Republic of the Philippines COMMISSION ON AUDIT LGS-D - Cebu Il, Audit Team R7-03 City of Naga Province of Cebu AOM No : 2020-010-(2019) Date: February 17, 2020 AUDIT OBSERVATION MEMORANDUM (AOM) For: HONORABLE VALDEMAR M. CHIONG City Mayor City of Naga, Cebu We have audited the transactions of LGU Naga City for the calendar year 2019 and observed the following deficiencies/errors: The Internal AUdit Unit of the City Government is not functional and performs mostly routinary activities, contrary to Administrative Order No. 278 s. 1992; hence, its purpose as an internal audit unit to check the design and effectiveness of controls is not achieved thus the city government has not yet benefited from an effective Internal auditing service Republic Act No. 3456 (intemal Auditing Act of 1962), as amended by RA No.4177, mandated the creation, organization and operation of an Internal Audit Service/Unit (IAS/U) in all government agencies. Later, Administrative No. 278 dated April 28, 1992 directed the strengthening of internal control systems of government offices in their operations. It also provided the functions, duties and activities of the 1AS/U. Over the years, various issuances have been released dealing with the organization, staffing, functions and activities of internal audit ‘These demonstrsate the government's recognition of the importance of intemal audit and in ensuring efficiency, economy and effectiveness in its operations. Review of the respective Position Description Forms of personnel under the Internal Control Unit revealed that their duties were not consistent with their supposed functions provided by law. It was noticeable that they perform activities that were routinary even though ‘AO 278 mandated otherwise. Pertinent portion of said AO states: “2.0 In addition the above duties, the IAS may be called upon to perform special assignments by the Head of the Agency. However, it ‘Shall_not be responsible for or required to participate in_procedures which are fa which includes a functional internal audit unit, rest directly with the head of the agency (PD1445 and Administrative Code of 1987). We are concemed that because the Intemal Audit Services Unit has not really performed its mandated functions to the fullest, the LGU has not been able to maximize its internal audit services to assist in the achievement of efficient and effective fiscal administration and the performance of agency affairs and functions.2.1 pre-audit of vouchers and counter-signature of checks; 2.2 inspection of deliveries, although the intemal auditor may, as art of the examination, observe inspections; 2.3 preparation of treasury and bank reconciliation statements; 24 development and installation of systems and procedures; however, in exceptional cases, the intemal auditor may assist by way of giving suggestions; 2.5 taking physical inventories; however, the intemal auditor may ‘review the plans in advance and observe and test-check the accuracy of counting, costing and summarizing; 2.6 maintaining property records; and 27 all other activities related to operations.” Annex "A, At, A2" shows the duties of the internal Audit Unit personnel. However, when we examined the actual accomplishment reported, we noted that the office basically Performs 85% pre-audit of disbursements and 15% the conduct of operations and financial audit Which is basically the function of internal audit It is apparent that most of their activities pertain {0 regular functions of ther departments of the City Government, such as the Accounting Department, General Services Office, Administrative Division and the City Mayor's Office. DBM Local Budget Circular No. 110 dated June 10, 2016, which prescribed the Internal Audit Manual for LGUs, was instructive on this matter. It i$ provided the meaning of internal audit as the evaluation of Management controls and operations performance and the determination of the degree of compliance with laws, regulations, managerial policies, accountability measures, ethical standards and contractual obligations. It involved the appraisal of the plan of organization and all the coordinated methods and measures, in order to recommend courses of action on matters relating to operations and Management control. }{ further provided that the internal audit function or appraisal activity as conducted by {he IAS/U constitutes a separate component of internal control, the objective of which is to determine whether other internal controls are well designed and properly implemented In the LGU structure, the IAS/U is mandated to conduct a separate evaluation or appraisal of the internal control system to determine whether controls are well designed and Properly implemented. In the conduct of separate evaluation, the IAS/U shall determine the oxtent of compliance and assess the adequacy of controls embedded in operating and support systems/units, as well as evaluate the performance of programs, projects and activities of the LGU. Internal audit is a separate evaluation and review function or activity within the overall internal control framework of each public service sector organization. ‘The responsibilty to install, implement and monitor a sound system of internal control, Which includes @ functional intemal audit unit, rest directly with the head of the agency (PD1445 and Administrative Code of 1987), We are concemed that because the Internal Audit Services Unit has not really Performed its mandated functions to the fullest, the LGU has not been able to maximize ite internal audit services to assist in the achievement of efficient and effective fiscal administration and the performance of agency affairs and functions.May we have your comments on the foregoing audit observations within fifteen (15) calendar days from receipt hereof 1g, Processes or systems. Management should be guided by the Internal Audit Manual for LGUs in establishing, maintaining and operating the IAS/U. LUZ UY) MENGOZA Slat Auditor IV OIC, Audit Team Leader MARIA DAISY O. BERC! State Auditor V Supervising Auditor Proof of Receipt of AOM: f Designation Printed Name and Signature Date] | City Mayor (> Treasurer | City Accountant | City Administrator85% 15% hnvexh Employee: Gineveve V. Laput Position: Accountant I Dutles & Responsibilities in Internal Audit 1 Verification of the completeness and correctness of documents attached in the vouchers, ‘Verification of payroll (Regular, Casual, Job Order Employees) Verification of Purchase Request Verification of Program of Works Verification of AICS Checking of Liquidation of Cash Advances (Supplemental Feeding DSWD), Honorarium to barangay tanods, health workers, etc, Making recommendation for process/ system improvement. Verification of different programs and activities as to the extent of compliance. Determining that accounting procedures or other policies are being followed; Operating procedures are being property implemented; Governmental regulations are being complied wit Performance targets and/or activity objectives are being achieved; Other contractual obligations are being met. Making recommendation for process/ system improvement. 10. Does related work as required by the supervisor ‘Actual Work Done (Internal Audit): Verification of Program of Work Verification of Purchase Requests Verification of AICS Verification of Payroll (Regular, Casual, Job Order Employees) Verification of the completeness and correctness of documents attached in the vouchers. Checking Liquidations Verification of different programs and activities as to the extent of compliance. Determining that accounting procedures or other policies are being followed; Operating procedures are being properly implemented; Governmental regulations are being complied with; Performance targets and/or activity objectives are being achieved; Other contractual obligations are being met. ‘Making recommendation for process/ system improvement. Prepared by: 7 V. Laput intant ItAnnex A Employee: Karla Mae T. Lara Position: Internal Audit Duties & Responsibilities in internal Audit Services: 1 Verification of different programs and activities as to the extent of compliance. This may involve the following: Determining that accounting procedures or other policies are being followed; Operating procedures are being properly implemented; Governmental regulations are being complied with; Performance targets and/or activity objectives are being achieved; ‘Other contractual obligations are being met. Verification and analysis of financial and operations data to ascertain if attendant ‘management information systems generate data or reports and/or documents for consummated transactions are complete, accurate and valid; ‘Checking disbursements to ensure accuracy of Account distribution, approvals on vouchers, and Purchase orders against the receiving report. Tracing details of deposits to accounts receivables postings, official receipts and related documents. Reconciling bank and treasury accounts Checking credit approval procedures. Reviewing control over unclaimed wages ‘Actual Work Done in internal Audit Services: 85% 15% ‘+ Verification of Program of Work ‘Verification of Purchase Request Verification of AICS * Verification of Payroll (Regular, Casual, Job Order Employees) * Verification of the completeness and correctness of documents attached in the vouchers. Checking Liquidation Verification of different programs and activities as to the extent of compliance. Determining that accounting procedures or other policies are being followed; Operating procedures are being properly implemented; Governmental regulations are being complied with; Performance targets and/or activity objectives are being achieved; Other contractual obligations are being met ‘Making recommendation for process/ system improvement. VY VVVVee Prepared by : Int MAE T. LARA, ‘Auditor IAer hy Employee: Mae Anne Villarta Position: Job Order Duties & Responsibilities in internal Audit Services: 1. Assists 1AS in the operation which include checking/transmitting and recording/recelving of documents. 2. Performs related/ other tasks which may assigned by the supervisor. ‘Actual Work Don * Verification of Program of Work © Verification of Purchase Request © Verification of AICS = Verification of Payroll (Regular, Casual, Job Order Employees) © Verification of the completeness and correctness of documents attached in the vouchers. * Checking Liquidation © Assist in the Audit process (Operations & Systems Audit) Prepared by: “ptm