Upon the submission of an Evaluation Report to the Fraud Audit Services (FAS) in the COA Regional Offices, if the total amount involved is P50 million and below, or cannot be quantified for government agencies in the regions; or to the Fraud Audit Office (FAO) Director, if the total amount involved is above P50 million for government agencies in the regions and, regardless of the amount involved, for agencies in the NCR, then the FAO and FAS shall prepare a Fraud Case Evaluation Report (FCER) embodying an independent evaluation of the allegations with the end view of establishing the existence or absence of predication of fraud and the consequent recommendation either to terminate/close the case or conduct of fraud audit thereon.
The final disposition on the complaints/information/request for fraud audit rest with the Commission Proper or Assistant Commissioner, Special Services Sector, for cases acted by the FAO, if the amount involved is above P50 million or P50 million and below, respectively. On the other hand, for cases acted by the FAS, it shall be subject for approval/disapproval of the Regional Director.
Fraud audit is usually conducted when there is predication of fraud. It bears stressing that Forensic Accounting, Fourth Edition, International Edition explained that “Fraud is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knavery.”
The International Standards of Supreme Audit Institutions (INTOSAI) defined fraud as an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.
Corollary, the establishment of predication of fraud is based on the presence of “red flags” or “symptoms of fraud”. This refers to the set of circumstances that are unusual in nature or vary from the normal activity. It is a signal that something is out of the ordinary and may need to be investigated further.
When fraud audit is warranted, a Special Audit Team (SAT) is created and signed by the Chairperson of the COA.
It should be emphasized that a Fraud Audit is different with the Regular Audit conducted by Audit Teams in terms of the kinds of audit, the objective of the audit, and the composition of the audit team.
In the Regular Audit, the Audit Teams performs financial audit, compliance audit, and performance audit. A financial audit is conducted to determine whether the financial statements are prepared, in all material respects, in accordance with the applicable standards and framework; a compliance audit is conducted to determine whether financial operations are properly conducted and whether they have complied with applicable laws, regulations, policies, and procedures in handling operations; and a performance audit is concerned with the review of management efficiency with the end in view of eliminating waste and promoting efficient use of public funds and resources and the ascertainment of the agency’s effectiveness by determining whether desired results have been achieved and programs have accomplished their purposes and objectives.
In contrast, the objectives of fraud audit are to ender a timely and quality fraud audit report substantiated by evidence, monitor the effective implementation of the recommendations, and assure the successful prosecution of the civil, administrative and/or criminal aspect against the wrongdoers.
Additionally, in the creation of the SAT for fraud audit, relevant consideration is the expertise of the members of the team who are usually composed of auditors, lawyers and engineers. It may also include auditors/personnel from other offices of the Commission or other auditing units whose professional expertise can contribute to the efficient execution of the audits and the achievement of its objectives.
Accordingly, in the conduct of fraud audit, the Fraud Audit Reports (FAR) always end up being referred to the investigating bodies, usually to the Office of the Ombudsman (OMB) for the filing of cases against the persons held liable. Moreover, even when the conduct of fraud audit was not recommended, oftentimes, included in the FCER is the recommendation to direct the concerned auditor to prepare a sworn narrative report to be submitted to the OMB, for appropriate action of the violations duly established in the evaluation.
Presently, several fraud audits, including fraud cases evaluation, of the FAO since CY 2009 were transmitted to and recommended for filing of appropriate charges. Corollary, numerous cases are pending before the Sandiganbayan, competent courts, and quasi-judicial bodies for investigation and trial. (Roland Café Pondoc is a Commissioner of the Commission on Audit)