By: ATTY. ELIZABETH S. ZOSA Assistant Commissioner Commission on Audit

GACPA PRESENTATION

37TH ANNUAL NATIONAL CONVENTION

(APRIL 17, 2015)by:

ATTY. ELIZABETH S. ZOSAAssistant Commissioner

Commission on Audit

IMPROVING COMPLIANCE WITH AUDITING RULES AND

REGULATIONS

(MINIMIZING AUDIT DISALLOWANCES)

DISCUSSION OUTLINE

Legal Authority and Basic Concepts Communicating Audit Results IIUUEE Expenditures Determination of Persons Liable

Acts Constituting Liability Appeals from Disallowances Nature of Liability for

Disallowances Enforcement of Liability

LEGAL AUTHORITYAND BASIC CONCEPTS

COA’s AUDIT AUTHORITY: •1987 Constitution

Art. IX D (1)-

to examine, audit,

and settle all accounts

To verify, validate, check,

compare,analyze,

etc.

EXAMINE

To determine legality/ propriety

of use/receipt of funds/property

To determine

the balance of the account

audited

SETTLE

COA’s AUDIT AUTHORITY

•PD 1445

Sec. 81- to certify balances in the

accounts of officers

Sec 82- to notify in writing the officer whose accounts

have been audited and

settled

AUDIT ACTION

• Allow- no difference found;

in order

AUDIT ACTION

•Defer- audit decision cannot yet be made; issue AOM

AUDIT ACTION

•Suspend- temporarily dis-

approve and require

justification (NS)

AUDIT ACTION • Disallow- disapprove and

require refund (ND)

AUDIT ACTION •Charge- add to the accountability and

require payment (NC)

COMMUNICATING AUDIT RESULTS

Notice to Persons

Responsible

1. Audit Observation Memorandum

(AOM)

2. Notice of Suspension (NS)

Notice to Persons Liable

3. Notice of Charge (NC)

4. Notice of Disallowance (ND)

AUDIT OBSERVATION MEMORANDUM (AOM)

•for documentation or information deficiencies

•Management to comply within 15 days

AUDIT OBSERVATION MEMORANDUM (AOM)

•Not a requirement before a disallowance

•Clear violation of law/ regulation•Previous similar transaction was disallowed

AUDIT OBSERVATION MEMORANDUM (AOM)

•Auditor to evaluate management’s comments and reply to the agency by, either:

•allowing the transaction, or•issuing an ND/NC

NOTICE OF SUSPENSION (NS)•For transaction of doubtful legality/propriety; required to be justified or documented so as not to be disallowed• Management to comply

with requirements within 90 days

NOTICE OF SUSPENSION (NS)

•Compliance documents to beevaluated by Auditor whoshall, either:•Allow the transaction, or•Issue an ND/NC

NOTICE OF CHARGE (NC)

-for audit of revenue

•Non-collection•Under-collection•Under-assessment•Under-appraisal

NOTICE OF DISALLOWANCE (ND)

-for disbursement that is:•Illegal- I•Irregular- I•Unnecessary- U•Unconscionable- U•Excessive- E•Extravagant- E

UPDATED GUIDELINESFOR THE PREVENTION of IUEEU Expenditures

COA CIRCULAR No.2012-003 (Oct 29, 2012)

(amending CC 85-55A, 9/8/85)

ILLEGAL Expenditure-contrary to law-in violation of lawEx. -payment for contracts

which are not bidded, in violation of RA 9184-payment of allowances prohibited under the SSL

ILLEGAL Expenditure

-supplementary retirement benefits (CA 186/RA 4968)- hazard pay (RA 7305)- use of funds for private

purpose (PD 1445, etc)

ILLEGAL Expenditure- for contracts without appropriation

(PD 1445)-for private lawyers by

LGUs except as providedunder RA 7160

IRREGULAR Expenditure

-incurred without adhering to established rules, regulations, principles or practices which have gained recognition in law

IRREGULAR Expenditure

-CNA signing bonus, orincentives charged to funds other than

savings- attorneys’ fees without

OSG/OGCC approval or COA concurrence

IRREGULAR Expenditure

-purchases(not bidded) at prices in excess of 10% of COA evaluated price

- repairs at prices in excess of 30% of CMV of same equipment

IRREGULAR Expenditure

-EME of GOCC officers >COB provision and without ORs

-purchase > requirements

-payment for defective/ deficient projects

UNNECESSARY Expenditure

•Not essential•Could be dispensed with•Not supportive of mission

and objectives of agency•Non-responsive to

exigency of the service

UNNECESSARY Expenditure• Media advertisements not

in furtherance of agencymission, etc.

• Luxurious furnishings• Wines, liquors, cigars• Meetings in expensive

hotels, centers

UNNECESSARY Expenditure• Replacement of serviceable

equipment• Hiring of consultants for

regular and available work in the agency

• Purchase of high end model electronic gadgets

UNCONSCIONABLE Expenditure

•Unreasonable•No man in his right

sense would make•Violates ethical and

moral standards

UNCONSCIONABLE Expenditure

•Payment for expiredmedicines

•Delivery of agricultural fertilizer usable only for flower plants •Pesticides with potency

below requirements

EXCESSIVE Expenditure

•Immoderate quantity•Exorbitant price•Exceeds what is normal or

proper•In excess of reasonable limits

EXCESSIVE Expenditure

•Grant of cash advance in excess of requirements•Purchase of seeds exceeding farmers’ needs•Release of funds to NGOs above project requirements

EXTRAVAGANT Expenditure

•Without restraint, judiciousness, economy•Exceeds the bounds of propriety•Prodigal, lavish, luxurious

EXTRAVAGANT Expenditure

•Expensive decorative lamp posts

•Out-of-town conferences, meetings•Rental of expensive halls

DETERMINATION OF PERSONS LIABLE

CRITERIA To Determine Persons Liable

•Nature of the transaction•Duties and responsibilities

of officer/employee•Extent of participation in the

transaction

Nature of the Transaction

Honoraria RATA, Traveling expensesProcurementCash AdvancesTerminal leave benefits

Nature of the Transaction

Fund transfer to NGOHiring of private lawyerEMERetirement BenefitSalary, Step Increment, Overtime Pay

Nature of the Transaction

Allowances and Other Benefits

CNAHazard duty payYEB and cash giftPIB

Duties and Responsibilities

Appointment

Cashier

General Services OfficerChief EngineerAccountantBudget OfficerBoard of Directors

Duties and Responsibilities

Designation

Inspection and Acceptance Committee

Bids and Award CommitteeSpecial Disbursing OfficerProperty Inventory Committee

Acts Constituting Liability

•1. Custodian of government funds- for failure to

safeguardfunds against loss, or to ensure that they are utilizedor transferred in accordancewith law and regulations

Acts Constituting Liability

•2. Authorizing or certifying official- for false, non-legitimate authority/ certification; or certificationissued in violation of law, rule or regulation

Acts Constituting Liability•Certifications:

•“Expenses necessary, lawful , incurred under my direct supervision.”

•“Supporting documents complete,

proper and legal.”•“Pre-audited; allowed for P__.”

Acts Constituting Liability

•Certifications:•“Deliveries are in accordance with

quantity and specifications.”

• “Project is 100% accomplished in accordance with plans/POW.”

Acts Constituting Liability•Certifications:

• “Cost reasonable, estimate within allowable limits”

• “After due evaluation, XYZ Co. wasfound to be the Lowest

ComplyingBidder”

Acts Constituting Liability

•3. Approving officer -for negligence

•Arias vs Sandiganbayan•Cruz vs Sandiganbayan•Leycano vs COA

Approving Officer

Arias vs Sandiganbayan, GR 81563 (12/19/89)

“All heads of offices have to rely to a reasonable extent on their subordinates and on their good faith xxx. There has to be some added reason why he should examine each voucher in such detail.”

Approving Officer

Cruz vs Sandiganbayan, GR 134493 (8/16/05)

“There exists an exceptional circumstance that should have prodded petitioner xxx to be curious and go beyond what his subordinates prepared or recommended.”

Approving Officer

Leycano vs COA GR 154665 (2/10/06)

“Arias doctrine does not apply when the approving officer is not acting as head of office.”

Acts Constituting Liability

•4.Payee-for receipt of payment(liability is only up to the amount received)

• Good faith vs• “Solutio Indebiti”

Good faith-

Good faith connotes an honest intention to abstain from taking unconscientious advantage of another; it is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged by actual or fancied token or signs. (PNB vs Heirs of Estanislao Militar, et al. GR No. 164801, June 30, 2006)

“Solutio Indebiti”•  if something is received when

there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises (Art 2154, NCC);

• the person who has no right to receive such payment becomes obligated to return the same;

Extent of Participation

Liability up to the amount certified/ authorized/ approved-Partial payment-Progress billings

Extent of Participation

• Acts done by subordinate under direction of superior-

Sec 106,PD 1445

Section 106Section 106. Liability for acts done by direction of superior officer. No accountable officer shall be relieved from liability by reason of his having acted under the direction of a superior officer in paying out, applying, or disposing of the funds or property with which he is chargeable, unless prior to that act, he notified the superior officer in writing of the illegality of the payment, application, or disposition. The officer directing any illegal payment or disposition of the funds or property shall be primarily liable for the loss, while the accountable officer who fails to serve the required notice shall be secondarily liable.

Extent of Participation

• Conspiracy –

“the act of one is the act of all”

(liability is solidary)

“A conspiracy need not be proved by direct evidence of the acts charged but may and generallymust be proven by a number of indefinite acts, conditions and circumstances.”

APPEALS FROM DISALLOWANCES

APPEAL FROM ND/NC

• To COA Director

• Regular audit- Director with audit supervision over agency audited

APPEAL FROM ND/NC

• To COA Commission Proper

• FAO audit• SAO audit• ICFAU audit

APPEAL FROM ND/NC

Period to appeal-

within 6 months (180 days) from receipt of ND/NC

APPEAL FROM Director’s Decision

To CP thru ComSec

Period to appeal- within the remaining of the 6 months (180 days) period from receipt of ND/NC

Sample Computation of Appeal Period

Date of receipt of ND- 1/12/15Appeal to CD- 3/15/15Date of receipt of CD decision-

4/1/15Deadline to file petition

review - 7/28/15

-62 days

118 days

FILING FEE

1/10 of 1%, not >P20,000 plus research fee (1% appeal fee not> P200

• appeal from ND/NC/Auditor’s decision• request for relief from

accountability or appeal from denialthereof, write-off, condonation

• Petition for review of Director’s decision

FILING FEE

1/10 of 1%, not >P50,000 plus research fee- 1% appeal fee,

not>P200

•Money claim•Request for approval of

private sale

FILING FEE

•Per appeal/petition basis

•Charged to the person liable•Appeal•Petition for review •Money claim•Request for relief from

accountability

FILING FEE

•Charged to the agency

•Write-off• condonation (between

government agencies)•Approval of private sale

NATURE OF LIABILITY FOR DISALLOWANCE

NATURE of Liability To Government

Solidary or joint and several

“One for All”

NATURE of Liability To Government

Art. 1216, NCC- creditor may proceed against one, or some or all debtors simultaneously until debt is fully collected

NATURE of Liability To Government

Why solidary?•Art 1207, NCC

the law provides for solidarity

[T]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity

NATURE of Liability To Government

Laws providing for solidary obligation for disallowances:•Sec 43, Ch 5, Book 6, RAC•Section 49, PD 1177•Sec 347, RA 7160

Section 43. Liability for Illegal Expenditures. - Every expenditure or obligation authorized or incurred in violation of the provisions of this Code or of the general and special provisions contained in the annual General or other Appropriations Act shall be void. Every payment made in violation of said provisions shall be illegal and every official or employee authorizing or making such payment, or taking part therein, and every person receiving such payment shall be jointly and severally liable to the Government for the full amount so paid or received.

Section 49. Liability for Illegal Expenditure. Every expenditure or obligation authorized or incurred in violation of the provisions of this Decree or of the general and special provisions contained in the annual General or other Appropriations Act shall be void. Every payment made in violation of said provisions shall be illegal and every official or employee authorizing or making such payment, or taking part therein, and every person receiving such payment shall be jointly and severally liable to the Government for the full amount so paid or received.

SEC. 347. Rendition of Accounts. - Local treasurers, accountants and other local accountable officers shall render their accounts within such time, in such form, style, and content and under such regulations as the Commission on Audit may prescribe. Provincial, city, and municipal auditors shall certify the balances arising in the accounts settled by them to the Chairman of the Commission on Audit and to the local treasurer, accountant, and other accountable officers. Copies of the certification shall be prepared and furnished other local officers who may be held jointly and severally liable for any loss or illegal, improper or unauthorized use or misappropriation of local funds or property.

NATURE of Liability Among Persons Liable

Among themselves, personsliable are Joint Debtors•Art 1217, NCC

-debtor may claim from co-debtorsthe share which corresponds to each

ENFORCEMENT OF LIABILITY

• COA ORDER OF EXECUTION

(COE)

ENFORCEMENT of LiabilityOfficer/employee in the service

-deduct from salary and other benefits

Contractor/Private person- withhold money due him from agency or file collection suit

Enforcement of Liability

Officer/employee out of service-file collection suit

Deceased officer- claim againstthe estate

Payment by installment- Only for disallowed benefits or

allowances- Approved by the OGC- COA- Payment period not > 2 years

graduated according to amount- Full payment demandable upon

separation from the service

Other Remedies to Enforce ND/NC Criminal action- violation of

related criminal laws

Administrative Charges- violation of civil service lawand regulations

Deceased officer- claim againstthe estate