Auditing the government

Calling a spade
Business World, 30 January 2013
With the Commission on Audit (COA) in the limelight because of the Senate brouhaha over the what, why, where, when and how of the Senate and Office of the Senate President’s “savings,” it is as good a time as any to revisit the COA’s Web site and look at its 2011 Audit Performance Summary Report (APSR) in general, and the Annual Audit Reports (AAR) of the Senate and the House of Representatives in particular. A little more light and a little less heat would be welcome.

COA Chair Grace Pulido Tan and her two fellow commissioners must be congratulated for that APSR, which came out for the first time only last year. It is an eye-opener, showing not only the extent of the COA’s operations, but explaining how it operates, and giving us the highlights of its findings in a form that allows for comparisons and analysis. Why it took 113 years (the number comes from its website) for COA to come up with this idea, one can only speculate.

And speaking of Tan’s associates, the unconscionable delay in the confirmation of Heidi Mendoza’s appointment as COA commissioner has to be another black eye on the legislature’s Commission on Appointments, some of whose members seem to have an axe to grind with her: apparently she is too competent and fearless for their tastes, because she preferred to serve the Filipino people rather than kowtow to certain political interests. In particular, they cannot forgive her for exposing the financial anomalies in Makati and the military. I sincerely hope the electorate will punish her persecutors in the forthcoming polls.

Now for the light-shedding.

First, with regard to the “particular,” i.e., the Senate and House AARs. It is instructive to compare the two.

To borrow from COA’s language, one of the “significant/peculiar” observations that can be made about the Senate and HOR AARs (for 2011 — the 2012 AARs aren’t out yet) is that the Senate was given a clean bill of health by the auditor, i.e., the latter rendered an “unqualified” opinion on “the fairness of the presentation of the financial statements” of the Senate, “in accordance with laws, rules and regulations,” etc. (the significance of this latter quote will be explained anon).

What does an “unqualified” (UQ) opinion mean? Per the APSR, COA renders four types of audit opinions on the financial statements (F/S) prepared by management: unqualified (UQ), qualified (Q), adverse (A) and disclaimer (D). A UQ is expressed when , essentially, everything about the F/S is according to Hoyle; a Q is issued when the auditor finds misstatements which are “material but not pervasive”; an A opinion is expressed when the auditor concludes that misstatements are both material and pervasive; and a D is issued when the auditor is unable to arrive at an opinion regarding the F/S , due to “uncertainty or scope restriction, which is so fundamental that an opinion… would not be adequate” [the matters of uncertainty have to be specified by the auditor].

What about the House? I honestly can’t tell what audit opinion it got, because while the Executive Summary of the Senate AAR devotes a paragraph (Para E, sandwiched between Para D “Scope of Audit” and Para F “Observations and Recommendations”) on the Auditor’s Report on the Financial Statements which explicitly says that the Auditor rendered an unqualified opinion, that of the House is completely silent. The Scope of Audit paragraph is immediately followed by the Observations and Recommendations paragraph. The Auditor’s Report itself states that “In our opinion, except for the facts on the financial statements of the matter discussed in the preceding paragraph…” everything is in effect hunky dory. That must mean that the opinion is qualified (Q), right? I am willing to be corrected.

But the main question that arises is, how did the Senate get a UQ if, as some senators would have us believe, there was so much hanky-panky with respective to savings and realignments, etc.? Getting a UQ, by the way, is not easy. Per the APSR, only 20% of the agencies audited in 2011 got a UQ opinion. The vast majority (72%) got a Q opinion, while 8% got an A, and 2% got a D.

The answer to this seeming conundrum is simple. Remember the part about the fairness of the F/S “in accordance with the law, rules and regulations?” Well, it is the law, it seems, that heads of the main branches of government — Executive, Legislative, Judiciary — as well as the Constitutional Commissions, may realign whatever savings they have (and apparently this now extends to heads of all agencies). But even more important — and what is truly disgusting — is that the Senate and the House of Representatives in 1998, decided to treat any MOOE given to its members the same way Confidential and Intelligence Funds are treated: all it takes to liquidate the expenditures is for the member to certify that he spent it on specified MOOE expenditures. In effect, they created slush funds for themselves. And this liquidation by certification is the law. So that once the COA gets the certification, the law has been complied with. No more requesting for receipts.

Another comparison between the Senate and the House audit reports which may be of interest: Of the seven audit recommendations to the Senate embodied in the 2009 and 2010 AARs, five were implemented and two were partially implemented. Of the six audit recommendations to the House contained in the 2010 AAR, only one was implemented, and five were partially implemented.