Structure and Functions of Internal Audit Service

1

• Structure and Functions of Internal Audit Service

Presented by
ALBERTO A. BERNARDO, CPA, Esq., CESO I Deputy
Executive Secretary, Office of the
President Member, Presidential Anti-Graft
Commission
2
I. Creation of Internal Audit Service
1. Presidential Decree No. 1 abolished the IAS
created under RA 3456 as
amended by RA 4177 2. Application of the
Admin. Code of 1987 3. Creation of IAS for
Other Agencies Under AO 278 AO 70 4.
The Code of Conduct and Ethical
Standards for Public Officials and
Employees (RA 6713) NGICS/PGIAM
visàvis IIA/ISSPIA
3
II. Internal Audit Functions 1. IAS
assists the Department Secretary or the Governing
Board 2. IAS functions delegated by the head
of agency NGICS/PGIAM visàvis
IIA/ISSPIA 3. Under the Administrative
Code of 1987 4. Working Definition of
Internal Audit 5. IAS not to
participate in activities and operations of
another unit NGICS/PGIAM visàvis
IIA/ISSPIA 6. Internal Control to
Ensure/Assure 7. Relationship in a
Three-Dimensional Matrix 8.
Relationship between the 4Es 9.
Internal Audit is part of Internal Control.
10. Internal Audit in government is not an
assurance service. 11. Internal Audit in
government is not a consulting service.
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III. Organization Staffing of IAS 1.
Organizational Structure 2. Head of IAS
3. Reporting Line 4. Staffing
5. Internal audit studies, services, and
seminars by private person or
firms 6. Consultancy Contracts for
IAS/IAU NGICS/PGIAM visàvis
IIA/ISSPIA IV. Functions Related to Internal
Control Among the Operating Units,
Management Division and the Internal Audit
Service 1. Nature and Purpose of Review
2. Scope, Coverage and Frequency 3.
Actions to be Taken 4. Organizational
Chart of the Office of the Secretary 5.
Organizational Chart of the Department Proper
6. Organizational Chart of the Operating
Units 7. Organizational Chart of the IAS
8. Organizational Chart of the Provincial
Office
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I. Creation of Internal Audit Service (IAS)
The legal bases for the creation of Internal
Audit Service (IAS) include Executive Order (EO)
292 s. 1987, or the Administrative Code of
1987 Administrative Order (AO) No. 278 s. 1992
AO 70 s. 2003 Department of Budget and
Management-Civil Service Commission (DBM-CSC)
Joint Resolution No. 1 s. 2007 and DBM Circular
Letter Nos. 2008-5 and 2008-8.
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I. Creation of Internal Audit Service (IAS)
1. PD 1 abolished the IAS created under RA
3456 as amended by RA 4177 and transferred the
function to Management Division
1.1. Opinion is requested on the legality
and/or propriety of the claim of seven Auditing
Examiners II, who were serving with the defunct
Internal Audit Service, x x x. underscoring
supplied (Excerpts from DOJ Opinion No. 153 s.
1974, 27 September 1974) x x x the Internal
Audit Service was abolished by the Integrated
Reorganization Plan under Presidential Decree No.
1. underscoring supplied (ibid)
7
I. Creation of Internal Audit Service (IAS)
1. PD 1 abolished the IAS created under RA 3456
as amended by RA 4177 and transferred the
function to Management Division
1.2. Pursuant to Item 3, Article IV, Chapter
I, Part V of Presidential Decree No. 1
(Reorganizing the Executive Branch of the
National Government), the IAS and the Management
Division in depart-ment were merged into a
Management Division under the Financial and
Management Service. underscoring supplied
(DOJ Opinion No. 007 s. 2007, 29 January 2007)
8
I. Creation of Internal Audit Service (IAS)
1. PD 1 dated abolished the IAS created under RA
3456 as amended by RA 4177 and transferred the
function to Management Division
1.3. In particular, the creation, organization
and operation in all government agencies of an
Internal Audit Service as mandated by RA No. 3456
is still mandated under PD No. 1 except that
pursuant to Item 3, Article IV, Chapter I, Part V
thereof the IAS and the Management Division in
departments were merged into a Management
Division under the Financial and Management
Service. x x x underscoring supplied,
(Paragraph 5, OGCC Opinion No. 099 s. 2007, 30
May 2007)
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I. Creation of Internal Audit Service (IAS)
2. Application of the Admin. Code of 1987
The Code is a general law and incorporates in a
unified document the major structural, functional
and procedural principles of governance and
embodies changes in administrative structures
and procedures designed to serve the people.
underscoring supplied (3rd and 4th WHEREAS
clauses of EO 292 s. 1987, the Administrative
Code of 1987 and Ople vs. Torres, et. al., G.R.
No. 127685, 23 July 1998)
10
I. Creation of Internal Audit Service (IAS)
2. Application of the Admin. Code of 1987
The Code covers both the internal administration
of government, i.e, internal organization,
personnel and recruitment, supervision and
discipline, and the effects of the functions
performed by administrative officials on private
individuals or parties outside government.
underscoring supplied (Ople vs. Torres, et. al,
Ibid)
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I. Creation of Internal Audit Service (IAS)
2. Application of the Admin. Code of 1987
2.1. Internal Audit Service at DPWH
Sec. 4 Organizational Structure The
Department shall be composed of
(1) The Department Proper consisting of the
Office of the Secretary, the Offices of the
Undersecretaries and Assistant Secretaries, the
Internal Audit Service, Monitoring and
Information Service, Planning Service, x x x.
underscoring supplied (Sec. 4, Ch. 1, Title V
(DPWH), Book IV, EO 292 s. 1987, the
Administrative Code of 1987 )
12
I. Creation of Internal Audit Service (IAS)
2. Application of the Admin. Code of 1987
2.2. Internal audit at DOF
SEC. 12. Central Financial Management Office.
The Central Financial Management Office shall
have the following functions (1) Supervise
Department - wide activities relating to budget
preparation and management, department
accounting, and internal audit underscoring
supplied (Ch. 3, Title II (DOF), Book IV, EO 292
s. 1987, the Administrative Code of 1987)
13
I. Creation of Internal Audit Service (IAS)
3. Creation of IAS for Other Agencies Under
AO 278 s. 1992 AO 70 s. 2003
Section 1. Creation of Internal Audit Service
All heads of government offices, agencies,
government-owned and/or controlled corporations,
including government financial institutions,
State Universities and Colleges (SUCs) and
local government units, shall organize an
Internal Audit Service (IAS) in their respective
offices. (AO 278 s. 1992, Directing the
Strengthening of the Internal Control Systems of
Government Offices, Government Owned And/Or
Controlled Corporations, Including Government
Financial Institutions and Local Government
Units, In Their Operations, 28 April 1992 and AO
70 s. 2003, Strengthening of the Internal
Control Systems of Government Offices, Government
Owned And/Or Controlled Corporations, Including
Government Financial Institutions and Local
Government Units, 14 April 2003)
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I. Creation of Internal Audit Service (IAS)
4. The Code of Conduct and Ethical
Standards for Public Officials and Employees
(RA 6713)
Section 1. These Rules shall cover all officials
and employees in the government, elective and
appointive, permanent or temporary, whether in
the career or non-career service, including
military and police personnel, whether or not
they receive compensation, regardless of amount.
Rule I (Coverage), Rules Implementing the Code
of Conduct and Ethical Standards for Public
Officials and Employees, 21 April 1989
15
I. Creation of Internal Audit Service (IAS)
NGICS/PGIAM visàvis IIA/ISPPIA
1. Reference should be made to the
Institute of Internal Auditors (IIA), the primary
body for the internal audit profession. The IIA
provides comprehensive guidance for the
profession through its International Professional
Practices Framework (IPPF). The IPPF comprises
the official definition of internal auditing, the
International Standards for the Professional
Practice of Internal Auditing (the Standards),
the Code of Ethics, x x x.
underscoring supplied (General Comments,
Comments on the PGIAM, dated 23 June 2009, p.1)
16
I. Creation of Internal Audit Service (IAS)
NGICS/PGIAM visàvis IIA/ISSPIA
(I)f internal auditors are prohibited by
laws or regulations from complying with certain
parts of the Standards, they should comply with
all other parts of the Standards and make
appropriate disclosures. (The Professional
Practices Framework, ISPPIA Introduction,
Institute of Internal Auditors, January 2004 Ed.,
p. 8)
17
I. Creation of Internal Audit Service (IAS)
NGICS/PGIAM visàvis IIA/ISSPIA
24. on penultimate paragraph The phrase . .
. they should comply with all the other parts of
the standards . . . deserves a second glance.
Standard - setting organizations usually do not
permit partial adoption of their standards.
Their standards are generally adopted on this
basis all or nothing. emphasis supplied
(Item 1.1.4 Hierarchy of Applicable
Auditing Standards and Practices, Comments
on the PGIAM, dated 23 June 2009, p.4)
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II. Internal Audit Functions
Internal Audit Service (1) provides assistance to
the Department Secretary or the governing body
and (2) performs functions delegated by the head
of agency. (Ch. 2, Bk. IV, EO 292 s. 1987, the
Administrative Code of 1987, and Sec. 55(b),
Vol. III, GAAM COA Circular No. 91-368 dated 19
December 1991) The Department Secretary or the
governing body is not the internal auditors
client, neither are the auditees its customers.
Internal Audit Service is not an assurance and
consulting service.
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II. Internal Audit Functions
1. IAS assists the Department Secretary or
Governing Body
The IAS shall be an integral part of the office
and shall assist in the management and effective
discharge of the responsibilities of the office,
without intruding into the authority and mandate
of the Commission on Audit (COA) granted under
the Constitution. x x x. underscoring supplied
(Sec. 1, 2nd par., AO 70 s. 2003, Strengthening
of the Internal Control Systems of Government
Offices, Government Owned And/Or Controlled
Corporations, Including Government Financial
Institutions and Local Government Units, 14
April 2003)
20
II. Internal Audit Functions
1. IAS assists the Department Secretary or
Governing Body
1.1. Authority of the Department Secretary
SEC. 6. Authority and Responsibility of the
Secretary. The authority and responsibility for
the exercise of the mandate of the Department and
for the discharge of its powers and functions
shall be vested in the Secretary, who shall have
supervision and control of the Department.
underscoring supplied (Ch. 2, Bk IV, EO 292 s.
1987, the Administrative Code of 1987)
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II. Internal Audit Functions
1. IAS assists the Department Secretary or
Governing Body
1.2. Authority of the Board
SECTION 23. The board of directors or trustees.
Unless otherwise provided in this Code, the
corporate powers of all corporations formed under
this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees x x x. underscoring supplied (BP 68,
The Corporation Code of the Philippines, 01 May
1980)
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II. Internal Audit Functions
1. IAS assists the Department Secretary or
Governing Body
1.3. Supervision and Control
(1) Supervision and Control.
Supervision and control shall include authority
to act directly whenever a specific function is
entrusted by law or regulation to a subordinate
direct the performance of duty restrain the
commission of acts review, approve, reverse or
modify acts and decisions of subordinate
officials or units determine priorities in the
execution of plans and programs and prescribe
standards, guidelines, plans and programs. x x x
underscoring supplied (Section 38, Chapter 7,
Book IV, EO 292 s. 1987, the Administrative Code
of 1987
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II. Internal Audit Functions
1. IAS assists the Department Secretary or
Governing Body
1.4. Conduct of Audit
1.4.1. (I)t can be placed under the control and
supervision of the Secretary of National Defense,
who consequently has the power to conduct an
extensive management audit of petitioner
corporation. (The Veterans Federation of the
Philippines vs. Reyes, G. R. No. 155027, 28
February 2006)
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II. Internal Audit Functions
1. IAS assists the Department Secretary or
Governing Body
1.4. Conduct of Audit
1.4.2. (2) Administrative Supervision. - x x x
to generally oversee the operations of such
agencies and to insure that they are managed
effectively, efficiently and economically but
without interference with day-to-day activities
or require the submission of reports and cause
the conduct of management audit, performance
evaluation and inspection to determine compliance
with policies, standards and guidelines of the
department x x x underscoring supplied (Sec.
38(2)(a), Ch. 7, Book IV, EO 292 s. 1987, the
Administrative Code of 1987)
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II. Internal Audit Functions
2. IAS function delegated by the head of agency
2.1. Responsibility for Internal Control
Section 124. Installation. It shall be the
direct responsibility of the agency head to
install, implement and monitor a sound system of
internal control. (PD 1445, Government Auditing
Code of the Philippines, as amended, 11 June
1978)
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II. Internal Audit Functions
2. IAS function delegated by the head of agency
2.2. Responsibility for Monitoring of Internal
Control
It is the primary responsibility of the head of
the agency to monitor the system of internal
control. This responsibility may be delegated by
management to an internal audit department or
office within the agency. x x x (Section 55 (b),
Title II-Internal Control System, Vol. III, GAAM
COA Circular No. 91-368 dated 19 December 1991
and Sec. 8(5), Ch. 3, Title V, Book IV, EO 292 s.
1987, the Administrative Code of 1987)
27
II. Internal Audit Functions
NGICS/PGIAM visàvis IIA/ISSPIA
18. on the last paragraph To achieve the
objectivity and impartiality of the Internal
Auditor, it should report not only to the
Department Secretary (DS) or Head of Agency (HoA)
but to a collegial body composed of the top three
in the Department or agency.
underscoring supplied (Item 1.1.1
Objectivity and Impartiality, Comments on
the PGIAM, dated 23 June 2009, p.3)
28
II. Internal Audit Functions
NGICS/PGIAM visàvis IIA/ISSPIA
31. on the 3rd paragraph

• The statement regarding supervisor-subordinate
  relationship of the auditor with the DS/HOA or
  GBA/Audit Committee has to be clarified with
  regards (sic) to the operational independence of
  the IAS. underscoring supplied (Item 2.2.
  Reporting Relationships, Comments on the
  PGIAM, dated 23 June 2009, p.5)

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II. Internal Audit Functions
NGICS/PGIAM visàvis IIA/ISSPIA
45. on item 4.2.1.a, 1st paragraph, last
sentence The final selection of internal audit
topics is ultimately a matter of DS/HoA . . .
While this may impair the independence of the
internal audit, this may create bias in the
selection of audit thrust areas. As commented
earlier, the internal audit should not be
accountable to the DS or HoA alone, but it should
be a collegial body in order to achieve
independence and objectivity. underscoring
supplied (Item 4.2.1 Developing a Good
Internal Audit Annual Work Plan, Comments on
the PGIAM, dated 23 June 2009, p.7)
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II. Internal Audit Functions
3. Under the Administrative Code of 1987
(1) Advise the Secretary or the Governing Board
thru the Audit Committee in the case of
GOCCs/GFIs, on all matters relating to
management control and operations audit
(2) Conduct management and operations performance
audit of Department / Agency/ GOCC/GFI
activities and units and determine the degree of
compliance with established objectives their
mandate, policies, methods systems and
procedures /processes government regulations,
and contractual obligations of the Department
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II. Internal Audit Functions
3. Under the Administrative Code of 1987
(Continuation)
(3) Review and appraise systems and procedures,
organizational structure, assets management
practices, accounting and other records
financial and management records, reports and
performance standards (such as budgets and
standards costs) of the Department Proper,
Bureaus and Regional Offices agencies/units
covered
32
II. Internal Audit Functions
3. Under the Administrative Code of 1987
(Continuation)
(4) Analyze and evaluate management deficiencies
and assist top management to solve the problems
by recommending realistic courses of action and
(5) Perform such other related duties and
responsibilities as may be assigned or delegated
by the Secretary or the Governing Board thru the
Audit Committee, or as may be required by law.
underscoring supplied (Sec. 8, Ch. 3, Title V
(DPWH), Bk. IV, EO 292 s. 1987, The
Administrative Code 1987 and words in brackets
are the terms added under DBM Circular Letter No.
2008-5, 14 April 2008).
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II. Internal Audit Functions
4. Working Definition of Internal Audit
Internal audit is the conduct of management and
operations performance audit and determine the
degree of compliance with laws, regulations,
policies and contractual obligations. It is the
appraisal of the plan of organization and all the
coordinate methods and measures and recommend
courses of action to the head of agency on all
matters relating to management control and
operations audit. (Sec. 8, Ch. 3, Title V (DPWH),
Bk. IV, EO 292 s. 1987, The Administrative Code
1987 and Sec. 123, PD 1445 Government Auditing
Code of the Philippines)
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II. Internal Audit Functions
5. IAS not to participate in activities and
operations of another unit
(I)t shall not be responsible for or required to
participate in procedures which are essentially a
part of regular operating activities or in
operations which are the primary responsibility
of another unit in the organization.
underscoring supplied (Sec. 2.0, AO 278 s.
1992, Directing the Strengthening of the
Internal Control Systems of Government Offices,
Agencies, Government-Owned and/or Controlled
Corporations, Including Government Financial
Institutions and Local Government Units, in their
Operations, 28 April 1992)
35
II. Internal Audit Functions
NGICS/PGIAM visàvis IIA/ISPPIA
13. Consider adopting the definition of
internal auditing developed by the IIA
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 gover-nance.
underscoring supplied (Item 1.1 Definition of
Internal Auditing, Comments on the PGIAM,
dated 23 June 2009, pp. 2-3)

36
II. Internal Audit Functions
NGICS/PGIAM visàvis IIA/ISPPIA
28. x x x Consulting services Advisory
and related client services activities, the
nature and scope of which are agreed upon with
the client and which are intended to add value
and improve an organizations operations. The
term Advisory services is used for
consulting services. underscoring supplied
(Item 1.3. Types of Audits , Comments on the
PGIAM, dated 23 June 2009, p.5)
37
II. Internal Audit Functions
NGICS/PGIAM visàvis IIA/ISPPIA
28. x x x Assurance services an objective
examination of evidence for the purpose of
providing an independent assessment on risk
management, control, or governance processes of
the organization. Assurance services are referred
to as audit services which services involve the
internal auditors objective assessment of
evidence to provide an independent opinion or
conclusions regarding a process, system, or
other subject matter. underscoring
supplied (Item 1.3. Types of Audits,
Comments on the PGIAM, dated 23 June 2009, p.5)
38
II. Definition and Concept of Internal Control
6. Internal Control to Ensure/Assure

• 6.1. Section 32. Definition of internal control.
  - Internal control comprises the plan of
  organization and all the methods and measures
  adopted within an agency to ensure that resources
  are used consistent with laws, regulations and
  policies resources are safeguarded against loss,
  wastage and misuse financial and non-financial
  information are reliable, accurate and timely
  and operations are economical, efficient and
  effective. underscoring supplied (Title
  2-Internal Control System, Vol. III, GAAM COA
  Circular No. 91-368, dated 19 December 1991, p.
  63)

39
II. Definition and Concept of Internal Control
6. Internal Control to Ensure/Assure

• 6.2. Internal control. Integral component of an
  organizations management that provides
  reasonable assurance that the following
  objectives are being achieved

? effectiveness and efficiency of operations ?
reliability of financial reporting
and ? compliance with applicable laws and
regulations. underscoring supplied (US
Government Accountability Office formerly US
General Accounting Office until renamed in 2004
Standards for Internal Control in the Federal
Government, November 1999)
40
II. Definition and Concept of Internal Control
6. Internal Control to Ensure/Assure

• 6.3. The globality of the policies and
  procedures conceived and put in place by an
  organisations management to ensure the economic,
  efficient and effective achievement of its
  objectives the adherence to external rules and
  to management policies and regulations the
  safeguarding of assets and information the
  prevention and detection of fraud and error, and
  the quality of accounting records and the timely
  production of reliable financial and management
  information. underscoring supplied (Revision
  of the Internal Control Standards and the
  Underlying Framework Strengthening Control
  Effectiveness-, 16 October 2007, Commission of
  the European Communities, citing the The Reform
  White Paper of 2000)

41
II. Definition and Concept of Internal Control
6. Internal Control to Ensure/Assure
6.4. Internal control is an integral process
that is effected by an entitys management and
personnel and is designed to address risks and to
provide reasonable assurance that in pursuit of
the entitys mission, the following general
objectives are being achieve
? Executing orderly, ethical, economical,
efficient and effective operations ? Fulfilling
accountability obligations ? Complying with
applicable laws and regulations ? Safeguarding
resources against loss, misuse and damage.
underscoring supplied (INTOSAI Guidelines for
Internal Control Standards for the Public
Sector, 2004, p. 6)
42
II. Definition and Concept of Internal Control
6. Internal Control to Ensure/Assure

• 6.5. Title 2, Volume III of the Government
  Accounting and Auditing Manual (GAAM) deals with
  internal control system and provides guidelines
  therefor. However, these are not mandatory as
  they are simply advisory or suggested /
  recommended guidelines. x x x. The COA merely
  assesses the adequacy of the agencys internal
  control system and may adopt measures that are
  deemed necessary and appropriate to correct the
  deficiencies of such system. underscoring
  supplied (Letter to then AES Alberto A.
  Bernardo, from COA Assistant Commissioner Emma M.
  Espina, dated 26 March 2004)

43
II. Definition and Concept of Internal Control
7. Relationship in a Three-Dimensional Matrix
Internal Control Objectives
Ensure Economical, Efficient and
Effective Operations
Comply with Laws and Regulations
Check Accuracy and Reliability of Accounting
Data
Adherence to Managerial Policies
Safeguarding Assets
Public Service
Organizations
Internal Control Components
Control Environment
1) Public Entity
Risk Assessment
2) Private Entity Providing Public
Services
Control Activities
Information and Communication
Monitoring
43
44
II. Definition and Concept of Internal Control
8. Relationship between the 4Es
Extent to which outputs/ outcomes match
objectives or intended effects
Minimum inputs to achieve a given quantity and
quality of outputs
Efficient
Effective
Getting the right amount of resources, of the
right quality, delivered at the right time and
place, at the lowest cost
Conforming to accepted standards and consistent
with the Code of Conduct
Economical
Ethical
Input
Outcomes
Outputs
Process
Input
Outcome
Output
Process
Evaluation
Evaluation
Evaluation
Evaluation
Policy, mandate, program, organization,
staff, system, resources, and citizens needs
Implementation, monitoring and compliance
Products, services, or benefits
Impact or change

Quality at Transformation
Quality at Start
Quality of Results
45
II. Definition and Concept of Internal Control
9. Internal Audit is part of Internal Control.

• Sec. 33. Distinction from other systems within
  the organization. Except for the Internal Audit
  Office which is part of the internal control
  system, internal controls are not separate
  specialized systems within an agency. They
  consists of control features interwoven into and
  made an integral part of each system that
  management uses to regulate and guide its
  operations. In this sense, internal controls are
  management controls. underscoring supplied
  (Title II-Internal Control System, Vol. III, GAAM
  COA Circular No. 91-368 dated 19 December 1991,
  p. 64.)

46
II. Internal Audit Functions
10. Internal Audit in government is not an
assurance service.
The internal audit function or appraisal
activity as exercised by the internal audit
office or unit constitutes a separate component
of internal control the objective of which is to
determine whether other internal controls are
well designed and properly operated.
underscoring supplied (Sec. 8(3), Ch. 3, Title
V, Book IV, EO 292 s. 1987, the Administrative
Code of 1987 and Section 55 (b), Title
II-Internal Control System, Vol. III, GAAM COA
Circular No. 91-368 dated 19 December 1991)
47
II. Internal Audit Functions
11. Internal Audit in government is not a
consulting service.
11.1. a. The contract covers lump sum work or
services such as janitorial, security, or
consultancy services where no employer-employee
relationship exist
x x x
c. The contracts of services and job orders are
not covered by Civil Service Law, Rules and
Regulations, but covered by COA rules
x x x
(Sec. 2, CSC MC No. 01 s. 2007, Repeal of CSC
Memorandum Circular Nos. 17 and 24, s. 2002, 12
January 2007)
48
II. Internal Audit Functions
11. Internal Audit in government is not a
consulting service.
11.2. As a result of recent, high profile
breakdowns in auditing and corporate governance,
there has been widespread realization that, in
many cases, it is not appropriate for an auditor
to provide both audit and certain non-audit
(consulting) services for the same client. (US
Government Accountability Office formerly US
General Accounting Office until renamed in 2004
Exposure Draft of Proposed New and Amended
Standards for the Professional Practice of
Internal Auditing, 30 May 2003)
49
II. Internal Audit Functions
11. Internal Audit in government is not a
consulting service.
11.3. GAGAS generally accepted government
auditing standards define audit services as
financial audits, attestation engagements, and
performance audits. In nonaudit services, audit
organizations perform tasks requested by
management that directly support the entitys
operation. words in bracket supplied (Item 10,
Government Auditing Standards Answers to
Independence Standards Questions, US Government
Accountability Office formerly US General
Accounting Office until renamed in 2004 , July
2002)
50
II. Internal Audit Functions
11. Internal Audit in government is not a
consulting service.
11.4. 3.29 Compliance with supplemental
safeguards will not overcome independence
impairments in this category. By their nature,
certain nonaudit services directly support the
entitys operations and impair the audit
organizations ability to meet either or both of
the overarching independence principles in
paragraph 3.22 for certain types of audit work.
. . .
51
II. Internal Audit Functions
11. Internal Audit in government is not a
consulting service.
11.4. (continuation) Examples of the types of
services under this category include the
following
x x x i. developing an
entitys policies, procedures, and internal
controls x x
x. (Item 3.29, Chapter 3 General Standards,
Government Auditing Standards, US Government
Accountability Office formerly US General
Accounting Office until renamed in 2004, July
2007 Revisions, p. 38)
52
III. Organization and Staffing of IAS
SEC. 4. Personnel Complement. Agencies without
IAS shall immediately organize one. The head of
the agency shall review the organizational
structure and personnel complement and convert
existing vacant positions and/or parallel
positions of incumbents in the agency necessary
for the creation/strengthening of the IAS.
x x x. (AO 70
s. 2003, Strengthening of the Internal Control
Systems of Government Offices, Agencies,
Government-Owned and/or Controlled Corporations,
Including Government Financial Institutions,
State Universities and Colleges and Local
Government Units, 14 April 2003)
53
III. Organization and Staffing of IAS
1. Organizational Structure

• 1.1. Each Department of the Executive Branch is
  authorized to establish its own IAS to cover
  audit areas in the Office of the Secretary,
  bureaus, offices and agencies, including
  region/field offices, regulatory agencies, and
  other agencies under the supervision and control
  or administrative supervision of a Department
  consistent with the provisions of the
  Administrative Code of 1987 on administrative
  relationship underscoring supplied (DBM-CSC
  Joint Resolution No. 1 s. 2006, Rationalization
  Programs Organization and Staffing Standards and
  Guidelines, 12 May 2006 and Item 2.1, DBM
  Circular Letter No. 2008-5, Guidelines of the
  Organization and Staffing of an Internal Audit
  Service/Unit and Management Division/Unit in
  Departments/ Agencies/GOCCs/GFI Concerned 14
  April 2008)

54
III. Organization and Staffing of IAS
1. Organizational Structure
1.2. In the case of regular agencies attached to
a Department for policy and program coordination,
their respective board/council shall deter-mine
the propriety of establishing a separate unit for
the purpose or the availment of the services of
the IAS of the Department (Item 2.6, DBM
Circular Letter No. 2008-5, Guidelines of the
Organization and Staffing of an Internal Audit
Service/Unit and Management Division/Unit in
Departments/ Agencies/GOCCs/GFI Concerned, 14
April 2008.)
55
III. Organization and Staffing of IAS
2. Head of IAS
2.1. In departments covering Department-Proper,
Bureaus, Regional Offices and Regulatory Agencies

• It shall be headed by a Director IV or as may be
  provided by the Administrative Code of 1987 or
  other special laws. The Director IV shall be
  occupied by a career official with 3rd level
  eligibility. (Item 2.5, DBM Circular Letter No.
  2008-5, Guidelines of the Organization and
  Staffing of an Internal Audit Service/Unit and
  Management Division/Unit in Departments/
  Agencies/GOCCs/GFI Concerned, 14 April 2008)

56
III. Organization and Staffing of IAS
2. Head of IAS
2.2. Attached agencies

• The head of the IAU of a regular agency attached
  to a Department for policy and program
  coordination shall have the rank equivalent to
  the fourth ranking official of the agency. (Item
  2.6, DBM Circular Letter No. 2008-5, Guidelines
  of the Organization and Staffing of an Internal
  Audit Service/Unit and Management Division/Unit
  in Departments/ Agencies/GOCCs/GFI Concerned, 14
  April 2008.)

57
III. Organization and Staffing of IAS
2. Head of IAS
2.3. In GOCCs
In case of GOCCs/GFIs, the IAU shall be a
Department or its equivalent organizational unit
which shall be headed by a Department Manager
with a Salary Grade of 26 or its equivalent
position. (Item 2.7, DBM Circular Letter No.
2008-5, Guidelines of the Organization and
Staffing of an Internal Audit Service/Unit and
Management Division/Unit in Departments/
Agencies/GOCCs/GFI Concerned, 14 April 2008.)
58
III. Organization and Staffing of IAS
2. Head of IAS
2.4. As may be provided by the Administrative
Code
a) SEC. 7. Assistant Secretaries. The
Secretary shall be assisted by six (6) Assistant
Secretaries appointed by the President of the
Philippines upon recommendation of the Secretary
one (1) to be responsible for the Internal Audit
Services x x x (Ch. 2, Title V-DPWH, Book IV,
EO 292 s. 1987, the Administrative Code of 1987)
59
III. Organization and Staffing of IAS
2. Head of IAS
2.5. As may be provided by the Administrative
Code
b) The President appointed the Deputy Executive
Secretary for Internal Audit Service pursuant to
the Continuing Authority of the President to
Reorganize His Office. (Sec. 31, Ch. 10, Title
III-Functions, Book III-Office of the President,
EO 292 s. 1987, the Administrative Code of 1987)
60
III. Organization and Staffing of IAS
3. Reporting Line
3.1. In departments covering Department-Proper,
Bureaus, Regional Offices and Regulatory Agencies
The IAS of the Department shall report directly
to the Department Secretary or his equivalent.
(Sec. 2.5, DBM Circular Letter No. 2008-5,
Guidelines of the Organization and Staffing of
an Internal Audit Service/Unit and Management
Division/Unit in Departments/ Agencies/GOCCs/GFI
Concerned 14 April 2008.)
61
III. Organization and Staffing of IAS
3. Reporting Line
3.2. Attached agencies
The IAU shall report to the head of the agency.
(Sec. 2.6, DBM Circular Letter No. 2008-5,
Guidelines of the Organization and Staffing of
an Internal Audit Service/Unit and Management
Division/Unit in Departments/ Agencies/GOCCs/GFI
Concerned 14 April 2008.)
62
III. Organization and Staffing of IAS
3. Reporting Line
3.3. In multi-headed attached agencies
In case of multi-headed attached agencies, said
IAU may report directly to the governing body.
The governing body may opt to organize an Audit
Committee from among its members to which the IAU
shall directly report. (Sec. 2.6, DBM Circular
Letter No. 2008-5, Guidelines of the
Organization and Staffing of an Internal Audit
Service/Unit and Management Division/Unit in
Departments/ Agencies/GOCCs/GFI Concerned 14
April 2008.)
63
III. Organization and Staffing of IAS
3. Reporting Line
3.4. In GOCCs
The IAS/IAU of GOCCs/GFIs shall report to the
respective Audit Committee of the Governing Board
of the corporation. (Sec. 2.7, DBM Circular
Letter No. 2008-5, Guidelines of the
Organization and Staffing of an Internal Audit
Service/Unit and Management Division/Unit in
Departments/ Agencies/GOCCs/GFI Concerned 14
April 2008.)
64
III. Organization and Staffing of IAS
4. Staffing
4.1. Notice of Organization, Staffing and
Compensation Action (NOSCA) (DBM Budget Circular
No. 2004-4 dated 22 March 2004 and DBM Circular
Letter No. 2008-5 dated 14 April 2008)
4.2. Qualifications Standards (QS) (Rule IV, CSC
Omnibus Rules Implementing Book V of EO 292 s.
1987, the Administrative Code of 1987, 14
February 1992 CSC MC 12 s. 2006, Qualification
Standards for IAS Positions)
65
III. Organization and Staffing of IAS
5. Internal audit studies, services, and
seminars by private persons or firms
It is hereby reiterated that no
government agency shall enter into a contract
with any private person or firm to undertake
studies and/or render services pertaining to
government auditing, including the internal audit
services, much less disburse public funds
pertaining thereto, unless the Commission on
Audit shall have certified in writing its prior
decision not to undertake such contract. Payment
for contracts entered into without the required
certification shall be disallowed in audit.
underscoring supplied (COA Circular no.
93-214A, Government Contracts for Internal Audit
Services, 4 March 1993 COA Circular No. 83-214,
dated 8 September 1983)
66
III. Organization and Staffing of IAS
6. Consultancy Contracts for IAS/IAU
In view thereof, the Supervising Auditors and
Audit Team Leaders are required to submit to
their respective Cluster Directors or Regional
Directors all consultancy contracts for the
establishment/strengthening of IAS/IAU under
their audit jurisdictions for purposes of
evaluating their appropriateness and monitoring
the extent of the implementation of the said DBM
Circular Letters. x x x. underscoring supplied
(COA Memorandum No. 2009-011, Submission of
Consultancy Contracts pursuant to DBM Circular
Letter Nos. 2008-5 and 2008-8 dated April 14,
2008 and October 23, 2008, respectively, dated
26 March 2009)
67
III. Organization and Staffing of IAS
NGICS/PGIAM visàvis IIA/ISSPIA

• 30. Paragraph 2 states that IAS shall perform
  functions delegated by the DS/HOA or GB/Audit
  Committee. The standards prescribed that the
  functions, authority and responsibility of
  internal audit activity should be prescribed
  in a charter. underscoring supplied
  (Item 2.2. Reporting Relationships Comments
  on the PGIAM, dated 23 June 2009, p.5)

68
III. Organization and Staffing of IAS
NGICS/PGIAM visàvis IIA/ISSPIA
If a question should arise, the charter also
provides a formal, written agreement with
management and the board about the role and
responsibilities of the internal audit activity
within the organization. emphasis supplied
(Practice Advisory 1000-1 Internal Audit
Charter, Interpretation of Standard 1000 from the
International Standards for the Professional
Practice of Internal Auditing (ISPPIA), p. 13 )
69
IV. Functions Related to Internal Control Among
the Operating Units, Management Division and the
Internal Audit Service
1. Nature and Purpose of Review
Operating Units, Bureaus, Regional and Field Offices Management Division Internal Audit Service
1) Performance review and improvement of opera-tions, processes and activities and 2) Compliance review and improvement of operations, processes and activities. 1) Review whether in-ternal controls are applied at all levels within and across the agency and sector and 2) Recommend mea-sures for manage-ment improvement. 1) Appraise whether controls are well designed and pro-perly implemen-ted and 2) Appraise the ade-quacy of internal control or whether it is achieving the objectives.
70
IV. Functions Related to Internal Control Among
the Operating Units, Management Division and the
Internal Audit Service
2. Scope, Coverage and Frequency
Operating Units, Bureaus, Regional and Field Offices Management Division Internal Audit Service
1) Performance is reviewed on a regular basis. If actual accomplishments do not meet established objectives or standards, the processes and activities established to achieve the objectives should be reviewed to determine if improve-ments are needed and Organizational struc-ture, manpower, and operations 2)Existing methods, sys-tems and processes 3)Develop new and im-proved management system and staffing standards Management and operations perfor-mance audit and determine the deg-ree of compliance 2) Determine the con-trol effectiveness of operating systems and support systems for a specific period or date
71
IV. Functions Related to Internal Control Among
the Operating Units, Management Division and the
Internal Audit Service
2. Scope, Coverage and Frequency (Continuation)
Operating Units, Bureaus, Regional and Field Offices Management Division Internal Audit Service
2) Operations, proces-ses and activities are periodically reviewed to ensure that they are in compliance with current regulations, policies and other requirements. 4) On-going and re-curring activities and 5) Ingrained in the operations 3) Determine whether operations are con-ducted effectively, efficiently, ethically, and economically and 4) Takes place after the fact and covers a complete cycle of operations.
72
IV. Functions Related to Internal Control Among
the Operating Units, Management Division and the
Internal Audit Service
3. Actions To Be Taken
Operating Units, Bureaus, Regional and Field Offices Management Division Internal Audit Service
1) Institute improvements to meet objectives or standards to achieve efficiency and effectiveness in operations and Report management review to the Financial Manage-ment Service (FMS) Head 2) Submit recommenda-tions for management improvement to the FMS Head, as necessary and 1) Submit an Internal Audit Report to the Head of Agency or Audit Committee of the Governing Board 2) Advise the Depart-ment Secretary or the Audit Committee of the Governing Board on all matters relating to management con-trol and operations audit and
73
IV. Functions Related to Internal Control Among
the Operating Units, Management Division and the
Internal Audit Service
3. Actions To Be Taken (Continuation)
Operating Units, Bureaus, Regional and Field Offices Management Division Internal Audit Service
2) Institute improvements to achieve compliance with regulations, policies and other requirements in operations. 3) Conduct trainings on the application of improvements and provide staff supervision over the implementa-tion of manage-ment improve-ments. 3) Analyze and eva-luate management control deficiencies and assist top management by re-commending rea-listic courses of ac-tion.
74
4. ORGANIZATIONAL CHART OF THE OFFICE OF THE
SECRETARY
Secretary
Internal Audit Service
Undersecretaries
Undersecretaries
Asst. Secretaries
Asst. Secretaries
SECTION 3. Department Proper. (1) Unless
otherwise provided in this Code or by law, the
Department proper shall include the Office of the
Secretary and the staff units directly under it.
The Office of the Secretary shall consist of the
Secretary and the Undersecretary or
Undersecretaries, together with the personnel in
their immediate offices x x x
(3) Whenever necessary, Assistant Secretary
position or positions may be created to form part
of the Department proper (Ch. 1, Bk IV, EO 292
s. 1987, the Administrative Code of 1987)
75
5. ORGANIZATIONAL CHART OF THE DEPARTMENT PROPER
Office of the Secretary
Internal Audit Service
Admin. Service
Planning Service
Technical Service
Legal Service
Financial and Management Service
(4) In the absence of special provisions, the
major staff units of each department shall be the
services which shall include the Planning
Service, the Financial and Management Service,
the Administrative Service, and when necessary,
the Technical and Legal Services. underscoring
supplied (Sec. 3, Ch. 1, Bk IV, EO 292 s. 1987,
the Administrative Code of 1987)
Except as otherwise provided for by law, each
Department may have units which shall perform
planning, financial, management and
administrative services, internal audit, and
other support to operations functions.
underscoring supplied (DBM-CSC Joint Resolution
No. 1 dated 12 May 2006, p.5)
76
6. ORGANIZATIONAL CHART OF THE OPERATING UNITS
Office of the Secretary
Internal Audit Service
Admin. Service
Planning Service
Technical Service
Legal Service
Financial and Management Service
Bureaus/ Offices
Department Wide Regional/Field Offices
The core/major/vital functions of a department
shall be performed by its operations units. These
operations units may include line and staff
bureaus and field units. (DBM-CSC Joint
Resolution No. 1 dated 12 May 2006, p. 5)
77
7. ORGANIZATIONAL CHART OF THE INTERNAL AUDIT
SERVICE
Office of the Secretary
Internal Audit Service
Admin. Service
Planning Service
Technical Service
Legal Service
Financial and Management Service
Bureaus/ Offices
Department Wide Regional/Field Offices
The IAS of the Department shall report directly
to the Department Secretary. It shall be headed
by a Director IV or as may be provided by the
Administrative Code of 1987 or other special
laws. The Director IV shall be occupied by a
career official with 3rd level eligibility. The
IAS of the Department shall have two (2)
divisions, an Operations Audit Division and a
Management Audit Division, which shall each be
headed by and Internal Auditor V (SG 24). (Item
2.5., DBM Circular Letter No. 2008-5, 14 April
2008)
78
8. ORGANIZATIONAL CHART OF THE PROVINCIAL OFFICE
Office of the Governor
Office of the Vice Governor Sangguniang
Panlalawigan
Office of the Secretary to the Sanggunian
Panlalawigan
Administrator
Planning Devt. Office
Budget Office
Accounting Office
Office of the Treasurer
Provincial Health Office
Office of the Provincial Engineer
Office of the Provincial Agriculturist
Social Welfare Devt. Office
Office of the Assessor
Legal Office
General Service Office
Office of the Provincial Veterenarian
Envt. Natural Resources Office
Information Office
Component Cities/ Municipalities
Barangays
79

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