2019
This is an Entry to the Government Best Practice Recognition Awards
Title
Strengthening government integrity through technology-driven auditing
Organization
Commission on Audit (COA)
Summary
In 2018, the Information Technology Audit Office of COA, upon the instruction of Chairperson Michael Aguinaldo, initiated a new way of detecting fraud and irregularities in government transactions by marrying technology with the audit.
The idea was to make use of the latest technological tools to make auditing more efficient, especially when it comes to the detection of potential irregularities as is done by the Commission’s counterparts in other countries. The effective use of advances in technologies like Business Intelligence and Descriptive Analytics, combined with the inquisitive mind of auditors, made the Commission better at fighting corruption than it was yesterday.
Background and Problem
On some occasions, COA has been criticized for its failure to detect irregularities in government transactions as it happens, citing as the reason its limited manpower as against its vast mandate. The fraud or irregularity is only discovered years later when perpetrators have already set up defenses or are out of the law’s reach.
In the infamous Pork Barrel Scam, then Justice Martires said that there is something wrong with the office of the auditor for failing to detect the irregularities in a timely manner1. Some even suspect that the auditors may be complicit in the scheme, thus tarnishing the reputation of the Commission. This is a normal consequence of being undermanned. Thereafter, COA played a vital role in shedding light on this story.
Solution and Impact
Following the Pareto Principle, the theory is that if 20% of an auditor’s tasks are automated or technology-driven, it can produce an 80% increase in efficiency, because the auditors can focus their efforts on more value-adding tasks like critical analysis, investigations, and reporting.
Hence, the ITAO took the initiative by being the pilot for this change. By incorporating technology into their audits, they were able to do things far more effectively and efficiently than those who didn’t:
- Through business intelligence and analytics, ITAO was able to:
- · Identify potential instances of healthcare insurance fraud such as the existence of ghost claimants. The issues were the subject of recent Senate inquiries into healthcare fraud and the ITAO analytics reports are now being used by law enforcement as leads in investigating the health care institutions involved, one of which is a high-profile case. This has changed the Senate’s perception of the healthcare insurance provider, with a proposal being made by one of the Senators to create and fund an anti- insurance fraud unit.
- · Determine the extent of the fraud perpetrated by an auditee’s cashier which went undetected for more than a decade. The cashier is now facing a plunder case before the Ombudsman.
- · Discover a potentially fraudulent scheme being perpetrated within the confines of a law enforcement bureau. The bureau is now leading an internal investigation on this scheme.
- · Flag irregularities in the recording of transactions in the government accounting system, leading to the discovery of millions worth of unrecorded disbursements and irregular check disbursements in a local government unit.
- By using automated tools in its technical contract reviews, ITAO was able to quickly identify and flag instances of noncompliance in 43 million pesos worth of government contracts. The contracts are now potential subjects of disallowance orders, thereby saving the government millions.
Milestones
Through this innovation, COA was able to accomplish in one day what it struggled to do in a decade. The solution enables better auditing focus resulting in significant reductions in audit work hours. Manually performing the reconciliation of accounting records and bank statements of auditees would usually take 500 hours each or 10,000 hours for 20 agencies. But through this innovation, the same could be accomplished in just 8 hours or 1 day. The plan now is to make these tools and procedures more mainstream so that other auditors would follow ITAO’s lead.