Accountability A.

Intra-Departmental Accountability Through Internal Control Systems

15.1. The revenue administration system has four components such as assessment, collection, remittance/deposit, and recording. The head of the agency, who is primarily responsible for all government funds and property pertaining to his agency, ensures that all revenues are correctly and promptly assessed, collected and credited to the appropriate funds. The Commission on Audit (COA), on the other hand, ascertains that adequate controls are installed to prevent the commission of irregularities at various stages of assessment, collection and accounting. In the event an agency head, or any public officer for that matter, refusing to give COA auditors access to public records which are in his custody and essential in the conduct of the audit, the Commission on Audit through the Commission Proper may hold him in contempt. The Commission may, if the situation warrants, also file a case against the official concerned for violation of the provisions of the Anti-Graft and Corrupt Practices Act. It may further institute administrative disciplinary action either with the Civil Service Commission under the Civil Service Law, or with the Presidential Commission Against Graft and Corruption. 15.2. Assessment

15.2.1. In the Bureau of Internal Revenue, assessment or tax audit is conducted by the Revenue District Office after income tax returns have been filed and the corresponding taxes have been paid. Dockets of reports of investigation include a duly accomplished "Revenue Officer's Audit Report" which is submitted to and reviewed by the Assessment Division in the Revenue Regions for regional cases falling within their respective jurisdictions, and by the Intelligence and Investigation Service for cases falling under the Tax Fraud Division. 15.2.2. Assessment may be protested administratively by filing a request for reconsideration or reinvestigation. If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within 30 days from receipt of the said decision; otherwise, the decision shall become final, executory and demandable. 15.2.3. The Commissioner of Internal Revenue may compromise the payment of any internal revenue tax when a reasonable doubt as to the validity of the claim against the taxpayer exists or when the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax: provided, however, that final assessments issued against large taxpayers shall be subject to the approval of the Secretary of Finance. 15.2.4. Changes in the rates of internal revenue taxes and other revenues are approved by the Department of Finance (DOF) but such changes should not exceed what is required by law. 15.2.5. In the Bureau of Customs, assessment is done before payment of taxes and duties, and release of the goods. The assessment division/unit is responsible for ensuring that revenues are properly assessed. Assessments made by the tax examiners are reviewed and scrutinised by the customs collectors/officers to ascertain the correctness of the taxes/duties due. 15.2.6. A change in tariff rates should be made by the Tariff Commission but such change in rates should be in accordance with existing laws. However, changes in the rates of other revenues are approved by the DOF. 15.2.7. In the interest of national economy, general welfare and/or national security, the President of the Philippines, upon recommendation of the National Economic Development Administration (NEDA) is empowered: (1) to increase, reduce or remove existing protective rates of import duty; (2) to establish import quota or to ban imports of any commodity as may be necessary; and (3) to impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary.

15.2.8. In the Local Government Units, the Assessor's Office is responsible for the assessment of real property taxes. This is being done before payment of the tax has been made. Assessments made by the assessment clerks are reviewed by the Assessor to ascertain correctness of the taxes due. A change in the rates of taxes is made through the issuance of an ordinance but it should not exceed what is required by law. 15.2.9. On the other hand, the Commission on Audit determines whether revenues are correctly assessed in accordance with laws, rules and regulations. It should also ascertain that methods of assessment provide protection against error and irregularity. 15.3. Collection

15.3.1. The Collection Division, Cash Division or Treasurer's Office is responsible for the efficient collection of revenues due to the government. Revenues are collected either by the agency's collecting officers, accredited agent banks or by other authorised government agencies. Collections are acknowledged by official receipts or through machine- validation. The collection performance is closely monitored by the head of office or the chief executive. 15.3.2. The revenue-generating agencies including the local government units are responsible for the attainment of the revenue targets set by them and approved by the Department of Finance. 15.3.3. The Commission on Audit, on the other hand, determines whether revenues including fines and penalties are collected when due, properly receipted, and accounted for. It likewise determines the reasonableness of the revenue targets, and the reported collection efficiency. 15.4. Remittance/Deposit

15.4.1. The Collection Division, Cash Division or Treasurer's Office is likewise responsible for ensuring that all revenues collected by the collection agents/officers are remitted/deposited intact. These remittances/deposits are duly covered by validated deposit slips. However, remittances made by accredited agent banks to the National Treasury through the Bangko Sentral ng Pilipinas are evidenced by duly approved Credit Advices. Remittances/deposits are also closely monitored. 15.4.2. The Bureau of the Treasury under the Department of Finance accounts and regularly reports all remittances received. 15.4.3. On the other hand, it is the duty of the Commission on Audit to determine whether all revenue collections are remitted/deposited in accordance with existing rules and regulations. 15.5. Recording

15.5.1. Proper recording of revenues to the appropriate books of accounts is the primary responsibility of the Accounting Division. Submission of the required collection reports together with all the supporting documents are closely monitored. These reports are processed before these are summarised and classified in the books of accounts. Collections and remittances/ deposits are regularly reconciled to ascertain reliability of the account balances. 15.5.2. The duty of the Commission on Audit is to ascertain that all transactions pertaining to revenues are properly recorded in the appropriate books of accounts. B. LEGISLATIVE ACCOUNTABILITY

15.5.3. Deficiencies noted by the auditors in the revenue-generating operations of the agencies/departments are summarised in the Audit Reports, copies of which are submitted to the Legislative Body (Congress) for evaluation. The revenue-generating agencies concerned are, therefore, required to explain/justify the deficiencies noted, and implement the recommended courses of action to improve the efficiency and effectiveness of their operations.

16.

Collection And Accounting

16.1. As stated earlier, taxes are collected either through agency's own collecting officers, accredited agent banks or through other authorised government agencies. Collections made by the collecting officers and other government agencies are acknowledged by official receipts. However, the bulk of revenues which are collected by the accredited agent banks are acknowledged through machine-validation. 16.2. The collecting officers and the authorised government agencies remit their collections direct to the National Treasury or through authorised government depository banks. These remittances are covered by validated deposit slips. However, the accredited agent banks remit their tax collections by advising the Central Bank of the Philippines to debit their demand deposit and credit the Savings Account of the Treasurer of the Philippines. These remittances are evidenced by a Credit Advice issued by the Central Bank. 16.3. The Local Governments, on the other hand, deposit their revenue collections with their respective depository banks. 16.4. The double entry bookkeeping system is being adopted in accounting. Revenue collections are summarised first in the covering collection reports before they are recorded in the journals and posted to the ledgers. Pending Case Against The Commission On Audit. 12.1 On March 28, 1995, the Commission on Audit (COA) promulgated COA Resolution No. 95-208 asserting the power, authority, and duty of the Commission on Audit to examine, audit, and settle all accounts pertaining to the revenues and receipts of government agencies and subdivisions, including those of the Bureau of Internal Revenue (BIR), the Bureau of Customs, the government-owned and/or controlled corporations, and all local government units. Specifically, the Resolution authorises CO A auditors to: (a) evaluate the internal controls of the revenue administration system of the agency; and (b) review the assessment records, collection reports, and other accounting records for the purpose of determining whether revenues are properly assessed, collected and accounted for in accordance with laws and regulations. 12.2. The BIR Commissioner however did not agree. To her, the resolution is an encroachment by COA on the exclusive authority of the BIR to assess and collect taxes. Consequently, on May 10, 1995, the BIR Commissioner filed a petition with the Supreme Court to set aside COA Resolution No. 95-208. 12.3. The main issue of the case is whether or not the COA acted with grave abuse of discretion amounting to lack or excess of its jurisdiction in asserting its power, authority and duty to examine, audit and settle all accounts pertaining to the revenues and receipts of the BIR. 12.4. In its answer to the petition, the Commission on Audit made the following assertions in defence of the Resolution; viz: a. That COA Resolution No. 95-208 was issued in pursuance of COA's constitutional mandate. b. That what is contemplated under the questioned resolution is not assessment and collection of taxes but revenue audit, i.e., the systematic review and examination of assessment records, collection reports, and other accounting records for the purpose of determining whether revenues are properly assessed, collected and accounted for in accordance with laws and regulations, and whether these revenues are fairly presented in the financial statements. c. That revenue audit will not subject taxpayers to harassment or multiple investigations. d. That revenue audit will not result in duplication of BIR's function to assess and collect taxes since the audit is conducted only after taxes have been assessed and actually paid. e. Finally, that revenue audit would improve the tax administration system and increase collections.

12.5. The case however is still pending resolution by the Supreme Court although COA, notwithstanding the temporary restraining order issued against it, is very optimistic that the Court will finally resolve the case in its favour. Audit Reporting 6.1. In the case of post-audit of revenue transactions, the Certificate of Settlement and Balances (CSB) is the final output of the auditor. This serves as the instrument through which the agency is regularly informed of the suspensions, charges and other deficiencies noted in the audit of its revenue transactions. Through the CSB, the agency head is informed of the persons who have been determined to be responsible for the suspensions, or liable for the charges. 6.2. The CSB is issued within ten days after the end of each quarter, for every accountable officer and for each fund. It is supported by the Summary of Suspensions and Charges, Summary of Suspensions Maturing into Charges, and the Summary of Settlements of Suspensions and Charges. 6.3. Before the CSB is prepared, notices have already been issued. One is the Notice of Suspensions (NS) which is issued as often as suspensions are made by the auditor for the purpose of notifying the agency head and the accountable officer concerned on the suspended transactions. Another is the Notice of Charges (NC) which is issued as often as charges are made by the auditor to notify the agency head, accountable officer concerned and other persons liable for the deficiencies noted. The Audit Observation Memorandum (AOM) may likewise be issued to notify the agency head and/or other officials concerned relative to the findings/observations/other deficiencies noted which require comments/reply within a reasonable time. 6.4. In the case of special audit, a special audit report is prepared. However, prior to its preparation, an AOM issued to notify management of the findings/observations noted, and require them to explain or justify the situation. 6.5. The Annual Audit Report (AAR) is also prepared by the auditors to serve as the final output of the yearly comprehensive audit conducted. It is the medium used by the auditor to communicate to the auditees and proper authorities, including the Office of the President and the Congress, the results of his appraisal of how management had discharged its fiscal responsibility. The report includes the auditor's recommendation of measures necessary to improve the economy, efficiency and effectiveness of agency operations. 6.6. The AAR has a linkage with the CSB since the significant audit findings and recommendations contained in the NS, NC, and AOM are summarised in the said report. 6.7. Finally, the overall report which the Commission on Audit is constitutionally mandated to submit to the President of the Philippines and the Congress is known as the Annual Financial Report (AFR). This report aims to serve as an effective tool in national planning and decision-making on matters involving fiscal and operational affairs of the government. Specifically, it includes significant audit findings on revenue administration. 7. Information Technology (It) Audit Techniques

7.1. The computerised tax system of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) has not yet been fully operationalised as of date. Hence, the Commission on Audit has not completely applied IT audit techniques in the audit of revenues generated by these agencies. At present the BIR and the BOC are in the process of developing their respective tax systems. 7.2. However, even during the development of the system, the COA at critical stages of development evaluates the proposed system to ascertain that the basic internal controls are built in the design. This evaluation is being undertaken so that appropriate action can be taken as early in the systems development life cycle as possible. It is usually more difficult and expensive to build adequate controls once the system has been implemented.

7.3. When the computerised tax system become fully operational, the COA intends to conduct a post-implementation evaluation or audit of the system to check its validity, accuracy, completeness and auditability. Specifically, this review will check whether controls are working as planned and are sufficient to permit audit reliance. COA usually utilises computer-assisted tools such as audit software packages (Integrated Data Extraction and Analysis, Audit Command Language) to evaluate and test the more technically complex controls. Moreover, the post-implementation review will also help COA to identify areas for future development. 7.4. In addition, COA also plans to conduct Data Centre Review of the BIR and BOC computer centres. This type of review incorporates evaluation of the data processing organisational structure, staffing practices, systems development standards, operating procedures, security, program and data library control, communication network, and backup and disaster recovery procedures. The effectiveness of these basic procedures and controls has a pervasive impact on the accuracy and completeness of all computerised processing. 7.5. The problems confronting COA in the conduct of IT audit are the lack of trained and experienced IT auditors and the inability of COA to keep up with the rapid technological/IT developments. COA does not have enough qualified personnel who have both audit and IT processing skills. However, it has been conducting a massive training on information systems audit. But it still cannot cope up with the demands for IT audit services because more and more government agencies are into computerisation. It is not unusual to find a situation wherein the COA auditor is still familiarising with the agency's computerised system but management is already into upgrading their system with the recent technology to cope up with the demands of complex processing.

Administrative Law Administrative Proceedings; findings of fact of quasi-judicial agencies. Petitioners argue that the Commission on Audit (COA) committed grave abuse of discretion amounting to lack of jurisdiction in declaring the prepayment stipulation in the contract between Land Bank and Remad Livestock Corporation (REMAD) proscribed by the State Audit Code of the Philippines. The Supreme Court did not give merit to petitioners argument. It emphasized that the COA Auditor noted that nowhere in the documents reviewed disclosed about prepayment scheme with REMAD. It is well settled that findings of fact of quasi-judicial agencies, such as the COA, are generally accorded respect and even finality by this Court, if supported by substantial evidence, in recognition of their expertise on the specific matters under their jurisdiction. If the prepayment scheme was in fact authorized, petitioners should have produced the document to prove such fact as alleged by them in the present petition. However, the Supreme Court was at a loss as to whether the prepayment scheme was authorized as its review of Annex I, the document to which petitioners base their authority to make advance payments, does not contain such a stipulation or provision. In addition, the Supreme Court noted that much reliance was made by petitioners on their allegation that the terms of the Credit Facility Proposal allowed for prepayments or advancement of the payments prior to the delivery of the cattle by the supplier REMAD. It appears, however, that a CFP, even if admittedly a pro forma contract and emanating from the Land Bank main office, is merely a facility proposal and not the contract of loan between Land Bank and the cooperatives. It is in the loan contract that the parties embody the terms and conditions of a transaction. If there is any agreement to release the loan in advance to REMAD as a form of prepayment scheme, such a stipulation should exist in the loan contract. There is, nevertheless, no proof of such stipulation as petitioners had failed to attach the CFPs or the loan contracts relating to the present petition. Based on the foregoing, the COA was not faulted for finding that petitioners facilitated the commission of the irregular transaction. Ruben Reyna, et al. v. Commission on Audit, G.R. No. 167219, February 8, 2011.