Corporate Governance

Is it time to outsource the CoA's functions?

Tarnished beyond repair?

With the recent revelations of alleged collusion between the Commission on Audit and members of the military the latest of which involving an ex-Commissioner receiving payoffs from the Armed Forces of the Philippines, what should we make of the Commission and its capacity to adequately perform its functions that are critical to maintaining the integrity of our public service?

In other countries, government departments are audited by independent auditing firms. The reports by these firms are then submitted to an auditor-general whose job it is to determine if these comply with existing codes. Mind you, these auditing firms do not necessarily check every single invoice, voucher and receipt. They simply certify that proper accounting procedures are adhered to–such as whether the delegations to approve expenditures exceeding a certain amount and whether the proper liquidation and reporting of expenses are followed.

The secretary of each department would have to affix his or her signature on the financial statements produced by his internal audit team and certified by an independent auditing firm. Once a public official or public accountant certifies a statement, they then become liable if it is later discovered that some “creative accounting” practices distorted the true picture of the agencies concerned. This was demonstrated when the scandals around the dissolution of Enron and WorldCom also affected Arthur Andersen one of the world’s leading auditing and consulting firms at the time. Andersen had to surrender its license to practice as Certified Public Accountants due to its criminal liabilities. Also due to its tarnished reputation, its consulting arm Accenture had to split off from it.

To prevent a cozy relationship from developing from what should be an arm’s length one, auditing firms must be rotated every now and again, say every two or three years. These regulations are already in existence for corporations after the Securities and Exchange Commission adopted the Good Corporate Governance Code as part of the fallout from the Asian Financial Crisis of 1997. The CoA could draft similar rules affecting the public sector and monitor their compliance.

Given the dismal record of the Commission on Audit, has the time now come for us to simply dissolve most of its auditing functions and lay off most of its employees? It can retain the core function of collecting and approving the reports submitted to it by independent auditing firms. Only a skeletal staff would be required for that. The bulk of its budget could then be distributed to the different line agencies which would have to absorb the expense of hiring independent auditors.

Of course that might mean that the cost of hiring independent auditors could be higher if it were outsourced to the private sector, and it does not necessarily mean that collusion will be eradicated. Maybe, maybe not, you never know. But at least we would have a greater level of assurance with these independent auditors: that they would be discharging their functions a lot better than the CoA at present. So with that let me pose the question, is it time to outsource the Commission on Audit’s functions?