COMMISSION ON AUDIT CIRCULAR NO.

86-257 March 31, 1986

TO : Heads of Ministries, and Chiefs of Bureaus and Offices of the National

Government; Managing Heads of Government-Owned and/or Controlled
Corporations, State Colleges and Universities, and Self-Governing Boards,
Commissions and Agencies; The Officer-in-Charge, Metro Manila Commission;
Provincial Governors and City/Municipal Mayors; Provincial/City/Municipal
Treasurers, and Chief Accountants; COA Managers and Regional Directors;
Heads of Auditing Units; and Others Concerned.

SUBJECT : Selective Pre-Audit on Government Transactions

I. RATIONALE

In consonance with the concept of fiscal responsibility residing in management as

embodied in the Government Auditing Code of the Philippines, the Commission on Audit, under
COA Circular No. 82-195, dated October 26, 1982, lifted pre-audit actions on government
transactions, except those mandated by law.

This move was prompted by a felt need to infuse greater efficiency in the operations of
bureaus, offices government-owned and/or controlled corporations and instrumentalities of the
government and to enhance agency fiscal responsibility by reducing what was then considered
as red tape and bureaucratic practices.

However, subsequent events demonstrated that the elimination of the pre-audit system
was contributory to irregular, illegal, wasteful and anomalous disbursements of huge amounts of
public funds. It has become necessary, therefore, for the Commission on Audit to re-examine its
previous policy on pre-audit with the end in view of striking a balance between the maintenance
of efficiency with the least red tape and providing safeguards for the proper and sound
management and regulation of public fund disbursements. For these reasons, the Commission
on Audit hereby reinstitutes the pre-audit activities on a limited and selective basis. It intends to
review the results of this move on a year-to-year basis in order to make the necessary
adjustments when necessary and warranted.

II. COVERAGE

The reinstitution of selective pre-audit actions referred to herein shall apply to all sectors
of government, viz:

1. Central and Regional Offices, and Operating Units of Ministries, Bureaus and
Offices of the National Government.

2. Provinces, Cities and Municipalities, as well as the Metropolitan Manila

Commission.

3. Government-Owned and/or Controlled Corporations, State Colleges and

Universities, Self-Governing Boards, Commissions and Agencies, and
Subsidiaries.
III. SCOPE OF PRE-AUDIT ACTIVITIES

In addition to the pre-audit activities mandated by law as enumerated in COA Circular

No. 82-195, pre-audit action by Auditors of this Commission shall be reinstituted on the following
fiscal transactions:

A. Cash Advances

All cash advances, except those granted for the payment of salaries of
regular officers and employees, shall be pre-audited. Likewise, the liquidation of
these cash advances shall first be audited before the same is taken up in the
books of accounts.

The grant of cash advances and their liquidation shall be governed by

existing regulations of this Commission, particularly the following:

1. No cash advance shall be given unless for a legally authorized specific

purpose.

2. A cash advance for miscellaneous expenses shall be reported on and

liquidated as soon as, but not later than thirty (30) days after, the purpose
for which it was given has been served.

3. No additional cash advance shall be allowed any official or employee

unless the previous cash advance given to him is first settled or a proper
accounting thereof is made for the full amount of the cash advance.
Granting cash advances to additional disbursing officers in order to
circumvent this requirement and without justifiable reasons shall not be
allowed.

4. No officer or employee shall be granted cash advance unless he is properly

bonded in accordance with law or regulations. The amount of cash
advance which he may be granted shall not exceed the maximum amount
covered by his bond.

5. No cash advance shall be granted unless appropriations and allotments are

available and have been obligated, for the purpose for which the cash
advance is to be spent, as certified by the Treasurer or Accountant
concerned.

6. No cash advance shall be granted for payments on account of

infrastructure projects or other undertakings on a project basis.

7. No cash advance shall be granted for the purpose of liquidating a previous

cash advance.

8. Every official or employee authorized to travel abroad for official business

shall render an account of the cash advances received by him within sixty
(60) days after his return to the Philippines.
 9. A cash advance shall be granted only to responsible officials or employees.
Casual, emergency or contractual employees shall not be granted cash
advances, except under justifiable circumstances as may be determined by
the head of the agency and the Auditor.

10. Cash advances which are no longer needed or have not been used for a
period of two months shall be returned to, or deposited immediately with,
the proper collecting officer or Treasurer.

11. Transfer of funds from one officer to another shall, except as allowed by law
or regulation, be made only upon prior direction of the Auditor.

B. Contracts

1. All contracts entered into by national agencies and by government-owned

and/or controlled corporations and their subsidiaries involving an amount of
P1 million or more in each case and by local government units involving an
amount of P250,000 or more in each case shall be subject to pre-audit. As
used herein, the term "contract" includes (a) purchases of supplies and
capital assets, such as land, buildings and structures, and equipment, thru
any mode of procurement, (b) prosecution of infrastructure and other
construction projects thru public bidding or negotiation, and (c) disposal of
said capital assets.

2. A proposed contract falling under the preceding paragraph shall be

submitted for examination and review to the head of the auditing unit
concerned before the same is signed by the contracting government official.
If the contract will be let thru public bidding or public auction, the auditor
shall review the pre-qualification requirements, plans and/or specifications,
bidding procedures and the manner of award to the winning bidder.

In the case of a negotiated contract, the auditor shall review its terms
and conditions, including the reasonableness of the price.

3. As regards progress payments on infrastructure projects, all billings

representing the first 20% work accomplishment and those representing
50% or more work accomplishment, including the final payment, shall be
subject to pre-audit.

4. All payments under a change order, extra work order, supplemental

agreement, or any other form of variation order, as well as price escalation
adjustments, related to contracts subject to pre-audit under Par. B.1 above,
shall likewise be subject to pre-audit. Should the aggregate of the claims
for payment involving a series of change orders, extra work orders,
supplemental agreements or other forms of variation order exceed 50% of
the original contract price of the related project, the claim for payment
representing such excess shall first be forwarded to the Office of the
Chairman of this Commission for review.

5. Inspection of deliveries or project accomplishment contemplated herein

 shall be conducted by the Auditor or his authorized representative as an
integral part of pre-audit action. Inspection of transactions not subject to
pre-audit shall not be a prerequisite to payment.

6. Aside from the role of the Commission on Audit and its representatives in
the audited agencies in the disposal of government property, the
transaction constituting the disposal of capital assets as specified above
shall be audited before the transaction is consummated; otherwise, the
accounts affected shall not be dropped from the books and shall remain as
the accountability and responsibility of the officials concerned.

IV. DUTIES AND RESPONSIBILITIES OF AGENCY OFFICIALS

Agency officials concerned shall:

1. See that no claims covered by this Circular are paid without evidence of the
audit action of the Auditor as required herein.

2. Submit to the Auditor concerned for review copies of proposed contracts with all
supporting documents before they are signed by the contracting official
concerned.

3. See that no splitting of requisitions, purchase orders, vouchers, and the like, is
resorted to in order to circumvent the control measures provided in this Circular
and other laws and regulations.

4. Maintain complete and up-to-date subsidiary records of cash advances granted

and liquidated.

V. DUTIES AND RESPONSIBILITIES OF COA OFFICIALS AND REPRESENTATIVES

The head of the audit unit shall:

1. Exercise direct control and supervision over all aspects of pre-audit work.

2. See that all inspection and evaluation of project accomplishment and deliveries
of supplies, materials and equipment and evaluation of proposed change orders,
extra work orders, supplemental contracts, price escalation, and other variation
orders are made in accordance with auditing rules and regulations on the matter.

3. Act on the transactions subject to pre-audit within twenty-four (24) hours from
receipt by his Office of the pertinent vouchers/documents. The action herein
required does not necessarily mean approval or allowing in audit.

4. Strictly enforce compliance with the requirement for submission to his office of
copies of contracts (including variation orders and purchase/letter orders), and
their supporting documents as provided herein.

5. Suspend/Disallow all claims for payment on contracts which were not submitted
beforehand to his office for examination and review as herein required.
 6. Suspend/Disallow all claims for payment where splitting of requisitions, purchase
orders, vouchers, and the like, has been resorted to.

VI. EVIDENCE OF AUDIT ACTION

The signature of the Auditor on the voucher or any document of authorization,

signifying that he has allowed the claim or transaction, is evidence of his audit action.
The Auditor shall satisfy himself that the requirements of applicable laws and regulations
have been substantially complied with and the interest of the government has been
amply protected.

VII. COUNTERSIGNATURE OF CHECKS/WARRANTS

Except when the countersignature of the Auditor concerned is mandated by law,

such as in the case of withdrawals of trust deposits (Appropriations Act), checks and
warrants covering payment of transactions, whether or not subject to pre-audit, shall be
countersigned by the authorized agency officials.

VIII. REPEALING CLAUSE

All COA Circulars and Memoranda inconsistent herewith are hereby revoked,
amended or modified accordingly.

IX. EFFECTIVITY

This Circular shall take effect on April 15, 1986.

For the Commission:

(SGD.) TEOFISTO T. GUINGONA, JR., Chairman