Guidelines on the Organization and Staffing of Internal Auditing Units (IAUs)

March 22, 2004

DBM BUDGET CIRCULAR NO. 04-04

 

1.0 Background

Under Republic Act (RA) No. 3456 (Internal Auditing Act of 1962), as amended by R.A. No. 4177, there shall be created, organized and operated in all government agencies an Internal Audit Service (IAS) which shall assist management to achieve efficient and effective fiscal administration and performance of agency affairs and functions. It shall be under the direct administrative supervision and control of the head and/or assistant head of the agency; organized as an independent staff unit to perform staff functions and to institute and conduct a program of internal audit for the agency. The chief of the IAS shall have the rank and salary equivalent to the third ranking official of the agency and shall report directly to the head or assistant head of the agency.

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 departments were merged into a Management Division under the Financial and Management Service. Thus, different levels of Management and Audit Analyst classes of positions were created for the purpose to perform a) management system review (to include staffing, manpower, and work methods and procedures review), and b) review of internal control systems for safeguarding money and property to ascertain weakness and deficiencies that need to be corrected.

Under Section 2, Article IX-D of the 1987 Philippine Constitution, the Commission on Audit (COA) may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies if the internal control system of the audited agencies is inadequate.

On March 29, 1989, Administrative Order (AO) No. 119 was issued, mandating government entities to strengthen its internal control systems and/or organize systems and procedures to that effect in coordination with the Department of Budget and Management (DBM).

COA issued Circular No. 91-368 to institute the Government Accounting and Auditing Manual (GAAM), Section 33, Volume III of the GAAM states that the Internal Audit Office shall be part of the internal control system of an agency. In addition, Section 55 thereof provides that the responsibility of the agency head to maintain the system of internal control may be delegated to an internal audit department or office.

AO No. 278 was issued on April 28, 1992 to provide that all heads of government offices, agencies, GOCCs, including GFIs and LGUs, shall organize the IAS in their respective offices, which shall be an integral part of the office/organization and shall assist the institution management in the effective discharge of its responsibilities insofar as the same would not encroach on or be adversarial with those of the auditors of the COA.

On April 14, 2003, AO No. 70 was issued mandating all heads of government agencies, GOCCs, GFIs, SUCs and LGUs to immediately organize an IAS in their respective offices, which shall function in accordance with the policies established by the provisions of R.A. No. 3456, as amended by R.A. No. 4177. BenchStat

To staff the IAS, AO No. 70 provides, among others: a) that the present organizational structure and personnel complement of agencies shall be reviewed by their heads and that the existing vacant and/or parallel positions of incumbents in the agency shall be converted as necessary for the creation/strengthening of the IAS, b) that all incumbent Internal Auditors and those performing internal audit functions under AO No. 278 shall continue to perform internal audit functions, and c) that their positions shall be classified to Internal Auditor positions.

2.0 Purpose

This Circular is being issued to provide guidelines on the organization and staffing of IAUs consistent with the foregoing issuances.

3.0 Coverage

This Circular shall apply to all national government agencies (NGAs), SUCs, GOCCs, GFIs and LGUs which shall hereinafter be referred to as government entities, and to all positions performing internal audit functions.

4.0 Policy Guidelines

4.1 On the Organization and Staffing of an IAU

4.1.1 The organization and staffing of an IAU shall consider the following internal audit functions: SHcDAI

4.1.1.1 Appraisal of procedures and related matters, including expressing an opinion as to the efficiency or adequacy of existing procedures; and appraising personnel efficiency.

4.1.1.2 Verification and analysis of financial and operations data to ascertain if attendant management information systems generate data or reports that are complete, accurate and valid.

4.1.1.3 Activities verifying the extent of compliance. This may involve determining that accounting procedures or other policies are being followed; operating procedures are being properly implemented; governmental regulations are being complied with; performance targets are being achieved; and other contractual obligation are being met.

4.1.1.4 Functions of a protective nature, such as prevention and detection of fraud or dishonesty; review of cases involving misuse of agency property; and checking of transactions with outside parties.

4.1.1.5 Miscellaneous services, including special investigations and assistance to outside contacts such as the COA.

4.1.2 Based on the foregoing functions, internal audits of government entities shall consist of operations audit and financial audit. The determination of the effectiveness and adequacy of security and management controls over information systems and databases and their integrity are deemed part of operations audit and financial audit.

4.1.3 A government entity may organize and staff its IAU as follows:

4.1.3.1 NGAs, GOCCs and GFIs

Government	Organizational Structure
Entity	and Head of the IAU
Department level entity	The IAU in a department shall be an Internal
	Audit Service. For department level entities,
	the internal audit organization shall depend on
	the subdivision of the entity's support staff
	units. The IAU head shall be classified same as
	those of the heads of the entity's support staff
	units. The IAU shall have up to two divisions
	on operations audit and financial audit. Each
	division shall be headed by an Internal Auditor
	V, SG-24.
Intermediate level entity	The IAU may be a branch, department or
(higher than a bureau but	office depending on the subdivision of the
lower than a department)	entity's support staff units. Its head shall be
such as councils,	classified same as those of the heads of the
commissions and boards	entity's support staff units. The IAU shall have
whose operation cut across	two divisions on operations audit and financial
several offices or even	audit. Each division shall be headed by an
departments.	Internal Auditor V, SG-24.
Bureau level entity	The IAU shall be an Internal Audit
	Division to be headed by an Internal Auditor
	V, SG-24.

4.1.3.2 LGUs

LGU	Organizational Structure
	and Head of the IAU
Provincial Government	The IAU in a provincial government
	may be a department to be headed by a
	Provincial Government Department Head,
	SG-26. It may have two units/groups on
	operations audit and financial audit. The head
	of each group shall be classified in accordance
	with Local Budget Circular (LBC) No. 53
	dated September 1, 1993.
City Government
Special City	The IAU in a special city may be a department
	to be headed by a City Government
	Department Head III, SG-27.
Highly	The IAU in a highly urbanized city may be a
Urbanized City	department to be headed by a City
	Government Department Head II, SG-26
Component City	The IAU in a component city may be a
	department to be headed by a City
	Government Department Head I, SG-25.
	The IAU in a city government may have two
	units/groups on operations audit and financial
	audit. The head of each group shall be
	classified in accordance with LBC No. 53.
Municipal Government
within Metro Manila	The IAU in a municipal government within
	Metro Manila may be a department to be
	headed by a Municipal Government
	Department Head II, SG-25.
outside Metro Manila	The IAU in a municipal government outside
	Metro Manila may be a department to be
	headed by a Municipal Government
	Department Head I, SG-24.
	The IAU in a municipal government, within or
	outside Metro Manila, may have two
	units/groups on operations audit and financial
	audit. The head of each group shall be
	classified in accordance with LBC No. 53.

4.1.3.3 SUCs

SUC (in accordance with
DBM and Commission on
Higher Education Joint	Organizational Structure and Head
Circular No. 1-A, s. 2003)	of the IAU
Level I SUC	The IAU in a Level I or II
Level II SUC	SUC shall
	be a staff under the Office of the SUC
	President to be headed by an Internal Auditor
	III, SG-18.
Level IIIA SUC	The IAU in a Level IIIA, IIIB or IV SUC shall
Level IIIB SUC	be an Internal Audit Division headed by an
Level IV SUC	Internal Level IV SUC Auditor V, SG-24.

4.1.4 Government entities shall determine the adequate staffing for their IAUs.

4.1.5 The Internal Auditor positions and the positions to assist them may be sourced through the redeployment and reallocation of filled positions from within the government entity and/or through the transfer and conversion of vacant positions.

4.2 On the Allocation/Reallocation of Positions to the Internal Auditing Assistant or Internal Auditor Classes

4.2.1 The allocation/reallocation of positions to the Internal Auditing Assistant or Internal Auditor classes shall be based on the duties and responsibilities listed in Annex A.

4.2.2 If both the technical and administrative support positions in a government entity are allocated to the various levels of a class specific to the government entity, the same may opt not to submit the positions for reallocation.

4.3 Salary Rules

4.3.1 An employee whose position is reallocated to a position title/class with the same salary grade shall be paid his present salary rate.

4.3.2 If reallocated to a position title/class with a higher salary grade, the salary rule on promotion shall apply as contained in ANNEX C of National Budget Circular No. 458 dated January 1, 1997 and Annex "C" of Local Budget Circular No. 64 dated January 22, 1997.

4.3.3 If reallocated to a position with a lower salary grade, the employee shall be paid his present salary.

4.4 On the Functions of Any Management Division/Unit of a Government Entity

The review of the internal control systems of a government entity shall no longer be part of the functions of its Management Division/Unit, which shall now be made responsible for the conduct of studies, surveys, and reviews for the development of new and improved management systems, including staffing standards, manpower requirements, and work methods and procedures.

5.0 Procedural Guidelines

5.1 On the Organization and Staffing of an IAU. and Allocation/Reallocation of Positions to Internal Auditing Assistant or Internal Auditor Classes

5.1.1 NGAs, SUCs, GOCCs and GFIs shall submit their proposals for the organization of their respective IAUs to the appropriate Budget and Management Bureau and Regional Office of the DBM. The following documents should be attached to the request: ITSacC

• Proposed functions of the organizational units;

• Proposed staffing;

• Proposed work load per position;

• Duly accomplished Position Description Forms;

• Functional charts and position charts showing the hierarchy of positions in the units where the positions are to be deployed; and

• Item number of filled positions to be transferred and of vacant positions to be abolished.

5.1.2 The DBM Offices concerned shall evaluate the proposals based on the documents submitted and shall cause the issuance of a Notice of Organization, Staffing and Compensation Action (NOSCA) with remarks to include, among others, the funding source and the new or revised P/A/P structure for the purpose.

5.1.3 Upon receipt of the approved NOSCA, government entities shall cause the preparation of the appointment papers of the employees concerned, subject to Civil Service laws, rules and regulations.

5.1.4 The approved appointments shall be the bases for payment of salary adjustments, if there are any.

5.1.5 LGUs may adopt staffing modifications for their IAUs in accordance with the pertinent provisions of this Circular and LBC No. 53. The staffing modifications shall be subject to the approval of the Sanggunian concerned and the personal services cost limitation contained in Section 325 (a), R.A. No. 7160 (Local Government Code of 1991), and LBC No. 75.

6.0 Funding Source

6.1 The funding source for the amounts necessary to implement initially the provisions of this Circular shall be as follows:

6.1.1 For NGAs and SUCs, the amount shall be charged against the appropriations for transferred and vacated/vacant positions;

6.1.2 For GOCCs and GFIs, the amount shall be charged against the corporate budget for transferred and vacated/vacant positions; and

6.1.3 For LGUs, the amount shall be charged against their respective local funds, subject to the personal services limitation under Section 325 (a), R.A. No. 7160. Said amount shall be provided for in appropriation ordinances to be enacted by the Sanggunians concerned.

6.2 Thereafter, such amounts as may be necessary for the continued implementation of this Circular shall be incorporated in the annual budgets of the agencies concerned.

7.0 Responsibility of the Head of a Government Entity

The Head of a government entity shall be held responsible for the submission of the required documents. He shall also be held personally liable for any payment of salary adjustment not in accordance with the provisions of this Circular, of salary adjustment not in accordance with the provisions of this Circular, without prejudice to the refund of any excess payment received by the employee concerned.

8.0 Saving Clause

Cases not covered by the provisions of this Circular shall be submitted to the Secretary of Budget and Management for resolution.

9.0 Effectivity

The allocation/reallocation of positions authorized under this Circular shall take effect not earlier than the date of approval and not earlier than the availability of savings/appropriation for the purpose.

 

(SGD.) EMILIA T. BONCODINSecretary

ANNEX A

 

	Position Title
Class	and Salary	Duties and Responsibilities
Identification	Grade
IAAS	Internal Auditing	Under immediate supervision, assists
	Assistant SG-8	internal auditors in the
		conduct of financial and/or operations audit;
		and does related work.
IAUD 1	Internal Auditor I,	Under general supervision, conducts
	SG-11	researches to obtain background information
		on the activities to be audited to determine the
		impact on the audit, the resources necessary to
		perform the audit, and possible risks
		associated with the audit; discusses research
		findings with the leader of the auditing team;
		performs simple financial and/or operations
		auditing work; drafts report on the results of
		the audit completed; discusses audit results
		with auditee/s before the draft of the report is
		finalized; makes appropriate
		recommendations based on the results of the
		audit; follows-up actions to determine if audit
		recommendations have been carried out or not
		and to inquire for the reasons for non-
		implementation; and does related work.
IAUD2	Internal Auditor	Under general supervision, drafts audit plans
	II, SG-15	for review of immediate supervisor; discusses
		internal audit scope and objectives with
		affected agency personnel prior to conduct of
		audit; performs difficult financial and/or
		operations auditing work; drafts report on the
		results of the audit completed; discusses audit
		results with auditee/s before the draft of the
		report is finalized; makes appropriate
		recommendations based on the results of the
		audit; follows-up actions to determine if audit
		recommendations have been carried out or not
		and to inquire for the reasons for non-
		implementation; and does related work.
IAUD3	Internal Auditor	Under general supervision, reviews agency
	III, SG-18	organizational structure, staffing,
		administrative systems and procedures and
		other relevant information to determine its
		internal audit needs and objectives; assigns
		and clarifies work assignments of members of
		audit team; discusses internal audit scope and
		objectives with affected agency personnel
		prior to conduct of audit; leads an internal
		audit team in the conduct of financial and/or
		operations audit; reviews findings and
		recommendations of audit team for
		completeness and conformance to audit plan,
		standards and guidelines; drafts the
		consolidated internal audit report; discusses
		audit results with auditee/s before the draft of
		the report is finalized; follows-up actions to
		determine if audit recommendations have
		been carried out or not and to inquire for the
		reasons for non-implementation; conducts
		investigations of anomalies discovered in
		audits and submits reports and
		recommendations on investigations
		completed; conducts special audits as
		assigned; and does related work.
IAUD4	Internal Auditor	Under direction, assists in supervising a
	IV, SG-22	division tasked with internal audit functions;
		reviews internal audit plans, discusses the
		internal audit plans with the concerned
		internal audit staff; advises staff on need for
		changes in scope, objectives, audit procedures
		and how to resolve audit issues encountered;
		reviews status report of audit being
		conducted; reviews written internal audit
		reports; trains new internal auditors; rates
		performance of audit staff; and does related
		work.
IAUD5	Internal Auditor	Under direction, supervises a division tasked
	V, SG-24	with internal audit functions; establishes the
		annual goals, objectives and performance
		targets of the internal auditing unit with the
		concurrence of concerned agency officials;
		establishes internal auditing standards,
		guidelines and procedures for the guidance of
		the internal audit staff; determines the extent
		of coordination with the Commission on
		Audit Auditors to avoid duplication of audit
		effort; does final review of internal audit
		plans; recommends approval of internal audit
		plans; reviews and approves the internal audit
		report; reviews and approves
		recommendations for enhancement of the
		internal audit functions; determines training
		needs of internal audit staff; responsible for
		work performance and discipline of audit
		staff; and does related work.