Directors?

6) Are allotment advices issued in conformity with the


Advice of Allotment? If not, why?

7) Are fund releases falling with the allotment advices


issued? If not, why?

8) Are actual expenditures within the limits of the funds


released? If any discrepancy exists, say over, then it would be an
unauthorized expense or over expenditure, a risk on the part of the Disbursing
Officer and Fiscal Officer who made the payment and fiscalization,
respectively; and

9) Are expenditures covered by Registry of Allotment and


Obligation (RAO)? If not, there is a violation of regulation which requires that
all expenses must first be obligated before actual disbursements are made.
Again, the Disbursing Officer and the Fiscal Officer place themselves at a risk.
After answering satisfactory all the queries above, a report must be rendered
by the internal auditor concerned.

Section 5-3 Financial Audit Approach

It is a general audit which focuses on the financial statements with a


basic purpose of determining whether the financial statements of the unit
present fairly well its financial position and results of operation in conformity
with generally accepted accounting principles applied on a basis consistent

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with that of the preceding year. The following are the procedures in
undertaking this audit:

Verify whether financial statements were prepared in accordance with


recognized accounting principles.

a. Assets should be classified in a manner to facilitate the


accounting for their utilization;

b. Assets should be classified in a manner that will facilitate the


preparation and interpretation of financial statements;

c. The method of inventory costing should be revealed in the


balance sheet.

d. Reserves for future anticipated declines in the price of inventory


on hand should represent aggregations of retained income;

e. When a separate account, for example, an allowance for


depreciation, is used to show the portion of the cost of an asset charged to
expense, the amount should be deducted from the related asset account in
the balance sheet;

f. Assets and related liabilities should not be offset unless such


offset is required by law, regulation, directive, or contract;

g. The balance should not contain a special section for reserves.


Each reserve should be identified as:

1) A subdivision of retained income;

2) An asset valuation account, or

3) A liability account.

4) The balance sheet should disclose the maturity amount


and other significant characteristics of long term liabilities;

5) A change in paid-in capital and retained income should


be disclosed in the financial statements of the period in which the changes
occur;

6) Assets should be expressed at not more than their cost of


acquisition:

7) The income statement should be arranged to report


consistently the details of the revenues, expenses, and loss recognized in the
current period measured as accurately as possible at the time the statement
is prepared;

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8) The net income for the period must be clearly and


unequivocally set forth;

9) The income statement should reveal the amount of cost


assigned to expense by reason of any reduction of an inventory to its
recoverable amount;

10) A reserve to be created from retained income should be


returned undiminished to retained income when the need for it has passed;
and
11) Conditions limiting the disposition of retained income
should be disclosed by footnote or parenthetically within the balance sheet.

(a) Prepare a working Trial Balance to promote


familiarity with the amounts and to serve as a guide during the examination.
The Trial Balance may be drawn from the General Ledger in such fashion that
all balance sheet accounts, income and expense accounts are shown in the
order in which they appear in the ledger, such order should follow the
arrangement of the financial statements;

(b) Vouch the accuracy of the transaction by proving


authority, propriety, legality, ownership, existence and accuracy;

(c) Verify accuracy of footings, extensions, recording


and posting of transactions from journals, the amount of cash on hand and in
bank, the existence and ownership of assets, depreciation charges, prepaid
expenses and other items;

(d) Prove accuracy of extensions such as


multiplication on invoices, payroll records, inventory count and price sheets,
and other various data;

(e) Analyze the accounts to prove the correctness and


propriety of entries made in the account during the period under audit to
determine the correctness of the balance of the account as presented in the
financial statements;

(f) Reconcile cash in bank to cash ledger account;

(g) Age and confirm receivables and payables;

(h) Examine non-financial records such as By-Laws


and Amendments thereto of the organization being audited, minutes of
Board/Council, contracts, and the system of accounting in force;

(i) Analyze the adjusting and closing entries and of


any other entries necessary to the production of the balance sheet;

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(j) Analyze charges and credits to the earned and


other surplus accounts to assure their propriety for inclusion in the balance
sheet; and

(k) Prepare the audit report.

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ANNEX A: Qualification Standards for IAS Positions

1. Internal Audit Assistant (SG-08)

Education : Completion of two years studies in college


Experience : 1 year of relevant experience
Training : 4 hours of relevant training
Eligibility : Career Service (Sub-professional)/First Level
Eligibility

2. Internal Auditor I (SG-11)

Education : Bachelors degree relevant to the job


Experience : None required
Training : None required
Eligibility : Career Service (Professional)/Second Level
Eligibility

3. Internal Auditor II (SG-15)

Education : Bachelors degree relevant to the job


Experience : 1 year of relevant experience
Training : 4 hours of relevant training
Eligibility : Career Service (Professional)/Second Level
Eligibility

4. Internal Auditor III (SG-18)

Education : Bachelors degree relevant to the job


Experience : 2 years of relevant experience
Training : 8 hours of relevant training
Eligibility : Career Service (Professional)/Second Level
Eligibility

5. Internal Auditor IV (SG-22)

Education : Bachelors degree relevant to the job


Experience : 3 years of relevant training
Training : 16 hours of relevant training
Eligibility : Career Service (Professional)/Second Level
Eligibility

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6. Internal Auditor V (SG-24)

Education : Masters Degree


Experience : 4 years in position/s involving management and
supervision
Training : 24 hours of training in management and
supervision
Eligibility : Career Service (Professional)/Second Level
Eligibility

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Annex B: Duties and Responsibilities of Internal Auditors

Class Position Title


Duties and Responsibilities
Identification and Salary Grade
IAAS Internal Auditing Under immediate supervision, assists
Assistant, SG 8 internal auditors in the conduct of financial
and/or operations audit; and does related
work.
IAUD1 Internal Auditor I, Under general supervision, conducts
SG 11 researches to obtain background
information of the activities to be audited to
determine the impact on the audit, the
resources necessary to perform the audit,
and possible risks associated with the audit;
discusses research findings with the leader
of the auditing team; performs simple
financial and/or operations auditing work;
drafts report on the result of the audit
completed; discusses audit results with
auditee/s before the draft of the report is
finalized; makes appropriate
recommendations based on the results of
the audit; follows-up actions to determine if
audit recommendations have been carried
out or not and to inquire for the reasons for
non-implementation; and does related work.
IAUD2 Internal Auditor II, Under general supervision, drafts audit
SG-15 plans for review of immediate supervisor;
discusses IA scope and objectives with
affected agency personnel prior to conduct
of audit; performs difficult financial and/or
operations auditing work; drafts report on
the results of the audit completed;
discusses audit results with auditee/s
before the draft of the report is finalized;
makes appropriate recommendations based
on the results of the audit; follows-up
actions to determine if audit
recommendations have been carried out or
not and to inquire for the reasons for non-
implementation; and does related work.
IAUD3 Internal Auditor III, Under general supervision, reviews agency
SG 18 organization structure, staffing,
administrative systems and procedures and
other relevant information to determine IA
needs and objectives; assigns and clarifies
work assignments of members of audit
team; discusses IA scope and objectives
with affected agency personnel prior to

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conduct of audit; leads an IA team in the


conduct of financial and/or operations audit;
reviews findings and recommendations of
audit team for completeness and
conformance to audit plan, standards and
guidelines; drafts the consolidated IA
reports; discusses audit results with
auditee/s before the drafts of the report is
finalized; follows-up actions to determine if
audit recommendations have been carried
out or not and to inquire for the reasons for
non-implementation; conducts
investigations of anomalies discovered in
audits and submits reports and
recommendations on investigations
completed; conducts special audits as
assigned; and does related work.
IAUD4 Internal Auditor Under direction, assists in supervising a
IV, SG-22 division tasked with IA functions; reviews IA
plans; discusses the IA plans with the
concerned IA staff; advises staff on need for
changes in scope, objectives, audits
procedures and how to resolve audit issues
encountered; reviews status report of audit
being conducted; reviews status report of
audit being conducted reviews written IA
reports; trains new internal auditors; rates
performance of audit staff; and does related
work.
IAUD5 Internal Auditor V, Under direction, supervises a division
SG-24 tasked with IA functions; establishes the
annual goals, objectives and performance
targets of the IA unit with the concurrence
of concerned agency officials; establishes
internal auditing standards, guidelines and
procedures for the guidance of the IA staff;
determines the extent of coordination with
the COA Auditors to avoid duplication of
audit effort; does final review of IA plans;
recommends approval of IA plans; reviews
and approves the IA report; reviews and
approves recommendations for
enhancement of the IA; determines training
needs of IA staff; monitors work
performance and discipline of audit staff;
and does related work.

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ANNEX C

IAS AFP Form Nr 1 Cash Count Sheet

DEMAND

To :
Unit :
Designation :

Demand is hereby made of you to produce all your cash, checks, treasury
warrants, money orders, paid vouchers, etc. and other cash items in your possession
held for safekeeping or deposit for which you are officially accountable as
___________________________________________________________________
of the office _____________________________________________.

________________________________
(Internal Auditor)

NOTED AND COMPLIED WITH:

_________________________
(Accountable Officer)

CASH COUNT

DENOMINATION NUMBER OF PIECES AMOUNT TOTAL


Bills: 1,000
500
200
100
50
20
Coins: 10
5
1
.25
T OT AL

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CHECKS, TW

DATE NO DRAWEE PAYEE AMOUNT TOTAL

OTHER CASH ITEMS

Total Cash and Cash Items

CERTIFICATION

I HEREBY CERTIFY that the official cash that the Internal Auditor(s)
demanded of me to produce all cash, checks, warrants, paid vouchers and other
cash items for which I am officially accountable and that the inventory of such cash
items in my possession at the time of cash count today, ________ 20 ____, is
correctly stated above totaling to ___________________________ (P
_________________was disallowed by said Internal Auditors. That the said cash
and cash items were returned to me intact after the cash count.

WITNESSES:

____________________
____________________

______________________________
(Signature of Accountable Officer)

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ANNEX D

IAS AFP Form Nr - 2 Reconciliation Statement

________________
(Account)

_____________________________________
(Name of DO) (Unit/Office)

As of ________________________
(Date)

Per Cashbook Per Sub Ledger


I. Balance as of ___________________ xxxxxxx xxxxxxx

II. Add:
(a) Replenishment not yet
debited by DO - - - - -- - - - P x x x
(b) Final Disallowance x x _______

III. Deduct Abstract


submitted by the DO
but not yet credited
(Sch ____) ___________ ___________

IV. Reconciled balances - - - - - - - - - - - - Pxxxxxxx Pxxxxxx

VERIFIED CORRECT: CERTIFIED CORRECT:

___________________ _____________________
(Signature of Examiner) (Signature of DO)

_________________________
__________________________
(Designation)
(Rank & Serial Number)

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ANNEX E

STATEMENT OF CASH ACCOUNTABILITY


___

(Accountable Officer) (Title) (Unit) (Station)

As of ________________________

(Date)

PARTICULARS

1.Beginning Balance_______________
(Date)

2.RECEIPTS:______________________
(Period Covered)

TOTAL DEBIT TO ACCOUNTABILITY

1.DISBURSEMENT:_________________
(Period Covered)

2.CASH ITEMS:

3.CASH IN BANK:
4.CASH ON HAND:

TOTAL CREDITS TO ACCOUNTABILITY

DIFFERENCE

Inventory of unused accountable form: ___

_____________________________________________________________________________________

VERIFIED BY: CERTIFIED CORRECT:

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ANNEX F

CASHBOOK CERTIFICATION

This is to certify that I/We have examined and verified the cash book this
____________ day of ______20__, and found a balance due the government in the
total amount of ___________________ (in words) P___________ broken down as
follows:

Cash - - - - - - - - P x x x
Cash Items - - - xxx
Total - - - - - - - Pxxxxx

___________________________
___________________________
(Signature over printed name)
___________________________
(Designation)

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ANNEX G

IAS AFP Form Nr 4 - Letter of Demand


________________________
____________
______________
(Date)
SUBJECT: Letter of Demand

TO: _________________
___________________

1. In the examination of your cash and accounts as (Designation)_____


_______ of the (Office/Unit) ____________, on ___________ 20 _____, we found
out that your cash is short of P ___________. This shortage is arrived at as follows:

Collection Cash Advance Total


Accountability:
Balance shown in
Your cash book on
________ certified
Correct by you and
Verified by us - - - - - - - - - - - - P __________ P _________ P _________

Credits to accountability:
Cash, TW, Checks and
Other cash items produced
by you & counted by us - - - - - P __________ P _________ P _________
Shortage - - - - - - - - - - - - - - - P __________ P__________ P _________

In view of this, demand is hereby made of you to produce immediately the


missing funds stated above. Submit to us a written explanation of how this shortage
occurred.

______________________
(Signature of Examiner)
______________________
(Designation)

Received Original:

____________________________ __________________
(Signature of Accountable Officer (Time and Date)

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ANNEX H

No:
JOURNAL ENTRY VOUCHER
Date:
Agency:
ACCOUNTING ENTRIES
Responsibility
Accounts and Account Amount
Center P
Explanation Code Debit Credit

Prepared by: Certified Correct:

Accounting Personnel Head, Accounting Unit

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ANNEX I

IAS AFP Form Nr 5 - Working Paper-Physical Count of Inventory

Report on the Physical Count of Inventories


_____________________
(Type of Inventory Item)
As of _______________

For which ________________________________________________ is accountable,


(Name of Accountable Officer) (Official Designation)
having assumed such accountability on ___________________.
(Date of Assumption)

SHORTAGE/
OVERAGE
Balance On Hand
Stock Unit of Unit
Article Description Per Card Per Count Remarks
No Measures Value
(Qty)) (Qty)
Quantity Value

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ANNEX J

Code of Ethics for Government Internal Auditors


All government internal auditors shall adhere to the Code of Ethics
promulgated by the AGIA, as follows:
1. Always observe the code of conduct and ethical standards for public officials
and employees, to uphold the time-honored principle of public office being a
public trust;
2. Have an obligation to exercise independence, honesty, objectivity, and
diligence in the performance of his duties and responsibilities;
3. Always exhibit loyalty to the institution and to the public to whom he renders
services;
4. Refrain from entering into any activity which maybe in conflict with the
interest of the government institution where he belongs or which would
prejudice his ability to carry out objectively his duties and responsibilities.
5. Not to solicit or accept directly or indirectly any gift, gratuity, favor,
entertainment, loan, or anything of monetary value from an employee, a
client, or a customer of the institution where he belongs;
6. Strengthen and maintain close coordination with all allied agencies and
organization both locally and internationally;
7. Be prudent in the use of information acquired in the course of his duties. He
shall not use any information for personal gain, for building public image of
any official or employee, nor shall he make any premature disclosure of
information which he might lead to speculations;
8. Exercise all reasonable care in presenting audit findings in order to obtain
sufficient factual evidence to warrant such observation. He shall disclose all
material facts which, if not revealed, could either distort the report of the
results of operations under review or conceal unlawful practices;
9. Continuously improve proficiency, effectiveness and quality of his services;
10. Abide by the Constitution and by-Laws of the AGIA;
11. Always be mindful of his obligation to maintain the high standard of integrity
which the AGIA has established;
12. Perform IAS in accordance with the prescribed standards.

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ANNEX K

Written Report Format

After the conduct of audit activities an audit report is subsequently


accomplished to present the result. This report follows certain format as outlined in
the succeeding paragraph.

Terminal Audit Report Format


1. Authority. It is a Letter/Mission Order issued by the Army Adjutant General
in behalf of CGPA directing the OAIA internal auditors to proceed from their
present station to the unit Headquarters to conduct audit thereat (type of audit
specified) on such dates as indicated. There are cases whereby the
authority/directive emanates directly from CGPA or as requested by the
Commander of the Major PA Units or Chief of Offices (G-Staff) to be audited.

2. References. This refers to the laws promulgated by Congress, Administrative


Orders and issuances from the Executive Department, general accounting and
auditing procedures, rules and regulations, joint circulars by COA, DBM and
DOF, memorandum from DND, letter directives from AFP and PA pertaining to
resource management.

3. Audit Objectives. These are the results / targets aimed to be achieved after
the conduct of audit. Oftentimes, these serve as the main focus / guides of the
internal auditors in the course of the audit activity. For Terminal Audit, the basic
objective is to apprise the incoming Commander on the status of resources to be
received.

4. Scope of Audit and Limitations. This indicates the duration of the audit,
coverage of the financial transactions to be confirmed / evaluated in areas/units
to be audited.

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5. Resources. This contains the complete data on the latest Personnel Status,
Property Resources, Financial Resources and status of transactions of the Fund
Accountable Officers of the unit/offices to be audited as follows:

a. Personnel. This includes the data on personnel strength with comparative


data on authorized against the actual fill-up and the percentage of fill-up;
officers and EP rank profile distribution.
b. Property. This includes the latest overall property assets of the unit per
inventory (including new acquisitions, Found-In-Station) and the detailed
status of firearms and ammunitions, mobility assets, communications
equipment and petroleum, oil and lubricants (POL).
c. Financial Highlights. It is a presentation and evaluation of all funds
received by the unit being audited, by activity, including the program,
actual expenditures and balances, if any.
d. Transaction of Fund Accountable Officer. It is the discussion and
evaluation of the status of transactions of the Special Disbursing Officer
(SDO) and Disbursing Officer (DO) of the unit based on his authorized
Maximum Cash Accountability and the purpose/s for which his cash
advances were granted, the status of his liquidations and balances.

6. Findings, Observations, Comments and Recommendations. It is a


presentation of the different observations/findings of the audit team as a result of
the evaluation of documents gathered, ocular inspections made, and interview
with key personnel involved in the management of the units resources. Every
finding/observation has a recommendation as agreed upon by the audit team, in
relation to pertinent policies, laws, regulations and internal control system. The
audit observations/findings and recommendations are discussed with the unit
audited during the exit briefing for immediate corrective measures and to give the
management a chance to explain their side about the findings.

Resource Management Audit Report Format

1. Authority. (Same as para 1, Section 6-1 above).


2. References. (Same as para 2, Section 6-1 above).

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3. Audit Objectives. These are the results/targets aimed to be achieved after


the conduct of the audit. Oftentimes, these serve as the main focus/guides of
the internal auditors in the course of the audit activity. The main purpose of
the audit is to determine how the unit manages its resources to accomplish its
mission and functions.
4. Scope of Audit and Limitations. (Same as para 4, Section 6-1).
5. Resources. This contains the complete data on the Personnel Status,
Property Resources, Financial Resources and transactions of Fund
Accountable Officers of the Unit audited. The presentation and discussion are
the same as that of Terminal Audit.
6. Findings, Observations, Comments and Recommendations. (Same as
para 6, Section 6-1).
7. Issues and Concerns. These are vital information brought to the attention of
the audit team by concerned key personnel of the audited unit which affects
the management/operation that can only be addressed by the higher
headquarters.
8. Assessment. This is an overall appraisal/evaluation by the audit team on
the performance of the unit based on the results of the audit conducted.

Compliance Audit Report Format


1. Authority. (Same as para 1, Section 6-1).
2. References. (Same as para 2, Section 6-1).
3. Audit Objectives. These are the results/targets aimed to be achieved after
the conduct of the audit. Oftentimes, these serve as the main focus/guides of
the internal auditors in the course of the audit activity. The main purpose of
this audit is to ascertain and validate the compliances of the unit on the
previous audit recommendations.
4. Scope of Audit and Limitations. (Same as para 4, Secion 6-1).
5. Previous Audit Findings. This is a review of compliance to the previous
COA and OAIA audit findings as to implementation of corrective measures.
6. Findings, Observations, Comments and Recommendations. (Same as
para 6, Section 6-1).
7. Assessment. (Same as para 8, Section 6-2).

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Systems Audit Report Format


1. Authority. (Same as para 1, Section 6-1).
2. References. (Same as para 2, Section 6-1)
3. Audit Objectives. The main purpose of this audit is to ascertain whether the
systems and procedures being implemented are responsive and cost
effective.
4. Scope of Audit and Limitations. (Same as para 4, Section 6-1).
5. Findings, Observations, Comments and Recommendations. (Same as
para 6, Section 6-1).
6. Assessment. This is an overall assessment of the current system being
applied by the unit that needs improvement.

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GLOSSARY
Definition of Terms

Acceptance Committee - It refers to the duly created Committee that


determines whether a particular delivery made to the unit/office is in
accordance with the specifications called for in the Purchase Orders (POs),
contracts and other documents.

Acknowledgement Receipt (AR) or Reimbursement Expense


Receipt) (RER) - It is the AR or RER is an improvised receipt, other than
those prescribed by the Bureau of Internal Revenue (BIR), which shall be
acceptable for disbursements where the payee is not a business entity and is
required by the BIR to issue ORs. The money paid for transactions under this
category is advanced by the SDO and the expense is authorized to be
reimbursed by the concerned government agency. It may be printed,
typewritten or handwritten and must bear the date, purpose of payment,
amount, name of the AFP Disbursing Officer, name and signature of recipient,
and address of the recipient.

Acquisition This is the process of acquiring the identified materiel


needs and operating requirements including investment items, goods,
supplies, or services, including construction, by contract with appropriated
funds, by and for the use of the AFP (or Government) through
procurement/purchase, lease, or joint venture, whether the supplies or
services are already in existence or must be created, developed and
evaluated. Under DAS, acquisition phase begins at the point when the unit
needs are established and ends when a decision to procure the identified
option has been published.

AFPTR Collections This refer to all fees, charges, assessments and


other receipts or revenues collected by GHQ, Major Services, Unified
Commands, AFPWSSUs and all other units of the AFP in the exercise of the
regulatory functions in the rendition of services at present rates or as may be
approved by CSAFP and as deposited to any Government Servicing Bank for
credit to the AFPTR.

Agency - It pertains to any department, bureau or office of the national


government, its branches and instrumentalities, or any political subdivision, as
well as any government-owned or controlled corporation, including its
subsidiaries or other self governing board or commission of the government.

Allotment It is an authorization issued by DBM to an agency/sub-


agency which allows it to incur obligations within a legislative appropriation.

Allotment Advice (AA) - It refers to the document issued by the GHQ


Management Fiscal Office (MFO) and Major Services MFOs to Major
Subordinate Units to incur obligations within the specified amount and specific
purpose.

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Annual Plan and Budget (APB) & Operating Program and Budget
(OPB) - refers to the document that contains the AFP Major Services,
Separate units and/or Project Administrators objective, control programs for
resources and functions, budget or program or expenditures.

Appropriated Funds Government funds appropriated by Congress


as indicated in the General Appropriation Act (GAA), under specific conditions
and/or specific purpose.

Approval of Designation as used herein, it means an act exercised


by an authority higher than the designating authority.

Audit Report - a report prepared by an auditor covering the audit


or investigation made by him. This includes a statement of the objectives,
scope of the audit, a summary of findings, recommendations, certification,
financial statement and statistical tables.

Bank Guaranty Deposits - are deposits opened with government


depository banks in the account of the AFP to guarantee payment of
AFP/DND contractors/suppliers. The guaranty deposits are derived from
regular AFP appropriations and correspond to the amount earmarked for the
payment of future obligations for the suppliers to the AFP. Said amount will
guaranty the availability of funds or cash to pay contractor and supplier. The
bank deposit partakes the nature of an open account or allotment.

Buildings and Structures Outlay represents the cost or appraised


value or other appropriate value of buildings and structures, which are more
or less permanent.

Capability Need is an identified capability gap or shortfall that needs


to be addressed either thru material acquisition or non-materiel solutions

Cash Teller - any person duly designated to assist the disbursing or


collecting officers disburse and/or collect funds.

Collecting Officer - one duly designated by the Chief of Bureau or


Office with approval of the Chief of Staff, AFP for the purpose of collecting
monies and accounting of same.

Credit Card Payment Slip (CCPS) acceptable instrument to support


claims or reimbursement of expenses. This applies when the SDO concerned
utilized his personal credit card to defray authorized expenses to be
reimbursed by the government agency concerned.

Defense Acquition system (DAS) assesses broadly stated materiel


need approaches to SND-approved capability needs and results in a six-year
investment strategy and plan.

Disbursing Officer - It is the duly designated in accordance with Sec


618, Revised Administrative Code (RAC) whose principal duty is to disburse

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funds generally intended for Personal Services and Miscellaneous Expenses


on routinary basis and whose tenure is expected to be definite.

Disbursement Voucher (DV) It is a document that evidences the


propriety of transactions. It shall be used by all government entities for
granting cash advances, reimbursements and other payments.

Designation - It is the authority conferred upon an individual by


the Chief of Bureau or Office, or other officer having administrative control of
an appropriation or Government fund to perform disbursing or collecting
functions.

Electronic Document - It refers to information or the representation of


information data, figures, symbols or other modes of written expression,
described or however represented, by which a right is established or an
obligation extinguished or by which a fact may be proved and affirmed which
is received, recorded, transmitted, stored, processed, retrieved or produced
electronically.

Equipment It includes all non-expendable property other than land,


structures and fixed facilities having a useful life of more than a year and has
a value of (based on COA Cir #86-200B dtd 3 Jan 86) P1,500. 00 or more.

Financial Statements - These consists of the balance sheets, income


statements, statements showing either all changes inequity other than those
arising from capital transactions, cash flow statements and other statements
and explanatory material which identified as being part of the financial
statements .

Fiscal Control It is an examination of financial transactions by the


AFP Management Staff prior to payments.

Fixed Asset It includes all tangible assets with an estimated useful


life beyond one year that are used in the conduct of the business and are not
intended for sale in the ordinary course of business.

Fund It is the sum of money or other resources set aside for the
purpose of carrying out specific activities or attaining certain objectives in
accordance with special regulations, restrictions or limitations and constitutes
an independent fiscal and accounting entity.

Fund Accountable Officer - It is one who is duly designated or


authorized under existing laws and regulations, to be custodian of government
funds that is received, disbursed and likewise, account for funds entrusted to
him.

Funds Audit - This is a detailed examination and verification of


accounts and transactions of accountable officers (DO, SDO, Collecting
Officer, Agent Officer and Custodian) handling appropriated and non-
appropriated funds of the AFP. The audit likewise covers the qualification of

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the fund accountable officers, adequacy of bonding and the timely submission
of reports such as Report of Disbursements, checks issued, prompt liquidation
of cash advances and others.

General Allotment Release Order (GARO) It is a omprehensive


authority issued to all agencies in general, to incur obligations not exceeding
an authorized amount during a specified period for the purpose indicated. It
shall cover expenditures common to most, if not all agencies, without need of
special clearance or approval from a competent authority.

General Fund It refers to the cash and other resources of the


government which are not available for any purpose and which are not
specifically designated to another fund by law or constructed agreement.

Government Funds They include public monies of every sort and


other resources pertaining to any agency of the government.

Guarantee Deposit - It is an account in which the amount of deposits


is subject to refund and is made to secure or guarantee compliance with
certain requirements in a transaction.

Implementing Agency Is is the agency to which funds are


transferred for the purpose of prosecuting/implementing the project.

Income from Operations It refers to income from services rendered


and/or income derived in the performance of agency activities/functions.

Inspection It consists of examining records, documents, or tangible


assets.

Inter-Agency Transferred Funds - They are the cash or money


transferred or sub-allotted from one agency to another from which the
allotment was originally awarded. This account is used to record in the books
of the source agency, funds transferred to the implementing agency for
specific projects/purpose.

Internal Control System It is an internal control system consists of


all the policies and procedures adopted by the management of an entity to
assist in achieving management objective of ensuring, as far as practicable ,
the orderly and efficient conduct of its business, including adherence to
management policies, the safeguarding of assets, the prevention and
detection of fraud and error, the accuracy and completeness of the accounting
records and the timely preparation of reliable financial information.

Inventory It is the NGAS terminology on the expendable supplies


and materials like spare parts, tools and small tangible assets that has life
span of more than one year.

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Liquidation It is payment of an obligation either through issuance of


supplies from stock or by offsetting receivable/payable accounts between
agencies or funds.

Liquidating Instruments - They are documents that are necessary in


the clearing/settlement of expenditure.

Logistics In generic sense it refers to any commodities that need to


be acquired and procured to sustain or enhance the capability of the
structures during the plan period. In essence, logistics form the substantial
part of the operational requirements of the unit.

Management It comprises officers and others who perform senior


managerial functions.

Materiel Needs They are desired battlefield equipments, weapon


systems or hardware and new infrastructure facilities that could potentially
satisfy the operational capability shortfall.

Maximum Cash Accountability (MCA) It is the maximum level of


cash requirement that can be disbursed for a one month period by a Regular
or Special Disbursing Officer.

Mess Officer - It is one who disburses funds especially for mess. He


should be designated as agent or special disbursing officer depending on
whether he disburses for another or on his own account.

Non-appropriated Funds- They are the sources of funding other than


indicated in the General Appropriation Act (GAA) such as trust funds, grants
and donations.

Non-materiel Solutions They are identified solutions to address the


operational capability shortfall other than materiel acquisition. These include
but not limited to changes in: doctrine, organization, training, leadership
education and facility repair or upgrade.

Physical Count It is an NGAS terminology on the accounting of


properties/assets located within a unit/command, for verification of the
recorded stock balances. This involves actual count of stocks and the
comparison of the results of the physical count of stocks with recorded
balances.

Post Audit It is the examination of a financial transaction after


payment and the recording thereof. It involves the tracing of the transaction to
the pertinent books of accounts.

Pre-audit It is the examination of a financial transaction before


payment whether through cash, warrants, checks or other instruments.

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Procurement Officer It is one who undertakes cash purchasing


function on a limited amount. He should be designated agent officer for a
particular disbursement or special disbursing officer in accordance with Sec
618, RAC, and Sec 25 (f), CA #1, as amended.

Program - It refers to the functions and activities necessary for the


performance of a major purpose for which a government entity is established.
It is the basis of budgeting. The budget supports the direction of the program
which provides an idea as to how much will be needed or expended for a
particular project/activity.

Program Audit - This refers to the review and evaluation of


accomplishments against planned objectives.

Program Director It is the cognizant staff of the Army under whose


functional supervision or responsibility the program belongs, in-charge of
setting objectives and standards, issuing policy guidelines, defining priorities,
monitoring of program implementation and the review and analysis of control
program.

Program Proposal It is the planning priorities and programming


recommendations for mid-term capability acquisition through the
Programming Advice document.

Program Structures These are the framework within which


programs are developed and managed. The program structure has three
levels: program, sub-programs, and program elements.

Property - It refers broadly to anything that the Army owns, property is


classified as follows:

Real Property (plant) It includes land and interest therein, such as


buildings and facilities. It is primarily an engineer responsibility.

Supplies (Equipment & Inventories) - It include all kinds of property


except real estate which may be needed in the transaction of official business
or for public use, whether in the nature of supplies or equipment for issue to
troop units and installations.

Property Audit It is the process of verification and examination of


records, procedures and accounts of all Property Accountable / Responsible
Officers handling all types of property acquired from all sources of the Army,
to see to it that they are properly maintained, applied and expended in public
service. The process verifies if all kinds of properties are adequately
safeguarded.

Property Found-In-Station - It is the acquired properties of Army


units other than capital outlay funds, such as MOOE, donation and other
unappropriated funds.

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Purchase Order - It is a contract between the agency and the supplier


or dealer for the delivery of supplies at a stipulated amount and includes
among others, quantity, period, mode of delivery, unit and total price per item,
mode of payment and penalty clause, It is the document that depicts
transaction for the purchase of Supplies and Materials.

Regular Cash Advance - Those granted to cashiers, disbursing


officers or paymasters separately for salaries and wages, commutable
allowances, honoraria and other similar payments to officials and employees
and petty operating expenses consisting of all payments for maintenance and
operating expenses which cannot be paid conveniently by check or are
required to be paid immediately.

Regular Disbursing Officer - He one duly designated in accordance


with Section 618, RAC whose principal duty is to disburse funds generally
intended for Personal Services and Miscellaneous Expenses on routinary
basis and whose tenure is expected to be definite.

Report on the Physical Count of Inventories (RPCI) It pertains to


the report that shall be used in reporting the physical count of inventories. It
shows the balance of inventory items per cards and per count and shortage
and overage.

Report on the Physical Count of Property Plant & Equipment


(RPCPPE) It is the report that shall be used in reporting the physical count
of PPE by type as of a given date. - Government funds appropriated by
Congress as indicated in the General Appropriation Act.

Resources They are the structures (units and their associated


personnel, materiel and facilities), investment (new equipment and facilities),
and readiness (training, maintenance, supplies, facilities upkeep and
sustainment, and operations) required to accomplish a task.

Resource Manager He is the designated senior executive with direct


accountability to the SND for whom they exercise authority to assign and
adjust tasks, goals and resources in order to achieve desired capabilities.

Responsible Supply Officer He is the subordinate Unit Supply


Officer of an accountable activity. He is directly responsible for the care,
maintenance and safeguarding of government supplies in his custody.

Revolving Funds Theses are funds which are established only in


cases where said funds are authorized by law or in the General
Appropriations Act of every Fiscal Year. These are usually income derived
from rentals for the use of buildings and facilities, or from fees imposed for
board and lodging, by departments, bureaus, offices or agencies which may
be constituted into a revolving fund to be made available for the maintenance
and other operating expenses or capital outlay requirements of said building
and facilities, subject to any guidelines issued by the department, bureau,

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office or agency concerned, and to pertinent budgeting, accounting and


auditing rules and regulations.

Special Allotment Release Order (SARO) It is a specific authority


issued to one or more identified agencies to incur obligations not exceeding a
given amount during a specified period for the purpose indicated.

Special Cash Advances They are those granted on the explicit


authority of the Head of the Agency only to designated disbursing officers or
employees for other legally authorized purposes like current operating
expenditures of the agency undertaken in the field when it is impractical to
pay the same by check, such as salaries, wages, allowances, maintenance
and other operating expenses, and foreign travel expenditures, including
transportation fares, per diems, allowances and other expenses incurred by
officials and employees in connection with official travel abroad.

Special Disbursing Officer (PERMANENT) He is one duly


designated as such in accordance with Section 618 RAC to disburse funds
intended for a specified type of expense, purpose or nature and/or for a
limited period of time

Special Disbursing Officer (TEMPORARY) He is one duly


designated to disburse funds intended for specified purpose such as for travel
and other specified activities.

Special Fund It is a fund which by legislative action, segregates


specified revenues for limited purposes, often called a special revenue fund.

Source Agency (SA) It is the agency from which the allotment has
been originally released and in whose behalf or benefit, the project will be
implemented.

Property Accountable Officer (PAO) - It refers to the duly appointed/


designated official authorized to receive all kinds of deliveries, including but
not limited to supplies, materials and equipment.

Supplies and Materials These are all expendable commodities that


are normally consumed within one year in connection with government
operations, including semi-expendable items that are acquired to replace
spare parts of un-expendable property.

Total Cost- It is the sum of direct, indirect, general and administrative


costs.

Trust Fund It refers to funds that have come officially into the
possession of any agency of the government or of a public officer as trustee,
agent or administrator, or that which have been received for the fulfillment of
an obligation.

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Trust Liabilities They are receipts out of remittances to the agency.


This particular account is used to record the liability for collections received or
amount withheld in trust for the account of the National Government agencies
for specific purposes.

Trust Receipts They are collections from non- income sources


authorized by law for specific purposes which are collected/received by a
government office or agency acting as a trustee, agent or administrator, or
which have been received as guaranty for the fulfillment of an obligation, and
all other collections classified by laws or regulations.

Unit Cost It is the relationship between resources consumed to


outputs produced. A unit cost is the cost producing one unit of output or
providing one unit of service. It is determined by dividing the total costs of
inputs used to produce output by the total quantity of units of output produced.

Variable Cost It is the cost that varies with changes in the quantity of
output produced when other factors are held constant. The cost of materiel
handling to an activity for example, varies according to the number of materiel
delivery and pickups to from that activity.

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