PA 210

by:

Adolfo M Alojepan Jr
 Scope of Presentation
• Internal Controls in Government
(COA Memorandum Circular No. 2012-001:
Guidance on the Establishment of Internal Audit
Service in Government Agencies)
• Significant Internal Controls
• Highlights of Internal Audit Manual
• COA’s Assessment and Recommendations on
Internal Controls
 Internal Controls in Government
Internal controls in government - Play a crucial role in
ensuring accountability, transparency, efficiency, and compliance
with laws and regulations. These controls are designed to
safeguard assets, prevent fraud and errors, and ensure the
reliability of financial reporting.
Key aspects of Internal Controls in Government
1.Segregation of Duties- One fundamental principle of internal control is to
separate key duties among different individuals to prevent any single person from
having too much control over a process. For example, the person who handles cash
should not also be responsible for recording transactions in the accounting system;

2.Authorization and Approval- Transactions and activities should be authorized

and approved by appropriate individuals according to established policies and
procedures. This ensures that only valid and appropriate transactions are processed
3. Physical Controls- Governments must implement physical controls to protect assets
from theft, damage, or misuse. This may include secure storage areas, access controls,
and surveillance systems.

4. Documentation and Recordkeeping- Proper documentation and recordkeeping are

essential for accountability and transparency. Governments must maintain accurate
records of transactions, contracts, decisions, and other important activities.

5. Internal Audits- Regular internal audits help evaluate the effectiveness of internal
controls and identify areas for improvement. Internal auditors review processes,
transactions, and compliance with policies to ensure that controls are operating
effectively.

6. Training and Awareness- Employees should receive training on internal controls,

policies, and procedures relevant to their roles. This helps ensure that everyone
understands their responsibilities and the importance of compliance
7. Monitoring and Oversight- Continuous monitoring and oversight are necessary to
detect and address any weaknesses or deficiencies in internal controls. This may
involve regular reviews, management assessments, and reporting mechanisms.

8. Compliance with Laws and Regulations- Internal controls should ensure

compliance with applicable laws, regulations, and standards. Governments must stay
updated on legal requirements and adjust their internal controls accordingly.

9. Risk Assessment- Governments should conduct risk assessments to identify and

prioritize potential risks to the achievement of objectives. Internal controls can then be
tailored to mitigate these risks effectively.

10. Ethical Standards and Code of Conduct- Governments should establish and
promote ethical standards and a code of conduct for employees. Internal controls should
support ethical behavior and prevent conflicts of interest or unethical practices.
 Overall, strong internal controls are essential for maintaining
public trust, ensuring responsible stewardship of public resources,
and achieving effective governance in government organizations.
 COA Memorandum Circular No. 2012-001:

- Provides guidance on the establishment of Internal Audit Service

(IAS) in government agencies in the Philippines. The circular outlines the
framework and requirements for setting up an effective internal audit
function within government organizations.
 Key Points Covered in the Circular
1.Mandate and Objectives: The circular mandates government
agencies to establish an Internal Audit Service (IAS) to assist management
in achieving organizational objectives by evaluating and improving the
effectiveness of risk management, control, and governance processes.
2.Scope of Internal Audit: The internal audit function should encompass
all activities, operations, and functions of the government agency. It should
cover financial, operational, compliance, and other relevant areas as
determined by the agency's management and internal audit charter.
3.Independence and Objectivity: The IAS should maintain
independence and objectivity in performing its duties. Internal auditors
should have no conflicts of interest and should report directly to the agency
head or governing body.
4. Competence and Professionalism: Internal auditors should possess the necessary
knowledge, skills, and competencies to perform their duties effectively. Agencies are
encouraged to support professional development and certification programs for internal
auditors.

5. Internal Audit Charter: Each government agency should develop an internal audit
charter that outlines the purpose, authority, responsibilities, and organizational structure
of the internal audit function. The charter should be approved by the agency head or
governing body.

6. Quality Assurance and Improvement Program (QAIP): Agencies should establish a

QAIP to evaluate the effectiveness and efficiency of the internal audit function. The QAIP
should include ongoing monitoring, periodic assessments, and continuous improvement
initiatives.

7. Reporting and Communication: Internal audit reports should be timely, clear, and
objective. They should communicate findings, recommendations, and conclusions to
management and the governing body to facilitate decision-making and corrective action.
8. Coordination with External Auditors: The internal audit function should coordinate
and collaborate with external auditors, such as the Commission on Audit (COA), to
optimize audit coverage and minimize duplication of efforts.

9. Resource Allocation: Agencies should allocate adequate resources, including

budget, staff, and technology, to support the internal audit function effectively.

10. Compliance with Standards and Regulations: The IAS should comply with
relevant professional standards, laws, regulations, and guidelines governing internal
audit activities.

By adhering to the guidance provided in COA Memorandum Circular No. 2012-001,

government agencies can establish robust internal audit functions that contribute to
improved governance, accountability, and performance.
 Guidelines for the establishment of Internal Audit Service
Units in government agencies cover the following areas:

1. Mandate and Purpose:

- Clearly defining the role, mandate, and purpose of the Internal Audit Service
Unit within the government agency.

2. Independence and Objectivity:

- Emphasizing the importance of independence and objectivity in conducting
internal audits. Internal auditors should be free from conflicts of interest that
could compromise their ability to provide unbiased assessments.

3. Scope of Internal Audit:

- Outlining the scope of internal audit activities, including the types of audits
to be performed (financial, operational, compliance, etc.) and the areas or
processes to be covered.
4. Internal Audit Charter:
- Establishing an Internal Audit Charter that formalizes the Internal Audit Service Unit's authority,
responsibility, and reporting relationships.
5. Reporting Structure:
- Defining the reporting structure of the Internal Audit Service Unit, including how audit findings
and recommendations are communicated to management and other relevant stakeholders.
6. Professional Standards and Code of Ethics:
- Ensuring that internal auditors adhere to professional standards and a code of ethics in
carrying out their responsibilities.
7. Competence and Training:
- Emphasizing the need for internal auditors to possess the necessary competence and skills to
effectively perform their duties. This may include ongoing training and professional development.
8. Risk-Based Audit Approach:
- Promoting a risk-based audit approach, where audit activities are prioritized based
on an assessment of risks to the achievement of organizational objectives.

9. Quality Assurance and Improvement Program:

- Establishing a program to continuously monitor and assess the effectiveness of the
internal audit function, ensuring that it meets the highest professional standards.

10. Coordination with External Auditors:

- Facilitating collaboration and coordination between internal auditors and external
auditors (such as COA) to ensure a comprehensive and efficient audit process.

11. Documentation and Recordkeeping:

- Emphasizing the importance of thorough documentation and recordkeeping to
support audit findings, conclusions, and recommendations.
 SIGNIFICANCE OF INTERNAL CONTROL
Internal controls play a crucial role in organizations across various sectors, providing several significant
benefits. Here are some key aspects of the significance of internal controls:
1. Safeguarding Assets:
- Internal controls help protect an organization's assets, both physical and financial, from theft, fraud,
and misuse. By implementing measures such as access restrictions and secure storage, organizations can
minimize the risk of unauthorized activities.
2. Preventing Fraud and Errors:
- Internal controls are designed to detect and prevent fraudulent activities and errors in financial
transactions. Segregation of duties, authorization procedures, and regular reconciliations contribute to the
early identification of irregularities.
3. Ensuring Accuracy of Financial Information:
- Internal controls are essential for maintaining the accuracy and reliability of financial reporting. By
implementing checks and balances in financial processes, organizations can provide stakeholders with
trustworthy financial information.
4. Compliance with Laws and Regulations:
- Internal controls help ensure that organizations comply with relevant laws, regulations, and
industry standards. This is particularly important in highly regulated sectors where adherence to
legal requirements is critical.
5. Enhancing Operational Efficiency:
- Well-designed internal controls contribute to the efficiency of organizational operations. By
streamlining processes, reducing redundancies, and minimizing errors, internal controls support the
overall effectiveness of business activities.
6. Supporting Decision-Making:
- Reliable and timely information, facilitated by internal controls, aids management in making
informed decisions. Effective controls contribute to the accuracy of data used for decision-making
purposes.
7. Promoting Accountability:
- Internal controls establish accountability by assigning specific responsibilities to individuals
within an organization. This accountability helps deter unethical behavior and fosters a culture of
responsibility and integrity.
8. Risk Management:
- Internal controls are an integral part of an organization's risk management framework. By identifying,
assessing, and mitigating risks, internal controls help minimize the potential negative impact of
uncertainties on organizational objectives.

9. Facilitating Audits:
- Internal controls streamline the auditing process, whether conducted internally or externally. Auditors
rely on the presence and effectiveness of internal controls to assess the reliability of financial
statements and the overall control environment.

10. Building Stakeholder Trust:

- The implementation of strong internal controls contributes to building trust among stakeholders,
including investors, customers, and regulatory bodies. A transparent and accountable organizational
structure instills confidence in the organization's operations.
 HIGHLIGHTS OF INTERNAL AUDIT MANUAL
The highlights of an internal audit manual can vary based on the specific requirements,
industry, and organization it is designed for. However, a comprehensive internal audit manual
typically includes key components to guide internal auditors in performing their
responsibilities effectively. Here are some common highlights found in internal audit manuals:

1. Introduction and Objectives:

- Overview of the purpose and objectives of the internal audit function.
- Explanation of the role of internal audit in the organization.

2. Authority and Responsibility:

- Clarification of the authority and responsibilities of the internal audit function.
- Definition of the scope of internal audit activities.
3. Audit Planning:
- Procedures for developing an annual internal audit plan.
- Consideration of risk assessment and materiality in the planning process.

4. Audit Program:
- Detailed guidance on developing audit programs for specific areas or processes.
- Inclusion of steps, procedures, and testing methodologies.

5. Risk Assessment and Control Evaluation:

- Guidance on conducting risk assessments to identify key areas of focus.
- Methods for evaluating the effectiveness of internal controls.

6. Audit Procedures and Techniques:

- Specific procedures and techniques to be used during audits.
- Consideration of sampling methods, data analysis, and documentation standards .
7. Documentation Standards:

- Requirements for documenting audit workpapers, findings, and conclusions.

- Templates and examples for consistent documentation.

8. Reporting:
- Guidelines for preparing internal audit reports.
- Communication of audit findings, recommendations, and management responses.

9. Follow-Up Procedures:
- Procedures for monitoring and tracking the implementation of audit recommendations.
- Ensuring that management takes appropriate corrective actions.

10. Quality Assurance and Improvement Program (QAIP):

- Establishment of a QAIP to ensure the internal audit function's compliance with professional
standards.
- Continuous improvement processes for the internal audit function.
COA’s Assessment and recommendations on internal controlsHere are general steps to find the latest
COA assessments and recommendations:

1. Visit the COA Website:

- Go to the official website of the Commission on Audit, which is typically found at www.coa.gov.ph.

2. Navigate to Audit Reports:

- Look for a section on the website that contains audit reports or publications. This is where you are
likely to find detailed information on the assessments and recommendations made by COA.

3. Search for Specific Audits:

- Use the search function or navigate to the section related to the specific government agencies or
programs you are interested in. COA conducts audits across various government entities, and the reports
are usually categorized accordingly.
4. Review Latest Reports:
- Access the most recent audit reports to obtain the latest information on
COA's assessments and recommendations regarding internal controls.

5. Contact COA Directly:

- If you are unable to find the information you need on the website, consider
reaching out to COA directly through their contact information, which is
typically provided on the website.
THE END