Providing for a Manual of Instruction for National Supervisors on Internal Audit and the Development and Maintenance of an Effective Control, Check up and Review of All Activities of the Regional Office, the Different Branches and City and Provincial Revenue Offices

April 1, 1963 REVENUE MEMORANDUM ORDER NO. 15-63 INTERNAL REVENUE MANUAL OF INSTRUCTIONS FOR NATIONAL SUPERVISORS SUBJECT : Providing for a manual of instruction for National Supervisors on Internal Audit and the Development and Maintenance of an Effective Control, Check up and Review of All Activities of the Regional Office, the Different Branches and City and Provincial Revenue Offices In order to establish definite policies of management and administration of the decentralized revenue service, there is promulgated the specific program of internal audit of the Regional Offices, its branches and the city and provincial revenue offices, for the guidance of the National Supervisors who are charged with the duties and functions of such audit. aisadc The National Supervisors shall render inspection reports upon termination of their audits or their appraisal of the overall operational activities of the field offices including accomplishments, organizational deficiencies, procedural defects, inefficiencies, administrative and technical problems, and such other findings together with appropriate recommendations aimed at improving revenue service. The report shall also include evaluation of the individual performances pointing to inefficiencies as well as to outstanding accomplishments with corresponding recommendations, which should be taken into account by the authorities concerned in the promotions of personnel. Upon submission of the reports, the Chief, National Supervisors Division should analyze and study, and prepare the corresponding letter of transmittal to the Regional Director and Provincial Revenue Officer to be signed by the Commissioner of Internal Revenue, informing such officer of the findings or results of the audit with instructions for compliance. The National Supervisors shall be divided into audit teams, each team to be composed of a head and not less than three members. The inspection and audit of Regional and other field offices shall be done in accordance with the schedule to be prepared by the Chief, National Supervisors Division but not oftener than once every six months anent which due information will be furnished the Commissioner or the Deputy Commissioner of Internal Revenue thru the Head, Management and Planning Department. To carry out their functions effectively, the members of the audit team should be guided principally by the provisions of the Internal Revenue Manual on Standard Records and Reports issued on January 15, 1957 and all other memorandum orders and circulars. General Objectives of the Audit 1. To check the activities of all units of organization for the purpose of identifying problems of management and operation which require solution and to see to it that prompt and proper steps are taken by the unit of organization concerned towards the solution of such problems. If problems are complex in nature and hard of solution by the unit concerned, a report thereon to the National Office should be submitted for appropriate action. 2. To plan extensive and continuing programs for the improvement of all areas of operation and management in order to obtain the maximum result at a minimum cost. 3. To conduct an independent review and appraisal of all operational activities as a basis for productive and constructive service to management and the carrying out of a program for assisting management to maintain the highest standard of efficiency among its employees. 4. When so ordered by the Commissioner, or the Deputy Commissioner, or Chief of Management & Planning Department conduct inquiries into the anomalous activities of office and initiate investigations on anomalies and periodical checking of the activities of the Regional Office concerned and make a report to the Commissioner on the anomalies with proper recommendations therefor. 5. To evaluate information and reports on anomalous disposition of tax cases and conduct immediate investigation thereof if circumstances warrant such action. 6. To make spot and periodic check of the records and see to it that they are safely kept and the system of recording is reliable and efficient. 7. To effect closer working relationship and harmony between the National Supervisors and the operating officials of the region concerned. 8. To achieve for top management the following objectives: (a) That all activities are conducted in accordance with law and policy. (b) That all activities are conducted efficiently, effectively and with economy. (c) That all revenue receipts from bureau activities are duly collected and properly accounted for in receipts which are clearly written and contain all the data needed. (d) That expenditures are made only in furtherance of authorized activities and comply with applicable laws and regulations. (e) That all assets of the Bureau in its custody are adequately safeguarded, controlled and utilized in the most effective, economic and efficient manner; and (f) That all external and internal reports are promptly made and submitted and are adequate and accurate. 9. To secure or acquire facts, data or information that would enable top management to clarify and effectuate its intentions and purposes. 10. To make special studies and surveys for top management to serve as basis for management (actions regarding management) of objectives, policies and procedures. 11. To find out for the Commissioner whether or not requirements set down in manuals, circulars or instructions, etc. and procedures and policies laid down by the National Office are properly disseminated throughout the Region and duly complied with. 12. To recommend remedial measures to any defect, deficiency or weakness in all units of the organization. 13. To study and make recommendations for an effective implementation of all taxes law and regulations. 14. To act as liaison bridge the gap or serve as a connecting link between the higher echelon and the lower levels of the organization for a smooth, efficient, adequate and effective execution of: a. Policies b. Procedural matters c. Reports and their evaluation 15. To help management officials resolve problems confronting the subordinate levels of management by maintaining closer and harmonious relationship between them. 16. To maintain at all times good working relationship between National, Regional and Provincial Officials of the BIR with all other government offices or instrumentalities within the region or province. 17. To review, re-examine or re-investigate tax cases brought to the attention of the Commissioner of Internal Revenue or Deputy Commissioner of Internal Revenue, where there was an improper application or omission in the enforcement of the tax laws or connivance committed between the fieldmen and the taxpayer. AUDIT PROCEDURES Regional Director and Assistant Director 1. Examine record in the Regional Office for: a. Inadequacy of personnel in the office and branches. b. Confer with personnel in the regional office and branches for their morale and temperament which may affect their work. c. Confer with heads of branches re need of office, office facilities and men. d. Housing and other aids to efficient working conditions should be determined. 2. See to it that charts, graphs and other important statistics on assessment and collection are posted in conspicuous places in the Regional Office with individual accomplishments with a view to arousing individual incentives. 3. Check reports of Provincial Revenue Offices which are submitted to the Regional Office for: a. Performance of fieldmen. b. Result of work as to goals (Asst. & Coll.) c. Fitness of personnel assigned to a given task. d. Amount of assessments of each kind of taxes and amount collected. e. Action on rush matters. 4. See if prompt and proper implementation of policies, programs, delegations or instructions received from National Office is being done. 5. Find out whether Regional Director has taken stops to minimize the number of reports returned to lower levels due to procedural, technical or mathematical errors. 6. Look into procedures or practices adopted in the Regional Office which need correction of elimination because of their being defective or wasteful or promotes red-tape. 7. Find out whether the Regional Director has initiated and evolved a plan to improve assessment work within his area; whether the plan is being implemented; and whether profitable results have been obtained. If the objective has not been realized, National Supervisors should analyze the causes, suggest solution and pin-point responsibility. 8. Look into the Regional Circulars, orders, or memoranda issued by the Regional Directors and see if they are consistent with established policies and procedures. 9. Verify the system of periodical visits adopted by the Regional Directors to the PRO Offices and other field Offices and see whether observation and instructions are made during or after the visit. 10. Check and find out if monthly reports required under the Manual on Records and Reports (Forms 40.00 and 40.01 40.05 ) are done up-to-dately and correctly. 11. Check the records of Narcotic Drugs Unit to ascertain whether they are up-to-date. INCOME AND BUSINESS TAX BRANCH 1. Go over records of the Branch to be sure that work assigned as outlined in the Revenue Manual, Memorandum Orders and regulations are strictly followed and see to it that they correctly interpret the laid down policies of the National Office. 2. See to it that the officials and employees of the Branch maintain the highest standard as to: Efficiency; Honesty and Dependability; Physical fitness and General appearance; Morality and general conduct; Aptitude and resourcefulness; Attendance and interest in his work; and Public relation. 3. Find out whether this branch refers to the Investigation Branch all fraud cases and the latter to the former all non-fraud cases for corresponding action. 4. Should request for the different records such as: records of assessment and lists of returns examine and surveyed for the purposes of reviewing and analyzing them. 5. Review closed cases including those with assessments and those without assessments (no change). a. Determine whether fieldmen and returns have been correctly classified, and returns properly distributed to fieldmen, in accordance with Field Circular No. V-136. b. Whether all reports of examination as reviewed by this branch meet procedural and technical requirements laid down by rules, regulations, instructions, circulars or tax laws. 6. Collect the booklets of official receipts from the fieldmen and ascertain whether all cases concerned therewith are accounted for, disposed of or terminated and corresponding reports submitted. 7. Check up the number of clerks and examiners assigned in office work, office audit and field audit to determine whether there is an excess or lack of personnel. 8. Analyze extent and causes of backlog. 9. Check whether the assessment and Collection goals set for the Region have been accomplished; if not ascertain reasons therefore. INVESTIGATION BRANCH 1. See how fraud cases are initiated, followed up and developed and whether activities are directed to prosecute notorious tax evaders. 2. Review tax-determination reports of fieldmen for procedural accuracy, legality of assessment, sufficiency of evidence gathered in cases of contested assessments and for other requirements laid down by the National Office. 3. Go over records of the Branch to be sure that work assigned, as outlined in the Revenue Manual and regulations referring to fraud cases, are strictly followed; and see to it that they correctly interpret the laid down policies of the National Office. 4. See to it that the officials and employees of the Branch maintain the highest standard as to: Efficiency; Honesty and dependability; Physical fitness and general appearance; Morality and general conduct; Aptitude and resourcefulness; Attendance and interest in the work; and Public relation. 5. Go over reports of fieldmen to determine whether they have been conducting their work efficiently; confer with fieldmen on whether or not unnecessary delay in their procedures could be eliminated and still operate within the framework of the rules and regulations. 6. See whether all leads, complaints and information on tax evasion are being promptly compiled and evaluated and corresponding action taken thereon by the Regional Office. 7. Find out whether reports on fraud cases are in accordance with prescribed procedures, and are concise, complete, and can stand scrutiny in court. 8. Find out whether all activities of this branch in the Regional area are efficiently coordinated with those of the city-provincial revenue offices as well as with those of the National Office and whether all activities of this branch are efficiently controlled and directed. 9. Secure copies of periodical reports of activities of the branch and determine the total amount of assessments and number of cases closed and to analyze whether all cases closed are "Fraud Cases." 10. Determine the accomplishments of each member of the Branch as to number of cases: dockets closed, etc. (Memorandum Order No. V-634). 11. Determine the number of leads and information received and the number of "preliminary investigations made" and the number of leads and information that became obsolete or went beyond the 60-day period and why (Manual, Audit Procedures and Investigation, p. 43). 12. Determine the number of fraud cases that were referred by the Income and Business Tax Branch and action taken thereon. (Manual, Audit Procedures and Investigation, p. 43, Par. 4). 13. Determine the number of cases initiated by the Branch which turned out to be non-fraud cases and consequently referred to Income and Business Tax Branch. 14. Determine the number of fraud cases closed involving the amount of P10,000 or more and their final disposition, whether they were elevated to the National Office or not and why. 15. Collect the booklets of official receipts (BIR Form No. 19.14) from the Branch Investigators and ascertain whether the cases for which the official receipts were issued have been investigated, terminated and investigation reports submitted. COLLECTION BRANCH 1. Go over records of the Branch to be sure that work assigned as outlined in the Revenue Manual and Regulations are strictly followed and see to it that they correctly interpret the laid down policies of the National Office. 2. See to it that the collection of current and delinquent taxes are efficiently collected on time. 3. See to it that the officials and employees of the Branch maintain the highest standards as to: Efficiency; Honesty and dependability; Physical fitness and general appearance; Morality and general conduct; Aptitude and resourcefulness; Attendance and interest in the work; and Public relation. 4. Consult reports of activities of this Branch for previous months and find out action taken on the following: (a) Collectible cases See to it that prompt action is taken on cases about to prescribe by issuance of warrants of distraint and levy or court action for collections as the case may be. Ascertain that in all cases where the taxpayer requested for extension to pay or filed a surety bond to guarantee payment of a tax obligation, a waiver of the statute of limitations has been secured. In cases of surety bond, see to it that the requirements prescribed in Memorandum Order No. 718, Office Circular No. V-119 and General Circular No. V-269 have been complied with. (b) Transferred Cases See to it that verification of the present addresses of transferred taxpayers was made and stated in the corresponding reports of transfers to facilitate collection. (c) Protested Cases Ascertain action taken on protested cases by the Income and Business Tax Branch. See to it that all protested cases are referred to the latter Branch by the chief of the Collection Branch for re-investigation if the protest so warrants. (d) Cases Pending in Court Check the records of the Legal Branch status of all cases pending in Court. (e) Cases under Warrant of Distraint and Levy Check if the Regional Collection Supervisor is making periodical verification on the status of the warrants of Distraint and Levy sent to the Collection Agents and Collection Clerks. (f) Transaction Register See to it that payments of accounts in this register are duly taken up in the current IBM lists of the Regional and Provincial Revenue Offices. (g) Monthly Reports Check if submitted on time. (h) Cancelled Accounts Check very carefully if they are properly supported by 3 x 8 reports or receipts of payments and whether they are noted in the IBM list of delinquent accounts and reported ultimately to the Accounting Machine Division. (i) IBM Delinquent List See that all actions taken by collection agents on each account are properly reflected thereon and the reaction or answers of taxpayers are duly noted. ACCOUNTING MACHINE BRANCH 1. Go over records of the branch to be sure that work assigned as outlined in the Revenue Manual and Regulations are strictly followed and see to it that they correctly interpret the laid down policies of the National Office. (See Memorandum Order No. V-634). 2. See to it that the officials and employees in the Branch maintain the highest standards as to: Efficiency; Honesty and dependability; Physical fitness and General appearance; Morality and General conduct; Aptitude and resourcefulness; Attendance and interest in the work; and Public relation. 3. Find out whether the listing and indexing of income tax returns, assessment notices, collections, and tax refunds are accurately and promptly accomplished. 4. Check if the preparation of Form 40.00 (Summary of Taxes Assessed or Demanded) are up-to-dately prepared and properly classified and filed. 5. Check if the volume of work flow from Income and Business Tax Branch keeps the IBM busy enough during the year. 6. For other guidance in the audit of this Branch, refer to Memorandum Order No. V-634 dated July 5, 1956. LEGAL AND LITIGATION BRANCH 1. Go over records of the Branch to be sure that work assigned as outlined in the Revenue Manual and Regulations are strictly followed and see to it that they correctly interpret the laid down policies of the National Office. 2. See to it that the officials and employees of the Branch maintain the highest standards as to: Efficiency; Honest and Dependability; Physical fitness and General appearance; Morality and General conduct; Aptitude and resourcefulness; Attendance and interest in the work; and Public relation. 3. Determine whether records are properly kept and filed to assure safety and preservations as well as easy identification (Reference: BIR Form No. 19.40 and 19.41). 4. Determine whether an effective follow-up and control system has been installed. 5. Determine whether reports required for statistical and management information purposes are submitted on time, correct, analyzed and made use of. (Reference: BIR Form No. 40.04) 6. Analyze reports of examination in tax-determination cases which are referred to this Branch as to number: a. Cases recommended for prosecution, concurred in, disagreed partially, returned for additional evidence, and dropped for lack of merit. b. Cases where no prosecution was recommended, concurred in, disagreed partially, returned for additional evidence, disagreed recommended for prosecution, and dropped for lack of merit. 7. See if the collection Branch is informed by this Branch of cases decided by the courts and cases closed with recommendation by Legal Branch. 8. Check and analyze backlog. 9. Determine whether rulings prepared and issued by this Branch are in conformity with precedents, or in accordance with previous rulings issued by the National Office. 10. Analyze and determine if established procedure has been followed and whether action is in accordance with laws and regulations in deciding refunds and tax credits, see reports. 11. Check whether cases and rulings decided by the Courts and sent by the National Office as well as quarterly bulletin are properly filed and indexed. 12. Check whether rulings issued by the Regional Office are forwarded to the National Office. ADMINISTRATIVE BRANCH 1. Go over records of the Branch to be sure that work assigned as outlined in the Revenue Manual and Regulations are strictly followed and see to it that they correctly interpret the laid down policies of the National Office. 2. See to it that the officials and employees of the Branch maintain the highest standards as to: Efficiency; Honest and Dependability; Physical fitness and General appearance; Morality and General conduct; Aptitude and resourcefulness; Attendance and interest in the work; and Public relation. 3. See to it that call-up correspondence and work assignments have been installed and are maintained up-to-date. 4. Determine if manuals, circulars, or instructions, regulations and memoranda governing procedure and policies are well kept, complete and up-to-date. 5. See to it that the records are well kept and maintained in an orderly manner; that they are filed in accordance with the filing system adopted by the National Office; that all papers are released on time and the call-up system is strictly observed; and that provision has been made to insure same against loss or destruction due to fire, theft, etc. 6. See to it that there are sufficient and convenient office equipment and enough office supplies for the regional office at times; equipment like typewriters, adding machines and others needing constant cleaning and conditioning are kept in that manner; and strict economy is observed in the use of supplies. 7. Determine whether the office space of the Regional Office is large enough, convenient, safe and clean; efforts are made to keep the premises well lighted and ventilated; functional arrangement of tables, equipment, etc. are made. 8. See whether the office building is accessible and convenient to taxpayers and employees; fire-proof and rent economical. 9. Look into whether or not the Regional Office has a tax assistance and information program designed to acquaint the public with Bureau policies, tax laws and regulations, etc. TAX CENSUS BRANCH 1. Go over records of the Branch to be sure that work assigned as outlined in the Revenue Manual and Regulations are strictly followed and see to it that they correctly interpret the laid down policies of the National Office. 2. See to it that officials and employees in the Branch maintain the highest standards as to: Efficiency; Honesty and Dependability; Physical fitness and General appearance; Morality and General conduct; Aptitude and resourcefulness; Attendance and interest in the work; and Public relation. 3. See to it that the tax census statements are properly processed. 4. Find out if the Branch keeps and maintains the appropriate Tax Register of the region. 5. Find out if the Branch avails of the assistance of the city and municipal treasurers in the preparation and revision of the Regional Tax Registers. 6. See if the Branch conducts the necessary verification relative to tax census statements, furnishing copies of reports thereof to the National Office for proper analysis and evaluation. 7. For further guidance in the audit, refer to Memorandum Order No. V-920 dated July 1, 1960. lexlib ALCOHOL AND TOBACCO TAX BRANCH 1. Go over records of the Branch to be sure that work assigned as outlined in the Revenue Manual and Regulations are strictly followed, and see to it that laid down policies of the National Office are correctly interpreted. 2. See to it that the officials and employees of the Branch maintain the highest standards as to: Efficiency/Honesty and Dependability; Physical fitness and General appearance; Morality and General conduct; Aptitude and resourcefulness; Attendance and interest in his or her work; and Public relation. 3. Determine whether records, including transcript sheets of official register books, statistical reports, reports on inspection of establishments and plant installations and assignment of field personnel, are properly kept and filed to assure safety and preservation, as well as easy identification and whether copies of these reports and transcript sheets are transmitted to the National Office. 4. Determine whether an effective follow-up and control system has been installed. 5. Check and analyze backlogs. 6. Look into the file copies of the monthly reports of activities where performance data of each employee may be gathered and evaluate his or her efficiency. 7. Determine whether assignments of personnel best serve exigencies of the regional revenue service, taking into account individual qualification and experience. 8. Examine the daily production reports of tobacco factories, including those on tobacco and cigarette paper wastes, as verified by revenue inspectors in-charge of zones and make analysis thereof. 9. Review records of cases involving tampering with seals of cigarette machines and other violations concerning removal of untaxpaid tobacco products. 10. Review records of closed specific tax cases to see whether they meet procedural and technical requirements. 11. See whether adequate reports on inspection of different tobacco factories and distilleries are made and filed and determine whether the fieldmen assigned therein are exercising complete surveillance and supervision on said establishments. 12. See whether statistical reports are compiled pertaining to: (a) Specific tax on tobacco products, strip stamps, and raw materials used, such as leaf tobacco and bobbins. (b) Specific tax on distilled spirits, internal revenue official labels, and raw materials, such as alcohol and molasses. (c) Quantity and kinds of denatured alcohol and internal revenue official labels. (d) Performance data of personnel charged with detecting and investigating anomalous operations of tobacco factories and distilleries. 13. See whether specific tax cases involving fraud are referred to the Investigation Branch of the Regional District. 14. See whether specific tax cases involving assessment of P10,000.00 or more are forwarded to the National Office. 15. Examine reports on denaturing operations of the Branch, whether adequate and check whether copies of these denaturing reports are supplied the National Office. 16. Verify whether periodic stock-taking of tobacco factories and distilleries are being conducted and see if reports thereof are filed and whether copies of the said reports are forwarded to the National Office. 17. Find out whether recommendations or suggestions for the improvement of the service have been formulated by the Branch and what actions have been taken on them. 18. Ascertain whether all cases for which Official Receipts (BIR Form 19.14) have been issued by Tobacco and Distillery Inspectors have been accounted for by way of appropriate investigation and filing of corresponding report. CITY AND PROVINCIAL REVENUE OFFICES 1. Review tax-determination reports of fieldmen for procedural accuracy, legality of assessments and for other requirements laid down by the National Office. 2. Go over records of the Office to be sure that work assigned as outlined in the Revenue Manual and Regulations are strictly followed and see to it that they correctly interpret the laid down policies of the National Office. 3. See to it that all reports coming from this office are correct and submitted promptly. 4. See to it that income tax returns are examined within the reglementary period. 5. See to it that the officials and employees of the office maintain the highest standard as to: Efficiency; Honesty and Dependability; Physical fitness and General appearance; Morality and General conduct; Aptitude and resourcefulness; Attendance and interest in the work; and Public relation. 6. Go over reports of fieldmen to determine whether they have been conducting their work efficiently. Confer with fieldmen and suggest means with an eye on economy, like contacting taxpayers for a date to examine their books to avoid several visits. To see to it that deficiency tax assessments are not based on flimsy bases. 7. Find out whether all fieldmen are using Official Receipts (BIR Form 19.14) and whether all cases for which such receipts have been issued are accounted for and corresponding reports submitted. 8. Find out whether up-to-date record of taxpayers is kept in the provincial/city office. 9. Examine records of the PRO for: a. Inadequacy of personnel b. Confer with personnel for their morale and temperament which may affect their work. c. Confer with heads re-need of office, office facilities and men. d. Housing and other aids to efficient working conditions should be determined. 10. Check the requirements of Internal Revenue Manual dated January 15, 1957 for Provincial Revenue Officers to comply. 11. Check the requirements of Department Order No. 31-63 dated February 6, 1963, for Provincial Revenue Officers and Collection Agents to follow and implement. casia This Revenue Memorandum Order shall take effect upon approval. (SGD.) JOSE B. LINGAD Acting Commissioner of Internal Revenue