Republic of the Philippines COMMISSION ON AUDIT Commonwealth Avenue, Queson City, Philippines CORPORATE GOVERNMENT SECTOR CLUSTER 5 - AGRICULTURAL AND NATURAL RESOURCES MEMORANDUM To Ms, MERLE M. VALENTIN Acting Supervising Auditor Audit Group C-Philippine Coconut Authority/Sugar Regulatory Administration/Philippine Sugar Corporation This Cluster and Sector Quezon City SUBJECT Specific Audit Instructions (SAl) for the Calendar Year (CY) 2021 Audit of the Philippine Coconut Authority (PCA) DATE December 16, 2020 We are returning, for your appropriate action, the attached SAI for CY 2021 audit of the PCA duly approved by this Office. Please ensure that the SAI will be immediately disseminated to the Regional Supervising Auditors (RSAs), PCA Audit Team Leaders (ATLs), and transmitted to the concerned COA Regional Directors. For monitoring and record purposes, kindly furnish this Office with proof that the SAI has been disseminateditransmitted to the RSAs, PCA ATLs, COA Regional Directors and others concerned, in compliance with the commitment in the Office Performance Commitment Review for CY 2020 of this Cluster. MARY@/ ADELINO irector IV Cluster DirectorRepublic of the Philippines COMMISSION ON AUDIT CORPORATE GOVERNMENT SECTOR Cluster 5 - Agricultural and Natural Resources Office of the Supervising Auditor Audit Group C- PCAISRA/PHILSUCOR PCA Building, Elliptical Road, Diliman, Quezon City, MEMORANDUM To : All Regional Supervising Auditors (RSAs)/OIC-RSAs; Audit Team Leaders (ATLs)/OIC-ATLs; and All Others Concerned ‘Audit Group C - Philippine Coconut Authority (PCA) Cluster 5-Agricultural and Natural Resources, Corporate Government Sector (CGS) ‘SUBJECT : Specific Audit instructions (SAI) for the conduct of Calendar Year (CY) 2021 Audit of the PCA under Audit Group C, Cluster 5 ~ Agricultural and Natural Resources, CGS DATE : December 11, 2020 Pursuant to Item IV.F of COA Memorandum No. 2016-023 dated November 14, 2016, re: Revised Guidelines on the Implementation of the Unified Audit Approach, requiring the issuance of the SAI by the Supervising Auditor (SA) to ensure uniformity in the audit of identified thrust areas/foci and to facilitate consolidation of common issues for inclusion in the CY 2021 Consolidated Annual Audit Report (AAR) and Compliance Audit Report (CAR) on the PCA, the following are the instructions for the conduct of CY 2021 audit on the PCA, Audit Group C, Cluster § — Agricultural and Natural Resources, CGS. This SAI is aligned with, the General Audit Instructions (GAls) and Supplemental GAls of the Assistant ‘Commissioner and the Director, Cluster 5, both of CGS. RISK ASSESSMENT The Audit Team in the Head Office (HO)/National Capital Region (NCR) conducted the audit risk assessment on the PCA to identify the areas to be prioritized in the CY 2021 audit and determine the appropriate approach to be performed by preparing the templates, completing the activities and documentation required during the planning stage as prescribed in the Financial Audit Manual (FAM), pursuant to COA Resolution No. 2019-004 dated March 22, 2019, which were reviewed by the Acting Supervising Auditor (Acting SA) ‘The ATLs/OIC-ATLs in the HO, Regional Offices (ROs), Research Centers (Centers) and Provincial Offices (POs) shall likewise conduct audit risk assessment on their respective auditees and prepare templates, complete the activities and ‘documentation as mentioned in the preceding paragraph, to be reviewed by the Regionai Supervising Auditors (RSAs)/OIC-RSAS. The e-copy of the FAM Planning Templates prepared by the Audit Team in the HO will be emailed to the RSAS/OIC-RSAs for reference. 1019Mm, MATERIALITY 1. The Overall Planning Materiality computed by the Audit Team at the HO/NCR for Purposes of rendering audit opinion in the Financial Statements of PCA Is % of one per cent or 0.5 per cent of the total expenditures based on the consolidated Trial Balance (TB) for the period ended September 30, 2020. This will be communicated through a letter informing PCA Management that the audit for CY 2021 transactions and operations will be started and that the team shall request for documents necessary for audit. 2. The Overall Performance Materiality, for purposes of determining the significant and material accounts, was computed by multiplying the Overall Planning Materiality by 50 per cent, since the extent of misstatements in prior year is above 100 per cent. Accounts in the TB of HO as of September 30, 2020 with amounts equal or more than the Overall Performance Materiality and those accounts included in the results of Risk Assessment at the Assertion Level (RAAL), are classified as significant and material accounts which shall be prioritized in audit, and subject to substantive testing using the testing threshold computed for each identified account. 3. For planning and execution phases, the Audit Teams in the HO/NCR and ROs/Centers/POs shall determine and use their respective Planning Materiality, Performance Materiality and Testing Threshold based on the financial information of the HO/NGR and ROsiCenters/POs before consolidation. 4, A supplemental SAI shall be issued on the revised/modified Overall Planning Materiality for CY 2021 based on the consolidated TB of PCA as of June 30, 2021, which was initially based on the consolidated TB of PCA as of September 30, 2020, as well as the Overall Performance Materiality for CY 2021 of the HO based on the accounts in the TB of the HO as of June 30, 2021, which was initally based on the accounts in the TB of the HO as of September 30, 2020 Attached is the Materiality Template computed by the HO Audit Team, for reference. AUDIT THRUST AREASIFOCI Based on the risk assessment and determination of the materiality thresholds, the following are the identified thrust areas/foci for CY 2021 audit of the PCA’ A. Financial Audit Thrust AreasiFoci ae Significant Accounts 7._ Cash and Cash Equivalents ‘* Verify existence and accuracy of | HO, ROS, > Cash Colleding Officars ‘cash and cash equivalents balance | Centers and | « Cash in Bank, Locaf Curency, ‘+ Verity collections and deposits Pos Current Account + Perform cut-off procedures ‘= Cash in Bank, Local Curency, ‘= Conduct cash examination on the Savings Account cash and accounts of accountable + Time Deposits-Local Currency officers in accordance with COA ‘= Time Deposits-Foreign Memorandum No. 2013.004, Currency Revised Cash Examination Manual = Verify bank reconciliation statements (BRS) © Confirm bank balances + Reconcile cash and bank balances | 20f19Audit Thrust AreasiFoci Involved Significant Accounts ‘> Analyzeireview propriety of enties feflected in tho general ledger! ‘subsidiary ledger (GLSL) and vouch to source documents using the computed testing threshold as benchmaric Spocial Accounts in the General Fund (SAGF) | ‘+ Verity utilization and compiance | HO with applicable laws, rules and egulations on SAGF — Fund 151 — PCAHO, Gash Personne! Services Accounts MOOE Accounts ‘Accounts Receivable (AR) and Service ‘and Business Income + Vetify accuracy of the assessment | HO ‘end piling and collection and completeness of the recording on: = PCA foes = Rented office space + Review accrual of interest and Penalty on past cue accounts PCA feos ‘+ Review provision of impairment for | # AR-PCA fees past due accounts + Review recording of remitted by ROS: AR Provision for impairment loss ‘Allowance for impairment ‘Service Income accounts Business Income accounts Due trom ROs vice and Business Income = Verify accuracy and completeness | ROS of recorded Service and Business Income POs + Verify assessment and collection of: = PCA tees (ROs/Centers and POs -cash basis only) = Supervision and Regulation and Enforcement Fees: = Inspection fees = Registration fees ~ Laboratory Analysis Fees = Export processing fees = Rentat income = Sale of copra, covo-by products, ‘coco seedings. = Interest and penattios ‘© Verify remittance and reconciliation ‘of income collections from POto RO | HO ‘+ Vey remittance and reconeiation cof income collections from RO to CO + Review recording of income (HOe ‘books only) Centers and PO and RO RO and HO Cash Collecting Offeer Cash in Bank, local currency Due fo CO Due to CO Cash in Bank Due from ROs ‘Service and Business income & Tilie-Agency — Receivables and Payables accounts ‘© Verily completeness of recorded ‘transactions ‘+ Review reconciliation of ROs books with CO's books ‘+ Review transfers of cash tom one project fund to another project or | HO COB fund ‘= Review elimination entiies of the Intra-Agency receivables and Payables accounts in the financial statements (FS) HO, ROs and Centers: Bus from RO ‘Due from CO ‘Due from other funds Dus to CO Due to ROs Due to other funds of 19‘Audit Thrust Areas!Foci ‘Offices Involved Significant Accounts a] Tinier-Agency Recaivabies tT = Confirm — balances with Implementing Agency (IAs) ‘+ Focus on the liquidation reports of fund transfers submitted by the Implementing Agencies (\As) for the year + Verify the cause of long-outstanding unliquidated fund transfer anc management actions relative thereto the HO endROs + Due from National Government Agencies (NGAs\/Local Government Units (LGUs)/Government Owned © and Controlled Corporations (GOCCs) 7Property, Plant and Equipment (PPE) = Validate existence by witnessing the cconduct of physical inventory + Verify reconciliation of the Report on the Physical Count of Property, Plant’ and Equipment with accounting records = Ascertain completeness of recording and-——_property ‘accountability + Vetify adequacy of allowance for impairmentidepreciation + Ascertain completeness. of disclosure ‘+ Determine proper classification of equipment purchased for the implementation of GAA. funded projects distributed to Farmers (with ‘without MOU) HO, ROs, Centers end Pos > PPE accounts stand -Machinery and equipment Building + Accumutatod Depreciation + Allowance for impairment. PPE 8 Bearer Biological Assets. Trees = Vetily recognition of Biological Assets - (measurement and valuation) PPSAS 17 Coconut palms. and other fruit bearing trees held for | experiment purposes and trees hla to bear biological produce: + Determine the intended use purpose of the tees for proper ‘recognition + Verify adequacy of allowance for Depreciation and impairment provided = Ascertain disclosure completeness of ROS Centers + Bearer Biological Assets- Trees '* Accumulated Depreciation ~ Bearer Biological Assets 3 Consumable Biological Agricultural Produce Assets — Verify Recognition of Consumable Bearer-Biological Assets for coconut that ate harvested from coconut trees held as agricultural produce or sold as biological assets PPSAS 12 ___+_Verify measurement and valuation 70 inter-agency payables Centers ‘= Consumable Biological Assets ~ Agricultural Produce + Verify completeness of recorded ransactions = Confirm balances with Implementing Agency (IAs) = Vouch Receipt and liquidation of funds transfers from = Source: the AO Ho, ROs and Centers ‘Agencies (SAS) + Due to SA (NGAs, GOCCs, LGUs) 40f19Audit Thrust AreasiFoci Significant Accounts + Ret _ecsataton “a PCA emcee | So ceeeceneecees| Roe ts inion, 6 | pa 6 Eten corn cal eae soreness eee 71. Due to BIR ‘+ Due from ROs/Contars © Duetoco + Analyze the account if there are | ‘unreconciled difference between tho taxes withheld and taxes remitted National Goverment for the implementation of locally funded Projects upon receipt of NCA Recognition of subsidy income | ‘upon receipt of fund transfers form COs instead of using reciprocal accounts (per CY 2017 auait recommendation) ___for the year 72 Subsidy income + Validate accuracy and’ | HO completeness of recording of: ROs and Receipt of Subeides from the | Centers in the ROs and Centers books | # + Due from ROs/Conters + Duetoco TS MOOEAgricutural and — Marine ‘Supplies. and recording of Procurement, Receipt ‘Acceptance and Distribution of agticultural inputs (intercropping seedings, coconut seedlings and fertizers) - payment of Participatory Coconut Planting Project (POPP) incentives + Ascertain recognition of yearend inventory of undistributed agricultural and marine supplies + Ascertain if expenses are in | HO accordance with the approved bud T4_MOOE- Professional Services ‘+ Validate completeness and | HOs, Centers appropriatonoss of documentation | and POs + Inventory Heid for Distnbution oF inventory held for consumption ‘+ MOOE- Agricutural and ‘Manne supplies + Validate accuracy ‘and | HO, ROs, + MOOE- Professional Services completeness of recording Centers and POs 75. Subsequent avenis * Allidentfied subsequent events and | HO transactions between the reporing date of the FS and the date the FS Were authonzed for issue, and the ‘date of the submission of the audit teport shall be considered as necessary disclosure or agjustments 76. Over-all presentation of fhe FS Implementation of the Philippine | Public Sector Accounting Standards | ‘+ Review of the over-all presentation | HO, ROs and of the FS shall be anchored on the | Centers 50r19‘Officels Audit Thrust AreasiFoct oneal Significant Accountis ~{PPSAS), The FS are complete and | all disclosure requirements or ‘additional information not evident on the face of the FS are incorporated in the Notes to FS, + All accounts presented in the FS. shall be verified against the Trial Balance (TB) or Consolidated TB, | then to the Gi to be supported with Schedules taced against the | respective SLs L All Audit Teams are enjoined to: 1. Observe uniform year-end audit and cut-off procedures (using the same cut-off dates) which shall include, among others, bank confirmation, confirmation of receivables, payables and fund transfers, and other procedures to test the existence and completeness of recorded transactions during the audit period which shall be observed from the HO down to the ROs/Centers. For uniformity, ‘the cut-off date for bank confirmation, confirmation of receivables and payables shall be November 30, 2021 : 2. Prioritize the identified transactions and accounts in this SAI to have a holistic result of audit, However, the Audit Teams of the ROs/Centers/POs are not precluded to perform the audit on the transactions and accounts determined to be significant and material based on their risk assessments and computation of materiality thresholds. These additional transactions and accounts for financial audit shall be reported to the Acting SA and the OIC-ATL at the HO for dissemination to other Audit Teams in the ROs/Centers/POs to be considered as art of their audit foci/areas to ensure significant impact of the audit results. B. Compliance The specific subject matter for the Sector-wide CY 2021 Compliance Audit identified in the CY 2021 GAl of the Sector, shall remain to be the same as that for CY 2020 which is the Corona Virus Disease-2019 (COVID-19) Funds and Expenditures of Goverment Corporations (GCs) considering there will be continued receipt and utilization of COVID-19 funds as pandemic will remain for the next year or beyond, and there will be substantial carry-over of the COVID programs/projects/activities, funds and expenses, thus, the audit shall be performed by the Audit Team of the HO and ROs/Centers/POs. Please refer to the Supplemental GAl for CY 2020 dated August 4, 2020 issued by the Office of the Assistant Commissioner (OAC), CGS for the list of audit criteria or legal bases, as well as COA Memorandum No. 2020-019 dated November 9, 2020 relative to the Guidelines in the Financial and Compliance Audit of the COVID-19 funds during the period of the State of National Emergency, as reference and guide in audit However, the Audit Teams in the ROs/Centers/POs are not precluded to perform compliance audit on the subject matters and areas determined to be significant and material at the ROs/Centers/POs based on their risk assessments. The audit shall cover the focus areas listed below: 6 oft9‘Audit Thrust AreasiFoct poate) Signineant Accounts | 1. Funds/Assels Received for COVID-| HO, > Cashin Bank 1 relat purpose/s Centers + fice Suppies inventory Pos + Drugs ang Medicines Invontory @ Receipt of any funding release from the National Government (NG) whether ftom the Bayarihan to Heal as One Act Fund, Reguiar Fund of the General Appropriations Act (GAA) Contingent Fund, National Disaster Risk Reduction and Management Fund (Calamity Fund), Unprogrammed Fund — | ‘Support for Infrastructure Projects and Social Programe, Budgetary ‘Support to. Government Corporations (BSGC), and ete. b. Donations recewed whether in ‘cash orn fend from private entities for COVID-related operations! response of the agency, © Transfer from other Government Corporations (GCs) or NG. agencies for COVID related urposesiuses; and 1d Proceeds of any loans obtained from domestic or foreign creditors, For donations in kind received, compliance with the provisions of COA, Circular No. 2020-009 dated April 21, 2020 shall be validated in aut Existence, completeness and regularity, of transactions, through, but not Emited to the following audit procedures: ‘+ Quantify all the COVID funds and donations in kind received trom all sources and determine the appropriateness and completeness of their recognition and measurement in the books of ‘accounts; + Verify compliance with the felaxation guidelines provided for in COA Circular No. 2020-008 dated Apr 21, 2020 in the aucit of Donations in Kind, Other Supplies and Materals lventary Semi-expendable Property and Equipment Disaster Response and Rescue Equipment ther Property and Equipment | Assistance fom NGASIGCs | Due to NGAs Due to Other Gos Due from ROsiCenters/POs Due to HO Realignment of any partion af the | HO, ‘approved Corporate Operating Budget | Centers (COB) for CY 2021 for COVID-related | POs rograms/activites/projects (PUPs) Reallocation of the COB/unutlized subsidies to address the COVID-19 emergency as declared in Section 3 of RA No 11469 + Check on the approval or authority forthe realignment; ‘Aecounts mentioned in No, 1 Subsidy from the NG. MOOE accounts (Supplios and Materials, Expenses, | Environment and Sanitary Services, Other Professional Services, Transportaton and Dolivery Services, Donations, Other MOOE) Tol19Audit Thrust AreasiFoct omieets Significant Accounts + Verity propriety of accounting | entry made Expenditures made or distrbution/ase | HO, of assets for COVID-elated | Centers ‘response/purpose/s; POs Audit Teams with COVID-elated expenditures to audit the following @. Purposeinature of actual utlization ‘of funds received or realigned from the COBlinternally generated sources, for COVID-elated PIAPs, and compliance with the agency's policies and guidelines ‘Issued for the implementation of said P/APs, as well as the related ‘guidelines of other government ‘oversight bodies; b. Grant of financial assistance (FA) donations to private hospitals, NGOs and indviduals, if any, the funding source used. compliance ‘with the required authority and documentation, and validation of actual receipt by intended recipients, © Actual nature of recorded fund transfers made to other | ‘government agencies! Instrumentalties reportedy for COVID-19 response activities, actual receipt and liquidation of the recorded recipients, and compliance with COA Circular No 96-019 dated December 13, 1994 governing fund transfers to implementing agencies; d. Compliance of all emergency procurement with Republic Act No. 9184 or other pertinent guidelines Issued | Please refer to the Supplemental GAI for CY 2020 dated August 4, 2020 issued by the Office of the ‘Assistant Commissioner (OAC), CGS for the legal bases, | ‘explanatory notes and other issues to be considered in aualt related to EP; Existence of an approved budget for all emergency procurement; and 1. Authority, validity, legality and propriety of the grant and amount of all COVID-retated allowances {eg Special Risk Allowance, ROS, ‘and ‘Accounts mentioned in Nos. 7 and 2 ‘Assistance to NGOs Due from NGAS Due from Other Ges Due from LGUs Hazard Pay Other Bonuses and Allowances (Special Risk Allowance and Calamity Allowance) 8of19Audit Thrust AreasiFoc! Hazaid Pay, Calamity Allowance, ic.) and benefitsincentves paid to its officers and employees including Confidential Agents. and | Job Order workers, and. their ‘compliance with COA, DEM and ‘other relevant guidelines governing Significant Accounts | said allowances. | | T Peiform overall reconsifation of total | WO, ROs, [> Accounts meniionedin Nos 7 | unds received from all sources if any, | Centers and | 3 ‘as well a8 {otal funds realigned from | POs | COB, it any, with the sum ofa! COVID- related responsesfund utilization, and the balance and the disposition thereot itary. az Check compliance with DEM National ROs, [+ Traveling Expenses ] Budget Circular No. 50 on the | Centers and |s Repairs and Maintenance — ‘adeption of economy measures in the | POs Buildings and Other Structures * Government due to emergency ‘+ Demoition/Relocation and situation pursuant fo RA No. 11469. Desiting/Driling/Dredging Expenses Please refer to item 25.1 of the + Transportation Equipment Supplemental GAl dated August 4, | ¢ ater accuse eae 2020 issued by the OAC, CGS for the | list of transactions. that should be discontinued and should be verified by the Aucit Team, 6 Check “compliance with CSC | HO, __ROs, |» Leave Benefits Payable Memorandum Circular No. 08, s. 2020 | Centers and in the grant of availments or use of | POs leave credits for absences incurred in felation to the required quarantine efiod andlor treatment relative to Covin-19, C. Mandatory Compliance Check based on the GAI of the Sector ‘Officels ] a Significant Accounts 1. Corporate Operating Budget (COB) (HO. ROs, Centers and ‘a. Submission of the auditee’s COB | POs to the Department of Budget and Management (DBM) for review and approval . Actual expenditures of the.auditee within the COB = Verify realignment of ine item budget if with approval of ‘the ‘Administrator and PCA Board 2 Reguianty of Public Procurement | HO, ROS, activities and transactions Centers and POs | Conformity of procurement transactions of goods and services with the process required in Republic Act(RA) No. 9184, Government Procurement Reform Act land its 2016 Revised Implementing Rules and Regulations (IRR) and Executive Order (EO) No. 34 datad July 47,2017 | ___Annval Procurement Plan 90f19Officels Involved Significant Accounts Bidding Process: ‘Award Contracts/Purchase Orders Delivery Payments nls iformity withthe National Internal Revenue Code (NIRC), as amencled by RA No, 10963 and its revised IRR, and Tax Reform for Acceleration and Inclusion (TRAIN) Law and its IRR, on the: = Annual egistration of PCA pursuant to Revenue Regulations ‘No. 7-2012 dated April 12.2012, a5 may have been amended + Withholding of taxes and their remittances ae well a8 the fling of ‘appropriate retuins within the Period prescribed such as. = Final Value Added Tax (VAT) withholding, and = Withholding taxes on compensation, goods and + Payment of appropiiate income ‘and other taxes required Centers and Pos HO, ROs, } “Taxes, Duties and License Dye to BIR Withholding Tax at Source Deferred Taxes Income Tax Expenses Income Tax Payable Compliance with the required annual invontory and insurance of al! insurable assets and interest of the government with the Government Service Insurance ‘System in accordance with RA No. 656, Property Insurance Law, 2s amended by Presidential Decroe No. 245 (COA ‘Circular No. 2018-002 dated March 31, 2078) © Secure and review RPCPPE, Property Inventory Form (PIF) and determine whether all insurable assets and interests of PCA are adequately insured © Verify and evaluate compliance with the requirements of RA No. 656 and COA Circular No. 2018- 02 HO, ROs, Centers and Pos Plant, Property and Equipment Insurance Expenses “uit of fands and activites for Gender ‘and Development (GAD) + Review, verify and validate compliance with: | COA Circular No. 2014-001 deted March 18, 2014 re Revised Guidelines in the audt of GAD Funds end Acivities in goverment agencies + COA Memorandum No, 2018- (009 dated August 14, 2018 re: Checklist of Common Audt ‘Observations in tho audit of GAD Funds, and Determination of _Gender HO, ROs, Centers and Pos GAD -elated expenses 10 of 19Ww. officals Involved Tssues and Mandates of ail Government Agencies + COA Memorandum No. 2019- 018 dated July 20, 2019 re: Monitoring of GAD Audit Observations and Recommendations in the AAR COA Memorandum No. 2019- 016 dated August 6, 2019 re: Preparation of GAD Audit ‘Summary Report for Calendar Years 2009-2018 = Section 32 of the FY 2019 Gonoral Appropriations Act | (GAA) Joint Cireular (JC) No. 2012- 01 ofthe Philippine Commission on _ Women (PCW) National Economic Development Authority (NEDAY Department of Budget end Management (05M) iS = Other applicable laws and regulations & Grenling and payment of compensation | HO. ROs, (allowances, benefits and other | Centers and emoluments including Performance | POs Based Bonus (PBB) to the Governing | Boar = Examine the nature of the ‘compensation received by the | Governing Board as to whether these are received by virtue of (2) | ‘the principal office, (b) an ex-officio. position, or (c) an actitional ~appointive position Please refer to the Second Supplemental GAl for CY 2020 ated September 14, 2020 issued by the OAC, CGS for the definition and distinction between the threo categories or positions mentioned above. = Verity legal bases and propriety in the grant of compensation/benefits + Dicallow in audit compensation/benetts granted to the Governing Board without lecal bases, Directors and Committee Members’ Fees Other Bonuses and Alowances Traveling Expenses ISSUANCE OF AUDIT OBSERVATION MEMORANDA (AOMs) / NOTICES OF SUSPENSION (NSs) / NOTICES OF DISALLOWANCE (NDs)/ NOTICES OF CHARGE (NCs) The AOMs shall contain the following 1. The four elements, i.¢., criteria, condition, cause and effect. of 192, Complete citation of relevant applicable Philippine Public Sector Accounting Standards (PPSAS), laws, rules and regulations, policies of PCA and regulatory bodies. 3. Complete narration of facts and circumstances on the causes and condition of the observation supported with tables or analysis, if warranted; and figures not rounded offfamounts presented up to the last centavo. 4. Management comments on the audit observations shall be verified/validated. 5. Conclusions derived on the non-compliance with accounting and reporting standards relative to the faimess of presentation of the FS or effect of violation of laws, rules and regulations as regards compliance audit. 6. Recommendations to address the causes and effects; these should be doable and should clearly state the courses of action to be undertaken by specific ‘office/official/employee responsible for their implementation. All Audit Teams are required to use the Suggested Guide in the Formulation of Audit ‘Observations and Recommendations in the Annual Financial Audit Report/Annual Audit Report, attached as Annex C of thé Supplemental GAl for the conduct of CY 2019 audit of GOCCs under the audit jurisdiction of Cluster 5, per Memorandum dated October 16, 2019 issued by the Cluster Director. in case where the issue(s) of the AOM/NS/ND/NC may be pervasive nationwide, the concerned RSA/OIC-RSA/ATUOIC-ATL is enjoined to furnish a copy of the AOMINSINDINC to the Acting SA and the OIC-ATL in the HO, for dissemination to the Aucit Teams in the regions. The NSs shall be issued for transactions of doubtful legality/propriety/regularity which ‘may result in pecuniary loss to the government, and which will be disallowed in audit if not satisfactorily explained or validly justified by the parties concerned. The NDs/NCs, as the case may be, shall be issued on audit observations showing Pecuniary loss to the government NDs may be also issued on those expenditures found to be irregular, unnecessary, excessive, extravagant and unconscionable based on COA Circular No. 2012-003 dated October 29, 2012, re: Updated Guidelines for the Prevention and Disallowance of Irregular, Unnecessary, Excessive, Extravagant and Unconscionable Expenditures. MANAGEMENT LETTER (ML) A. Financial Audit For uniformity and to facilitate consolidation of the observations and recommendations and meet the timelines on the preparation, submission and transmittal of the CY 2021 AAR on the PCA, the following guidelines shali be observed in the preparation and submission of the ML: 1. Only unresolved/unadjusted material findings discussed in the exit conférence shall be included in the audit report, 2. _ Partll- Observations and Recommendations of the ML shall be arranged in the following order: A. Financial otto® B. Other Observations on the following (1) Procedural (2) Performance (8) Reportorial requirements, as necessary Gender and Development Bureau of internal Revenue Government Service and insurance System Philippine Heaith insurance Home Development Mutual Fund Dividends 9. Others according to significance/materialty. Quote only pertinent specific provisions of PPSAS, laws, rules, regulations, circulars, memoranda, executive orders, among others, or details of observation benchmark or measures against the performance is compared or evaluated. All quotations shall be in italics form and without quotation marks. Discussion of cause or the source and reasons giving rise to the condition observed shall be brief and concise. Contition/deficiency and effect thereof shall be quantified (amounts shall be presented up to the last peso), if possible. Tables: a. Align all tables to the width of the paragraph text; b. Table numbers must be in bold, and every table must have a fitle in bold, with a unique table number in chronological order. If the table contains amounts, they should be right aligned; all texts should be left aligned or centered as appropriate. Always cast and cross-cast the contents of tables. Column headings in tables for amounts should state the currency always; and c. For all tables, cross reference them in the text in the preceding paragraph, Effects or the impact and consequences of the conditions (the materiality of the findings, impact on the budget, citizens or users, implications for principles of sound public sector management, etc.) shall be properly Presented in the ML. Recommendations: a. Should provide constructive and remedial measures to correct or address the audit observations and causes thereof, clearly setting ‘out what need to be done by whom and when; b. Are precise and doable; ie. specific office/department! division/section responsible for its implementation ¢. Do not contain the word “should”; Bol 1910. "1 12. 13. d. Must stand alone (i.e refer in full to the issue of the recommendation) so that if uplifted it is fully understood; and . Should be stated in past tense (e.g. We recommended that ....) Management's comments/Auditor’s rejoinders are properly presented in the "Observations and Recommendations” portion. Please refrain from copying verbatim Management's comments if these are very long, only the gist/summary thereof should be presented. In the ML, the RSAS/OIC-RSAs shall provide a categorical statement that all accounts are properly recognized, measured and classified in the FS and adequate disclosures are provided in accordance with PPSAS. The ML shall include complete audited FS. Effects of unacted significant prior years’ deficiencies are integrated in the current year's observations on same account balances. Provide information on the status of unsettled NDs/NCs/NSs using the format below. For unsettled NDsiNCs, it shall be grouped according to status as follows: (i) with Notice of Finality of Decision (NFD)/COA Order ‘of Execution (COE); (i) with Petition for Review; (ii) with COA Decision (indicate the Decision No. and level, i.e., Cluster/Region/Commission Proper) but still within the prescribed appeal period; (iv) within the appeal period; and (v) with appeal memorandum. a. Unsettled NDs ND NoJ | Persons Liable Nature of — | Amount | Remark/s |__Date Disallowance os [rotat___ | ee pe b. Unsettled NCs NC NoJ | Persons Liabie Date _ ‘Amount | Remarkis [Fotat c. Unsettled NSs NS Nol Persons, Nature of Date Responsible Ano Baas, (Total Note: if the NDS/INCS/NSs are settied as at the date of preparation of the AAR/CML subsequent to December 31, 2021, settlement date shall be disclosed in the Remarks/Status column of the Tables presented under Item V.12 hereof. Include information that NDs/NCs with NFD/COE and those issued before the effectivity of 2009 Rules and Regulations on the Settlement of aott8Accounts (RRSA) under COA Circular No, 2009-006 dated September 15, 2008 were recorded in the books of accounts. Compliance Audit For uniformity and to facilitate consolidation of the observations and recommendations and meet the timelines on the preparation, submission and transmittal of the CY 2021 ML on the Compliance Audit on PCA, the following guidelines shall be observed in the preparation of the CAR: 1, The ATLS/OIC-ATLs in the HO and ROs, Centers and POs shall conduct the Compliance Audit following the International Standards of Supreme Audit Institutions (ISSAl) 4000 — Compliance Auditing Standards, on the areas/foci applicable to their respective auditee. 2, The Planning Templates for Compliance Audit prescribed in the Compliance Audit Manual (CAM), such as: Understanding the Subject Matter Template, Combined Risk Assessment Template, Internal Control Checklist, Compliance Audit Strategy Template and Fraud Risk Assessment Template shall be prepared by the Audit Teams in the HO to be reviewed by the Acting SA. 3. The audit observations and recommendations contained in the ML shall be arranged according to significance/materiality, quantified and shall be supported with tables. 4, The basis for conclusion shail be clear and properly presented in the ML. 5. The conclusion on the subject matter shall be formulated from the basis of conclusion paragraph, 6 A copy of the ML shall be furnished by the ATLS/OIC-ATLs of ROs/Centers/POs thru the RSAs/OIC-RSAs to the OIC ATL-HO thru the Acting SA, for consolidation in the CAR to be transmitted to PCA Management. 7. The ML on the Compliance Audit shall be prepared by the Audit Team of ROs/Centers/POs while the CAR shall be prepared by the Aucit Team at PCA-HO jin accordance with the CAM and shall be arranged in the following order: (a) Basis for the conduct of Compliance Audit on the Receipt and Utiization of COVID19 funds, indicating therein the pertinent laws, rules and regulations; (b) Introduction; (c) Basis for the Conclusion; (d) Conclusion on the Subject Matter; (2) Detailed Observations and Recommendations; (f) Status of Implementation of Prior Year's Audit Recommendations; and (g) Acknowledgement. 8. Only unresolved/unadjusted material findings discussed in the exit conference shall be included in the CAR. 8 Quote only pertinent specific provisions of RA No. 11469 (Bayanihan to Heal as One Act) and its IRR; RA No. 11494 (Bayanihan to Recover as ‘One Act); and applicable issuances of the DBM, Government Procurement Policy Board (GPPB), CSC and COA; or details of audit observation benchmark or measures against the performance is 150119compared or evaluated. All quotations shall be in italics form and without quotation marks. 10. Follow Nos. 4 to 8 of Part V.A. for other guidelines in the preparation of CAR. 11, Management's comments/Auditor’s rejoinders are properly presented in the “Detailed Observations and Recommendations” portion. Please refrain from copying verbatim Management's comments if these are very long, only the gist’summary should be presented. STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS All Audit Teams are directed to follow up the submission of the Agency Action Plan and Status of Implementation (AAPS!) of Audit Recommendations (ARs) contained in the CY 2020 AAR/MLs, The ARs embodied in the AAR on PCA for CY 2020 conceming the ROs/Centers/POs shall be monitored by the concemed ATLS/OIC ATLs by requiring Management the submission of the AAPSI and shall be submitted to the RSA/OIC-RSA, who shall forward the same to the Acting SA for the purpose of preparation by the OIC-ATL in the HO of'the corresponding Action Plan Monitoring Tool (APMT) pursuant to COA Memorandum No. 2014-002 dated March 18, 2014. Audit observations partially addressed or that have remained uncorrected/recurring and have material impact on the FS shall be reiterated in the current year audit Before the Matrix, a preliminary paragraph should be included indicating the total quantityinumber of prior years’ audit recommendations, as well as the quantity/number of recommendations that were fully implemented, with issued NSs/NDs/NCs, no longer doable, partially implemented, not implemented, and revised and reformulated, The Status of implementation of prior years’ audit recommendations shall be presented in the AAR/ML using the table below. Please indicate in the Actions Taker/Comment column, the status of implementation for each recommendation — whether partially implemented, not implemented, and revised and reformulated. Observations and Recommendations ‘Action Taken/Comments | 7 | Gy2020 Partially Implemented. Xx The observation was updated and | reiterated in Observation and | Recommendation No. xx of the current | report Discuss what portion of the recommendation was implemented. [2 rox Not implemented. The observation was updated and | reiterated — in Observation and | Recommendation No. xx of the current | ex2ois ee Revised and reformulated under 3. | Xo paragraph __ of Part Il ofthis Report_| 160f19vil. CONDUCT OF QUALITY CONTROL REVIEW The initial Quality Control Review (QCR) of the Draft Annual Audit Report (AAR)/Consolidated Compliance Audit Report shall be conducted by the ATL in the HO by accomplishing the Checklist on the Preparation and Review of the AAR. The ‘Acting SA, in tur, will conduct the 1" level review in the QCR before submitting the Draft AAR/Consolidated Compliance Audit Report, including the duly accomplished Checklist, to the Office of the Cluster Director (OCD). Vill. ACCOMPLISHMENT! PREPARATION OF PRESCRIBED CHECKLISTS/ TEMPLATES PRESCRIBED BY THE CLUSTER In addition to the Checklist on the Preparation and Review of the AAR, the OIC-ATL in the HO shall accomplish the following templates which should be submitted to the OCD, together with the Draft AAR: a. Template on the status of prior years’ audit recommendations showing the total quantity of fully implemented, not doable, with issued NDs/NCs/NSs, partially implemented, not implemented, and revised and reformulated; and b. Template on the Basis/Bases of Audit Opinion. IX. SIGNIFICANT DATES a Office/Person/s _ Activities i Dates Ressenainle 7. Submission of the copy of the | On or before January 14, | RSAS/OIC-RSAs/ | AOMs and SAOR on the | 2022 ATLS/OIC-ATLS Compliance Audit by the ATLSIOIC-ATLs of ROS 2. Submission of the | On or before January 31, | Acting SA/OIC ATL- Management Letter for | 2022 HO Compliance Audit on the Receipt and Utilization of COVID-19 funds to the OCD. 3. Execution / conduct of ROs/Centers/POs - Until _| ATLS/OIC- substantive test for March 31, 2022 ATLS/ATMs: |__financial/compliance HO — Until May 20, 2022 | 4, Preparation and Issuance of _ | As the need arises ‘Reting SA AOMs RSAS/OIC-RSAS/ ATLS/OIC-ATL8/ ATMs 5, Evaluation of Management's | immediate/Upon receipt of | -do- ‘comments on audit Management Comments observations and recommendations ‘Submission on Summary of | March 31, 2022 ATLSIOIC ATLs of ‘Audit Observations and POs Recommendations to | ATLSIOIC-ATLS of ROs for | consolidation [ees 7. Transmittal of ML to Regional | Apri 15, 2022 RSAS/OIC-REAS/ Office Management ATLSIOIC-ATLS _| 47 of 19_ | Office/Person/s Dates ; ae ERNE ecrine e Responsible 8. Submission of transmitted ML | April 18, 2022 ~do- Acting SA, OIC | and recommendations of MLs_| ATL-HO and ATMs- with HO audit observations HO |__and preparation of draft AAR | 70. Submission to OCD of intial Draft AAR; and Matrix of | | consolidated Audit | Observations (Audit highligh's) for pre-exit “June 8, 2022 do | discussion (11. Conduct of pre-exit conference Conduct of exit conference _| June 15, 2022 i Evaluation of the issues taken | June 16, 2022 OIC ATL-CO and up during the exit conference : ATMs -CO ‘Conduct of 1st Level Quality | June 8-20, 2022 ‘Acting SA’ “iControl Review Ss: GOGIt ta | Sea MiGRSMGBNG tale ||: 2 epi 15. Submission of Draft AAR to | June 21, 2022 OIC ATL-HO |__OIC-SAforreview | a Soe 16. Submission of First Draft AAR | June 24, 2022 ‘Acting SA eco 10 OCD for review site |G ____| OIC ATL-HO _ 17. Transmittal of AAR to PCA | June 30, 2022 OCD) Acting SA/ Management a | ra OIC ATL-HO_ 18. Organization and indexing of | May to June All Teams audit working papers a "OCB = Oe oe Cluster veer OSA = Ofc of the Supervising Autor ATS Aust Tear Members X. SUBMISSION OF THE QUARTERLY STATUS REPORT ON THE xl, IMPLEMENTATION OF THE SAl (QSRISAI) Pursuant to COA Memorandum No. 2016-023 dated November 24, 2016, all ATLS/OIC-ATLs shall prepare and submitto the Acting SA/RSAs the QSRISAI (Annex A for the Regional ATLs/OIC-ATLs/Annex B for the OIC-ATL in the HO, of the said ‘COA Memorandum) on the 3” day of the month following the end of the quarter. The QSRISAI shall be submitted by the RSAS/OIC-RSAs to the Regional Director (RD)/Assistant RD not later than the 10" day of the month following the end of the quarter for submission to the Cluster Director (CD), thru the Assistant Commissioner, CGS within the 15" day of the month following the end of the quarter. OTHERS, 1. Itis understood that the audit will not be limited on the year-end basis, Quarterly or interim audit shall be conducted for the issuance of the AOMs/NDs/NCsiNSs, as appropriate. 2. The Guidelines on Uniform Organization, indexing, Cross-Indexing and Labeling of Audit Work Papers (WPs) in the CGS issued by the Sector Head under CGS. Memorandum dated October 19, 2018 shall be strictly followed in the documentation of the audit such as audit procedures performed, evidence gathered and results of the audit. 1B of 193. Other matters which come out during the audit shall be brought to the attention of all concemed thru Supplemental SAls. For your guidance and compliance, please. MGRLE M. VALENTIN State Auditor IV Acting Supervising Auditor APPROVED BY: cages. TARY S| ADELIN Director IV Cluster ped Copy furnished Director Mario G. Lipana COA Regional Office No. IV-A ‘Commonwealth Avenue, Quezon City Director Joel S. Estolatan COA Regional Gtfice No. V Raws, Legazpi City, Albay Director ChonaP. Labrague COA Regional Office No. VI Ungka |, Pevia, loo Director Marilou M. Rizarri COA Regional Offica No. VI Cebu city Director Lita E. Diez COA Regional Office No. Vill Candahug, Palo, Leyte Director Visitacion @. Mendoza COA Regional Office No. 1x Zamboanga City Director Celso t.. Vocal ‘COA Regional Office No. x Cagayan de Oro City Director Roy L. Ursal ‘COA Regional Office No. XI Davao city Director Virginia G. Datukon COA Regional Office No. XIl Cotabato City Director Felix W. Basallaje, Jr. COA Regional Office No. Xil ‘South Montilla Boulevard, Butuan City Director Bato S. Ali, Jr. COA Autonomous Region in Muslim Mindanao Cotabato City 190f19