Final Audit Paper

7/25/2019 Final Audit Paper

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EXECUTIVE SUMMARY

The purpose of the audit is to add value to the oce by

determining the adequacy, eectiveness and eciency of existing

procedures to improve its operations. The internal audit team

performed an operational audit of City Budget Oce of Butuan.

The obectives of the audit are to! "a# understand established

organi$ational policies, procedures and operational %o&' "b# determine

&hether actual practices comply &ith oce(&ide established policies

procedures and operational %o&' "c# assess eciency and

eectiveness of operations' and "d# recommend actions for

improvement.

The audit &as based on the standards mandated by the

)nternational *tandards for the +rofessional +ractice of )nternal

uditing. To achieve these, the auditors relied on the information

gathered and presented to the audit team about the company.

The auditors relied on direct observations of the daily operations

in the oce, inquiry &ith the cting City Budget Ocer, -ead of every

ivision and their subordinates and also the &al/(through test

conducted.

The 0ndings of the audit are! "a# )nappropriate *egregation of

uties' "b# )nformation *ystem iscrepancies' and "c# 1xcess of

uthority of *ignatories and the auditors recommend that the client

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ma/e an oce manual that speci0es actual &or/ in the &or/place, and

to hire additional employees.

TABLE OF CONTENTS

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Background of the Co!an"

The City Budget Oce is a 5overnment gency under the City

5overnment of Butuan currently located in City -all, oongan, Butuan

City under the supervision of the cting City Budget Ocer 6r.

rmando . +ere$, *r.

The oce7s obectives are to prepare the annual and

supplemental budget of the City through systems and procedures and

eective management allocation and control of the City expenditures.

)t also controls the level of obligation, provides technical and sta

support to the oces of the City through consultative dialogue.

The function of the City Budget Oce includes Budget

+reparation, &hich studies and consolidates budget proposal of various

operating departments' the Budget uthori$ation, &hich approves the

annual budget' the Budget 1xecution, &hich studies and evaluate

allotment requests and prepares appropriate recommendations' the

Budget ccountability, &hich compares and evaluates reports of

various departments against measures of performances8standards' and

lastly, the Budget 9evie&, &hich determine &hether the ordinance has

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complied &ith the budgetary requirements and general limitations set

forth in the ;ocal 5overnment Code of 2e, the employees of the City Budget Oce, &ith the help of

lmighty ?ather, adheres to provide sound budgeting services &ith

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utmost dedication, determination and courage to serve the +ublic. *o

-elp As 5od.

#ISTORY

)n 2


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close proximity &ith each other. ;ast 6ay 4, 4EE:, all the oces &ere

transferred in one building &herein it has four %oors. They did this to

better accommodate the people7s concerns and to ma/e transactions

&ith dierent oces easier to access.

)n every department, there is an assigned Chief of Oce &ho

mandates and oversees the transactions of their respective

departments. )n the City Budget Oce, the very 0rst City Budget

Ocer &as 6r. +edro 6onton, follo&ed by 6r. 9oberto ?ortun(

Jillanueva, C+. fter 6r. Jillanueva7s retirement, in 2


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OR$ANI%ATIONAL C#ART

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INTERNAL AU&IT C#ARTER

M'(('on

The mission of City Budget Oce "CBO# )nternal udit Committee

")C# is to add value to the oce by helping improve its operations

through independent, obective assurance and consulting activities

designed to accomplish their obectives and evaluate the eectiveness

of ris/ management, control, and governance processes.

Sco!e of )ork

The scope of &or/ of CBO()C is to conduct a comprehensive audit

of the various Oce activities. )t shall have the follo&ing functions!

ctivities verifying the extent of compliance. This may involve

determining that accounting and budget procedures or other

policies are being follo&ed' operating procedures are

appropriately implemented' governmental rules and

regulations are being complied &ith' performance targets are

being achieved' and other contractual obligations are being

met' etermine the adequacy, eectiveness and eciency of

existing procedures and personnel'

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Jeri0cation and analysis of 0nancial and operations data to

ascertain if management information system generates

reports that are complete, accurate and valid' and

?unctions of a protective nature, such as prevention and

detection of fraud or dishonesty' revie& of cases involving

misuse of agency property' and chec/ing of transactions &ith

outside parties.

Accounta*'+'t" and Re(!on('*'+'t"

2. 9ole of the Chief udit 1xecutive

The Chief udit 1xecutive "C1# shall be accountable to

management "CBO# and the 6ayor. -e is responsible to!

evelop a %exible annual audit plan using an appropriate ris/(

based methodology, including any ris/s or control concerns by

management. The said plan &ill be submitted to the CBO()C for

revie& and endorsement to the 6ayor7s Oce for approval prior

to its implementation' )mplements the annual audit plan, as approved by the City

Budget Ocer and the 6ayor. +rovide annually an evaluation on the ampleness and adequacy

of the oceKs procedures for controlling its activities and dealing

&ith its ris/s in the $ones put for&ard under the mission and

scope of &or/' )ssue periodic &ritten reports to the udit Committee and the

6ayor'

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9eport to the management and the 6ayor signi0cant issues

related to the procedures for controlling the activities of the

oce, including potential upgrades to those procedures, and give

data concerning such issues through resolution'

Coordinate &ith, and give oversight of, other compliance, control,

and monitoring functions'

6aintain an expert sta &ith adequate learning, s/ills,

experience, and expert accreditations to meet the requirements

of this charter by providing relevant trainings and continuing

professional education' and

*et up a quality armation program as basis of evaluation,

monitoring and improvement of all internal auditing activities

conducted.

4. 9ole of )nternal udit *ta

1ach internal audit sta is accountable to the Chief udit

1xecutive. -e is responsible to!

a. o the assigned audit tas/s and /eep regular reports and

updates to the Chief udit 1xecutive or at the earliest

opportunity as coordinated by the Chief udit 1xecutive'b. 6aintain independence and obectivity a priority in mind and

in appearance' andc. 9espect con0dentiality of the information gathered and8or

obtained on all audit and consulting activities.

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Inde!endence

To maintain independence and obectivity, the )C sta &ill

present their reports speci0cally to the Chief udit 1xecutive. The Chief

udit 1xecutive &ill revie& the &or/s of the sta &hich &ill then be

submitted practically to the )C for conclusive revie&. duplicate of

the report &ill also be given to the 6ayor7s Oce for reference.

Author't" and Acce((

The Chief udit 1xecutive and )C stas are authori$ed to!

-ave unrestricted access to all functions, records, property, and

personnel.

-ave full and free access to the udit Committees.

llocate resources, set frequencies, select subects, determine

scopes of &or/, and apply the techniques required to accomplish

audit obectives.

Obtain the necessary assistance of personnel in divisions of the

CBO &here they perform audits, as &ell as other speci0c

administration from &ithin or outside the oce.

The Chief udit 1xecutive and )C stas are not authori$ed to!

+erform any operational obligations for the oce or its aliates.

)nitiate or approve accounting transactions external to )C.

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irect the activities of any oce employee not employed by )C,

except to the extent such employees have been properly assigned

to auditing teams or to other&ise assist the internal auditors.

Record( O,ner(h'! and Retent'on

9ecords and documents and other information derived during the

engagement are o&ned by the internal audit committee of City Budget

Oce, therefore, this should remain under their control. ?or request for

access of the information by persons outside that committee, it should

be authori$ed by the Chief udit 1xecutive.

-ro.c'enc" and Tra'n'ng

The Chief udit 1xecutive shall routinely conduct trainings and

initiate seminars upon the approval of the management and the 6ayor.

These trainings and seminars &ill help maintain the internal audit

department7s competency and pro0ciency in the conduct of the audit

and consulting activities and to /eep at standard &ith the developing

&orld&ide practices in internal auditing and to consistently gro& in the

practice of the profession.

Standard( of Aud't -ract'ce

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The )nternal udit Committee shall conduct the audit in

conformity &ith )nternational *tandards for the +rofessional +ractice of

)nternal uditing.

E/ect'0't"

This charter shall ta/e eect on Luly 2, 4E2D on&ards.

1ndorsed for pproval!

111111111111111111111111111111111111111111

-ead of the udit Committee

pproved by!

1111111111111111111111111111111111111111

City 6ayor

udit Committee 6ember udit

Committee 6ember

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MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM

udit Committee 6ember

AU&IT RE-ORT

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A2 Suar" of F'nd'ng(

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2. *ta of

dministration

ivision cannot

interfere &ith

the aairs of

5eneral

5overnment

*ervices

ivision,

1conomic

*ervices

ivision, and

*ocial *ervices

ivision. "Based

on )ntervie

1mployee of

dministration

ivision

interfered &ith

the aairs of

5eneral

5overnment

*ervicesivision last

ecember

4E2I. "Based on

Observation#

+ossibility of

?raud-igh +riority

4. Anauthori$ed

personnel

cannot input

data to the

?96 *ystem

li/e )*+.

"Based on

)ntervie

ue to lac/ of

employees,1mployee C

input data to

the ?96

*ystem

speci0cally

)*+ even

though that is

not part of their

division as long

as he8she has

the /no&ledge

about it. "Based

on Observation#

Anauthori$ed

ccess-igh +riority


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Belo& are the areas in the City Budget Oce &here the auditors 0nd

unsatisfactory!

:. >henever

the cting City

Budget Ocer

is absent, the

esignated

Chief Ocer of

a division is

limited only to

sign8approve

purchase

requests and

obligation

requests of up

to +IE,EEE.EE.

=o limitations

for payrolls.

"Based on

)ntervie& &ith

the cting City

Budget Ocer#

;ast ecember

4E2I, the

cting City

Budget Ocer

&as absent and

the esignated

Chief Ocer forthat day said

that he has no

limitations in

signing

purchase

requests,

obligation

requests and

payrolls. "Based

on )ntervie

Anauthori$ed

ccess

6oderate

+riority

@. 1mployee

entertains day(

to(day

documents li/e

purchase

requests,

obligation

requests and

;ast ecember

4E2I, Only the

Chief Ocer of

ivision B &as

present. The

Chief Ocer

too/ over the

preparations of

possibility of

fraud.

-igh +riority

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payrolls and at

the same time,

the Chief

Ocer of a

division put

his8her initials

on the prepared

documents.

"Based on

Observation#

documents li/e

purchase

requests,

obligation

requests and

payrolls. t the

same time,

he8she &as the

one &ho

initialed those

documents.

"Based on

)ntervie

I. )f an

employee is no

longer part of a

division, his8her

account should

be ta/en out of

the ?96

*ystem.

ccounts are

not deleted and

can be used

again. "*ee

attachment#

possibility of

fraud.

6oderate

+riority

D. The o&ner of

the accountcan only access

that account.

*ince

*eptember

4E2I, 1mployee

used the

account of

1mployee 1.

"Based on

Observation

and )ntervie

possibility offraud.

6oderate+riority

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B2 &eta'+ &'(cu(('on of the F'nd'ng(

A2 Ina!!ro!r'ate Segregat'on of &ut'e( #I$# -RIORITY

Observations Business )mpact

Cr'ter'a3 *ta of dministration

ivision cannot interfere &ith the

aairs of 5eneral 5overnment

*ervices ivision, 1conomic *ervices

ivision, and *ocial *ervices ivision.

Cond't'on3 1mployee of

dministration ivision input data to

the ?96 *ystem &hich is the tas/ of

5eneral 5overnment *ervices

ivision last ecember 4E2I.

2. Confusion of &or/.

4. Can get access to restricte

information.

:. Overlapping of &or/.

9ecommendations 6anagement 9esponse

2. -ire additional employees.

?inancial constraint. Better if th

vacant positions &ill be 0lled u

rather than hire additiona

employees.

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4.

To have a manual &hich states

the ob description of each

employee, to comply &ith that

policy, and to strictly implement

that manual.

uring appointment, there is alread

ob description. -o&ever, &e &i

apply this recommendation in ou

oce.

:.

n approval from the cting City

Budget Ocer should be made

prior to assigning that employee

to do the ob.

This is o/ay but in case the ctin

City Budget is absent, th

dministrative Ocer can do th

approval.

@.

proper endorsement of &or/

after that employee has done

his8her &or/ at the other

ivision.

>e agree to apply th

recommendation in our oce.

A2 Ina!!ro!r'ate Segregat'on of &ut'e(MO&ERATE

-RIORITY


Cr'ter'a3 *ubordinates of the Chief

Ocer entertains day(to(day

documents &hile the Chief Ocer

signi0es an initial for approval of

those documents.

Cond't'on3 n instance &here

subordinate &as absent and the Chief

Ocer of the ivision too/ over the

preparation of the documents and at

the same, he8she signi0es an initial

for approval.

2. Confusion of &or/.

4. )nconsistency of &or/.

:. +ossible mista/es or errors may no

be discovered and might bdisregarded.


2. Before the subordinate may ta/e >e have this but only &hen it is

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his8her absence, he8she must

submit an excuse letter duly

approved by the dministrative

ivision.

vacation leave. This is a goo

recommendation so &e are going t

apply it in our oce.

4.

)n case of urgent absence, the

subordinate must inform the

Chief Ocer through text or call

and submit the letter after that

day.

>e &ill ta/e note of thi

recommendation because this is fo

record purposes of the dministrativ

ivision.

:.

The cting City Budget Ocer

must evaluate and reconcile the

documents prepared and

initialed by the Chief Ocer.

This is o/ay ho&ever it is case(to(cas

basis. The cting City Budget Oce

&ill evaluate and reconcile thos

documents only &hen it involves bi

amounts.

@. proper monitoring of

employees.

This is correct. This is the tas/ of th

dministrative Ocer.

B2 Inforat'on S"(te &'(cre!anc'e( #I$# -RIORITY


Cr'ter'a3 Anauthori$ed personnel

cannot input data to the ?96

*ystem li/e )*+.

Cond't'on3 ue to lac/ of

employees, 1mployee C input data tothe ?96 *ystem speci0cally )*+

&hich is not part of their division as

long as he8she has the /no&ledge

about it.

2. n alteration, changes, an

deletion of data may occur.

4. )nformation may be accessed b

unauthori$ed personnel.

:. Confusion of &or/.


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2. -ire more employees.

?inancial constraint. Better if th

vacant positions &ill be 0lled u

rather than hire additiona

employees.

4.

)nformation system must have a

module in the ?96 *ystem that

restricts access to people from

inputting data and a module

&here people can input data li/e

)*+.

This is the original plan ho&ever, th

development of the soft&are8&ebsit

is still on(going.

:.irect supervision of the

employee &ho inputs data.

>e &ill apply this recommendation i

our oce.

@.

reconciliation that &hat are

recorded in the logboo/ &ere

also being input in the ?96

*ystem.

This is applicable but ho&ever &

disagree to this recommendatio

because this is time consuming.

I.

The Chief Ocer must monitor

the logboo/ and the data that

&as being input in the ?96

*ystem.

This is still applicable but tim

consuming to do.

B2 Inforat'on S"(te &'(cre!anc'e( #I$# -RIORITY


Cr'ter'a3 The o&ner of the account

can only access that account.

Cond't'on3 *ince *eptember 4E2I,

1mployee used the account of


deletion of data may occur.4. )nformation may be accessed b

unauthori$ed personnel.:. Confusion of &or/.

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1mployee 1.

@. Threats to con0dentiality.

I. possibility of fraud.


2.)mplement policies that limit the

access to their system.

The development of the soft&are i

still on(going.

4.

There must be a proper approval

of authority to use someone

else7s account by the cting City

Budget Ocer.

>e agree to apply th

recommendation in our oc

because this is important for 0lin

purposes.

:.

+ass&ords must be changed at

least once a month or as often

as possible.

This is very good but the Chief Oce

must also /no& the pass&ord besid

the employee.

B2 Inforat'on S"(te &'(cre!anc'e(MO&ERATE

-RIORITY


Cr'ter'a3)f an employee is no longer

part of a division, his8her account

should be ta/en out of the ?96

*ystem.

Cond't'on3 ccounts are not deleted

and can be used again.


deletion of data may occur.

4. )nformation may be accessed b

unauthori$ed personnel.

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2.

)T must delete these accounts to

avoid past employees gaining

access to their system.

The development of the soft&are i

still on(going.

4.

)f it can7t be deleted, the )T must

bloc/ those accounts that are

o&ned by past employees.

>e &ill inform the )T of thi

recommendation because &e &ant t

apply this in our oce.

:.

Constant monitoring of

electronic logs for transactions

entered, altered, or deleted.

This is the ideal thing to do ho&eve

it is very time consuming.

C2 E4ce(( of Author't" of S'gnator'e(MO&ERATE

-RIORITY


Cr'ter'a3 The esignated Chief

Ocer of a division is limited only tosign8approve purchase requests and

obligation requests of up to

+IE,EEE.EE in case of the absence of

the cting City Budget Ocer and no

2. pproval of request &hich ar

beyond his limitations or to thauthority given to him.

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limitations for payrolls.

Cond't'on3 ;ast ecember (22,

4E2I, the cting City Budget Ocer

&as absent and the esignated Chief

Ocer for that day said that he has

no limitations in signing purchase

requests, obligation requests and

payrolls.

4. pproval of requests that lac/s

necessary requirements.


2.

9eorient the esignated Chief

Ocer about his authority andlimitations.

>e &ill apply this recommendation.

4.

The manual must also include

the limitations and authority of

esignated Chief Ocer in case

the cting City Budget Ocer is

absent. *trict implementation of

the manual.

>e &ill ta/e note of thi

recommendation and apply it in ou

oce.

:.

noti0cation to the cting City

Budget Ocer and an urget

response by him.

This is o/ay. >e &ill apply this in ou

oce.

AU&IT -LAN

The internal audit team &ill perform an operational audit of City

Budget Oce of Butuan from =ovember 4D, 4E2I to Lanuary 4, 4E2D.

The purpose of the audit is to add value to the oce by determining

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the adequacy, eectiveness and eciency of existing procedures and

personnel and helping improve its operations.

Background of the Co!an"

The City Budget Oce is a 5overnment gency under the City

5overnment of Butuan currently located in City -all, oongan, Butuan

City under the supervision of the cting City Budget Ocer 6r.

rmando . +ere$, *r. The oce7s obectives are to prepare the annual

and supplemental budget of the City through systems and procedures

and eective management allocation and control of the City

expenditures. )t also controls the level of obligation, provides technical

and sta support to the oces of the City through consultative

dialogue.

The function of the City Budget Oce includes Budget

+reparation, &hich studies and consolidates budget proposal of various

operating departments' the Budget uthori$ation, &hich approves the

annual budget' the Budget 1xecution, &hich studies and evaluate

allotment requests and prepares appropriate recommendations' the

Budget ccountability, &hich compares and evaluates reports of

various departments against measures of performances8standards' and

lastly, the Budget 9evie&, &hich determine &hether the ordinance has

4I 3 + a g e


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complied &ith the budgetary requirements and general limitations set

forth in the ;ocal 5overnment Code of 2


27/29

To achieve the above obectives, the auditors relied on the

information gathered about the company( their Jision and 6ission,

5oals and Obectives, +olicies and +rocedures, ?lo&chart and

Organi$ational Chart.

The auditors also relied on direct observations of the day(to(day

operations in the City Budget Oce, inquiry &ith the cting City

Budget Ocer, -ead of every ivision and some of their subordinates

and also to the &al/(through test that &as being conducted.

Sco!e of the Aud't

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Aud't T'e Ta*+e

6Intro7

Aud't -rocedure( Ste!(T'e

Schedu+e

A(('gned

Aud'tor(

Reark

($ather Inforat'on

Jision and 6ission 5oals and

Obectives

+olicies and

+rocedures ?lo&chart

Organi$ationalChart

=ovember

4D, 4E2I

Lonn

Lanica

9achel

Complied

Bra'n(tor'ngecember

I, 4E2Ill Complied

O*(er0e

1mployee

Operation 8 *ystem

"manual and

computeri$ed# Other relevant

persons

ecember


29/29

&al/through test

Fo++o,9u! 'nter0'e,(

Lanuary 2@,

4E(42,

4E2D

Lonarissa

6arorie

Lanena

9ica

Complied

&raft'ng the

O!erat'ona+ Aud't

Re!ort

Lanuary 4(

4< and

?ebruary

2(2

Final Audit Paper

Documents

Transcript of Final Audit Paper