Updates on Accounting and Auditing Regulations

1. Updates on Accounting and Auditing Regulations LOURDES M. CASTILLO Assistant Commissioner Government Accountancy Sector Commission on Audit Delivered during the GACPA Seminar at The Oriental Hotel, Taysan Hill, Sto. Niňo Village, Legaspi City October 19, 2013

2. Topical Outline • COA Circular No. 2013-002 dated January 30, 2013 “Adoption of the Revised Chart of Accounts for National Government Agencies” • COA-DBM-DOF Joint Circular No. 2013-1 dated August 06, 2013 “Adoption of the Unified Accounts Code Structure (UACS)”

3. COA-DBM Joint Circular No. 2013-1 dtd. March 15, 2013 “Revised Guidelines on the Submission of Quarterly Accountability Reports on Appropriations, Allotments, Obligations and Disbursements” COA Circular No. 2013-003 dtd. Oct. 29, 2013 “Updated Guidelines on the Prevention and Disallowance of Irregular, Unnecessary, Excessive, Extravagant and Unconscionable Expenses”

4. COA Circular No. 2013-007 dtd. Sept. 18, 2013 “Guidelines for the Use of Electronic Official Receipts (eORs) to Acknowledge Collection of Income and other Receipts of Government” COA Circular No. 2012-005 dtd. Dec. 7, 2012 “Revocation of COA Circular No. 2009-008 dtd. Nov. 9, 2009 and Prescribing the Use of PunongBarangay’s Certification (PBC) and COA Auditor’s Advice (CAA)”

5. Other Matters Updates on the Philippine Public Sector Accounting Standards (PPSASs) as harmonized with the IPSAS eNGAS Rollout in the Local Government Units

6. COA REVISED CHART OF ACCOUNTS

7. Legal Basis COA Circular No. 2013-002 dated January 30, 2013 Effectivity Date: January 01, 2014

8. Objectives • To provide uniform accounts for national government accounting and budget systems to facilitate the preparation of harmonized financial and budgetary accountability reports • To provide new accounts for the adoption of the Philippine Public Sector Accounting Standards (harmonized with IPSAS)

9. Objectives • To expand the account code from three (3) digits in the NGAS Chart of Accounts, to eight (8) digits, to allow expansion or creation of new accounts as may be necessary to implement new standards or policies and provide up to four levels of consolidation depending on the users’ information needs.

10. Major Changes Coverage is limited only to all national government agencies and GOCCs receiving funds constituted a SAGF from the National Government Expanded account code structure from three (3) digits to eight (8) digits

11. Account Code Structure

12. Account Groups Codes are assigned to account groups to facilitate location of accounts in the general and subsidiary ledgers, to provide systematic arrangement and classification of accounts and facilitate preparation of the consolidated financial reports as follows: CodeAccount Groups 1 Assets 2 Liabilities 3 Equity 4 Income 5 Expenses

13. Asset without Contra Account Ex. Cash, Collecting Officer A G

14. Asset with Contra Account Ex. Accounts Receivable 10301 010

15. Asset with Contra Account Ex. Allowance for Impairment – Accounts Receivable 10301011

16. Major Changes • New accounts were provided for the implementation of the Philippine Public Sector Accounting Standards (PPSAS)

17. New Accounts 1 01 04 010 Cash-Treasury/Agency Deposit, Regular 1 01 04 020 Cash-Treasury/Agency Deposit, Special Account 1 01 04 030 Cash-Treasury/Agency Deposit, Trust

18. New Accounts 10202010 Investments in Treasury Bills – Local In compliance with IPSAS 29-30 10202011 Allowance for Impairment - Investments In compliance with in Treasury Bills - Local IPSAS 29-30 10501010 Investment Property, Land In compliance with IPSAS 16 10501011 Allowance for Impairment - Investment In compliance with Property, Land IPSAS 16 & 21

19. New Accounts Examples:

20. Major Changes • Someaccounts were deleted since these accounts are for use by local government units or government-owned and/or controlled corporations, while other accounts are no longer applicable to national government agencies.

21. Deleted Accounts Examples:

22. Major Changes • Some accounts were either expanded or compressed. For instance, expense accounts for repairs and maintenance and depreciation of property, plant and equipment which were previously presented per asset account were compressed based on the major account classification

23. Compressed Accounts Examples: 811 Repairs and Maintenance - 5 02 13 040 Repairs and Office Buildings Maintenance- 812 Repairs and Maintenance - Buildings and Other School Buildings Structures 813 Repairs and Maintenance - Hospitals and Health Centers 814 Repairs and Maintenance - Market and Slaughterhouses 815 Repairs and Maintenance - Other Structures

24. Compressed Accounts Examples: 811 Depreciation-Office 5 05 01 040 Depreciation - Buildings Buildings and 812 Depreciation-School Other Structures Buildings 813 Depreciation-Hospitals and Health Centers 814 Depreciation-Market and Slaughterhouses 815 Depreciation-Other Structures 5 05 01 040 Depreciation-Buildings and Other Structures 811 Depreciation-Office Buildings 812 Depreciation-School Buildings 813 Depreciation-Hospitals and Health Centers 814 Depreciation-Market & Slaughterhouses 815 Depreciation-Other Structures

25. Repairs and Maintenance – Buildings and Other Structures 01 - Buildings 02 - School Buildings 03 - Hospitals and Health Centers 04 - Markets 05 - Slaughterhouses 06 - Hostels and Dormitories 99 - Other Structures Subsidiary Ledgers:

26. Depreciation - Buildings and Other Structures 01 - Buildings 02 - School Buildings 03 - Hospitals and Health Centers 04 - Markets 05 - Slaughterhouses 06 - Hostels and Dormitories 99 - Other Structures Subsidiary Ledgers:

27. Expanded Account Example: 716 Subsistence, Laundry 5 01 02 050 Subsistence and Quarters Allowance Allowance 5 01 02 060 Laundry Allowance 5 01 02 070 Quarters Allowance

28. Expanded Account Example: Cash - National 1 01 04 040 Cash-Modified Disbursement Treasury, System (MDS), Regular Modified 1 01 04 050 Cash-Modified Disbursement Disbursement System (MDS), Special System (MDS) Account 1 01 04 060 Cash-Modified Disbursement System (MDS), Trust

29. The Revised Chart of Accounts As Object Code in theUnified Account Code Structure

30. Purposes of Object Classification and Coding • To enable the classification and coding of transactions for reporting of impact of government revenues and expenditures on the economy as well as internal departmental analysis and decision-making by oversight agencies. • To capture all financial transactions such as goods or services acquired, payments made, revenue sources and the causes of increases or decreases in assets and liabilities.

31. The object coding in the information system provides a repository of government-wide information which can be used by oversight agencies without requiring departments and agencies to respond to individual requests. • Provides a basis for coding the object classification which uses accrual accounting requiring transactions to be recorded in the period when they occur and not only when cash or equivalents are received or paid.

32. Legal Basis • COA-DBM Joint Circular No. 2013-1 dated March 15, 2013 “Revised Guidelines on the Submission of Quarterly Accountability Reports on Appropriations, Allotments, Obligations and Disbursements”

33. Rationale • COA and DBM requirement for agencies to submit BAR/FAR. • DBM uses the reports to monitor agency performance for policy making purposes. • COA uses the report to prepare the AFR.

34. Purposes • To prescribe harmonized formats of the financial accountability reports (FAR) on appropriations, allotments, obligations, disbursement authorities, disbursements and balances; and • To prescribe guidelines on the preparation and timely submissions of FARs by the agencies to the DBM and the COA after the end of each quarter.

35. Coverage The Circular covers all departments, bureaus, offices and agencies of the national government and government-owned and/or controlled corporations maintaining Special Accounts in the General Fund.

36. Definition of Terms • Appropriation – an authorization made by law or other legislative enactment, directing the payment of goods and services out of government funds under specified conditions or for specified purposes. • Allotment – a specific authority in the form of Agency Budget Matrix (ABM) or Special Allotment Release Order (SARO) issued by DBM to identified agencies to incur obligations not exceeding a given amount during a specified period for the purpose indicated therein.

37. Sub-Allotment – a specific authority in the form of Sub-Allotment Release Order (Sub-ARO) issued by the Central Office (CO)/Regional Office (RO) of a department/office/ agency to its ROs/lower operating units (i.e. field office, district office or provincial office ) which allow them to incur obligations within a specified amount during a specified period. The Sub-ARO should not exceed the allotment releases to the CO. • Obligation – a commitment by the government agency arising from an act of a duly authorized official which binds the government to the immediate or eventual payment of a sum of money. The agency is authorized to incur obligations only in the performance of activities which are in pursuit of its functions and programs authorized in the appropriation acts/laws within the limit of the allotment released by the DBM.

38. Commitment – an obligation incurred by government agencies for which items have not yet been delivered and services not yet rendered. This is also called “Obligations Not Yet Due and Demandable”. Unpaid Obligation – this is the balance of an accounts payable or commitment. Operating Unit – a “national government agency” or a unit thereof receiving direct release of a Notice of Cash Allocation (NCA) from the DBM.

39. Guidelines • Head of office to submit the following reports to COA and DBM: • Statement of Appropriations, Allotments, Obligations, Disbursements and Balances (SAAODB) • List of Agency Budget Matrix (ABM) or SAROs and Sub-AROs

40. Detailed Statement of Current Year’s Obligations, Disbursements and Unpaid Obligations (SODUO-CY) • Summary of Prior Year’s Obligations, Disbursements and Unpaid Obligations (SODUO-PY) • Summary of Report of Disbursements

41. The FARs prescribed in the Circular shall replace the following DBM and COA reports as follows: • DBM • Statement of Allotments, Obligations and Balances (SAOB) – BAR No. 4 • Financial Report of Operations (BAR No. 2) • Monthly Report of Disbursements – Bar No. 3

42. COA • SAOB • Detailed Breakdown of Obligations • Detailed Breakdown of Disbursements • Regional Breakdown of Expenses • Statement of Cumulative Allotments, Obligations Incurred and Unobligated Balances • Detailed Statement of Cumulative Expenditures/ Obligations Incurred, Obligations Liquidated/Disbursements and Unliquidated Obligations

43. Responsibilities • The FARs shall be prepared and certified correct by the following officials: • Budget Officer/Head of Budget Unit– for the portion of the report pertaining to appropriations, allotments, obligations, unobligated allotments and unreleased appropriations

44. Chief Accountant/Head of Accounting Unit– for the portion of the report pertaining to disbursements and unpaid obligations • The FARs shall be signed by the Agency Headas the approving official. He/she shall ensure the timely submission of the accurate and reliable FARs.

45. Due Dates of Submission to COA and DBM • All Departments/Agencies – not later than the 30th day after the end of each quarter • The Lower Operating Units – within (5) days after the end of each quarter for consolidation • The Agency Regional Offices – to submit the consolidated report to COA (GAS) and DBM CO within (10) days after the end of each quarter

46. Penalty Clause • COA and DBM shall regularly monitor agency/OU compliance with the reporting requirements prescribed in the Circular. • For failure to submit the FARs, the “no report, no release” policy of the DBM shall be enforced.

47. Administrative sanctions on the automatic suspension of the payment of salaries of the officials concerned. • Violation for three (3) times without justifiable cause during the year, shall constitute a ground for the filing of an administrative/disciplinary action against the officials for inefficiency and incompetence.

48. COA Circular No. 2012-003 dated October 29, 2012 “Updated Guidelines for the Prevention of Disallowance of Irregular, Unnecessary, Excessive, Extravagant and Unconscionable Expenses as enumerated under COA Circular No. 85-55A dated Sept. 8, 1985”

49. Legal Basis • Section 2(2), Article IX-D of the 1987 Constitution • Section 33 of P.D. 1445

50. Definitions • “Irregular” Expenditures • Expenditures incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in laws • Transactions conducted in a manner that deviates or departs from, or which does not comply with standards set