Amendments to Revenue Memorandum Order No. 5-89 dated January 11, 1989 Creating the Audit Report Evaluation Committee to Enhance Audit Efficiency and Supervisory Performance

September 1, 1995 REVENUE MEMORANDUM ORDER NO. 34-95 (amended by RMO 42-95) SUBJECT : Amendments to Revenue Memorandum Order No. 5-89 dated January 11, 1989 Creating the Audit Report Evaluation Committee to Enhance Audit Efficiency and Supervisory Performance TO : All Internal Revenue Offices and Others Concerned 1. Purpose The objectives of this Revenue Memorandum Order are: 1.1 To enhance the effectiveness of supervisory functions being performed by Revenue District Officers, section chiefs and group supervisors in the regional/district offices designated to supervise the conduct of audit/investigation of internal revenue tax cases. 1.2 To motivate revenue officers to apply adequate audit procedures and examination techniques through the exercise of better judgment and prudence. 1.3 To minimize arbitrary and jeopardy assessments. 2. Audit Report Evaluation Committee To attain the abovementioned objectives, a Committee on Audit Report Evaluation (hereinafter referred to as the Committee) is hereby created and organized. 2.1 The Committee shall be composed of the following: Commissioner Chairman Deputy Commissioner, Operations Group Member Deputy Commissioner, Information System Group Member Deputy Commissioner, Human Resources Mgt. Group Member Regional District of the Revenue Region where the case originated Member Assistant Commissioner, Legal Service Member Assistant Commissioner, Assessment Service Member Assistant Commissioner, Performance Monitoring Service Chairman-Secretariat 2.2 The Committee shall deliberate on audit reports selected for post audit evaluation. 2.3 The Committee deliberation meetings shall be presided over by the Chairman, or any of the members of the Committee who may be designated by the Commissioner. 2.4 The criteria in the selection of audit/investigation reports of closed and terminated cases to be subjected to post-audit evaluation by the Committee are hereby prescribed as follows: a. complaints received; b. no discrepancy reports; c. low tax audit result based on ratio of total deficiency taxes paid and assessed per investigation to gross revenue; Deficiency Taxes Paid + Assessed Deficiency Taxes Gross Revenue per Investigation or low tax audit effort ratio; Deficiency Taxes Paid + Assessed Deficiency Taxes (Deficiency Taxes Paid + Assessed Deficiency) + Tax Due per Return d. sample from different industry groups; e. sample from multinational companies; f. sample from enterprises availing of tax incentives/exemptions under compared to prior laws; g. reports reflecting substantial reduction of deficiency tax payments as compared to prior periods; h. reports involving unusually enormous assessments compared to gross revenue (fantastic assessments/collections); i. out-of-district/out-jurisdiction reports; j. reports of cases which appear to have been terminated with undue haste; k. reports which appear to have been submitted to bear the prescriptive period; l. cases successively investigated by the same of examiners and supervisors; m. reports of re-investigation resulting in substantial reduction of the amount originally assessed; and n. sample cases involving approved claims for tax credit/refund. 2.5 The secretariat shall process the selection of reports for evaluation and schedule deliberation meetings. 3. Functions and Duties of the Committee It shall be the duty of the Committee to: 3.1 Conduct selective audit review/evaluation of audit/investigation reports which are already approved by the Chief, Assessment Division. 3.2 Determine whether the revenue officer has diligently conducted his/her audit functions and has applied all the prescribed audit procedures and techniques, of which, i the judgment of the Committee, are deemed reasonably necessary in the light of the facts and circumstances of each case for the proper determination of the correct internal revenue tax liabilities of the taxpayer. 3.3 Determine whether the revenue officer has strictly observed the procedures and requirements prescribed in existing Revenue Memorandum Orders and other issuances relevant to the audit/investigation and reporting of internal revenue tax liabilities. 3.4 Determine whether the immediate supervisory has prudently and competently exercised his/her supervisory duties and functions. 3.5 Recommend for promotion the revenue officer/supervisor/RDO/other officers concerned for outstanding performance, as the circumstances warrant, or recommend the demotion, transfer or re-assignment of said revenue officials or recommend administrative/disciplinary action to be taken against a revenue officer or his/her immediate supervisor for inefficiency or incompetence as determined based from the results of the evaluation of the audit/investigation. 4. Method/Procedures for Evaluation 4.1 The Chief of the Assessment Division of each Region shall prepare a monthly list of approved reports of audit/investigation and shall forward the said list to the Performance Monitoring Service, Attn: Secretariat, Audit Report Evaluation Committee, National Office, Diliman, Quezon City, not later than the tenth (10th) day of the following month, in a form prescribed under Annex A of this Memorandum. 4.2 The Regional Director of each Region may make his/her recommendation of approved audit/investigation reports to be subjected to evaluation by the Committee. However, the Committee shall have the option to adopt the same or not. 4.3 On the basis of the prescribed criteria, the Secretariat shall select from the said lists the audit/investigation reports to be subjected to evaluation by the Committee and shall requisition the said reports including the dockets thereof from the proper office having custody of the same, and which shall be forwarded within ten (10) days to the Secretariat. 4.4 The Secretariat shall send copies of the 1717 Series Forms (Revenue Officer's Audit Report) required under Revenue Memorandum Order 25-94 and the Memorandum Report of investigation to each member of the Committee who shall review/evaluate the same and list down the deficiencies which shall be discussed with the revenue officer and his/her supervisors during the deliberations meetings. 4.5 The Secretariat officer schedule periodic meetings of the Committee during which members will deliberate on the findings and report of the investigating officer and his/her supervisor. 4.6 The revenue officer report is selected for evaluation and his/her supervisor, and in some cases, the Revenue District Officer, Chief of the Assessment Division, or other officers concerned, shall be notified to appear in the National Office on the date schedule for deliberation meetings, to be interviewed by the members of the Committee and to justify any omission of procedures which in the judgment of the Committee, are deemed necessary to have been undertaken by the revenue officer and his/her supervisor. 4.7 The Secretariat shall take note of the proceedings and prepare the Evaluation Report for signature by each member of the Committee. The Evaluation Reports shall include comments on the adequacy/inadequacy of audit procedures employed by the revenue officer and his/her compliance/non compliance with existing revenue issuances or directives regarding the audit, investigating and reporting of internal tax case and the recommendations arrived at by the Committee. 4.8 In cases where the Committee determines that any additional deficiency tax is still due from taxpayer, such additional deficiency tax shall be covered by a revised Assessment Notice/Letter of Demand prepared by the Assessment Division where the case originated in accordance with Revenue Memorandum Order 37-94, however, the Assessment Notice/Letter of Demand shall be signed by the Regional Director. Thereafter, the docket and Evaluation Report, together with the copy of the revised Assessment Notice shall be forwarded to the Commissioner. 4.9 The Evaluation Report shall form part of the tax docket and a copy shall be forwarded to the Personnel Division for inclusion in the personnel (201) file of the revenue officer/supervisor or other officers concerned. 4.10 The Secretariat shall prepare minutes of the regular meeting and monthly reports stating the following: - Audit/investigation report evaluated - Name of revenue officer/supervisor/RDO/other officers concerned - Evaluation results and recommendations 5. Deliberation Meetings of the Committee This Committee shall meet regularly to interview revenue officers, as well as their supervisors, whose reports are selected for evaluation. 6. Repealing Clause This Order supersedes Revenue Memorandum Order No. 5-89 and all other issuances and/or portions thereof inconsistent herewith. 7. Effectivity This Order shall take effect immediately. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue