P&A 1O' GrantThornton An instinct for growth"' Punongbagan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Abola Avenue 1200 Makati City Report of Independent Auditors Pnilippines T +63 2 988 2288 Michael G. Aguinaldo Chairperson Commission on Audit Commonwealth Avenue, Diliman Quezon City Report on the Audit of the Project Financial Statements Opinion We have audited the accompanying project financial statements of the Commission on Audit (the Commission) covering the Capacity Development Support for the Commission on Audit Project under Grant Number TFOA1 162 (the Project). These project financial statements, which are prepared from the books of accounts maintained by the Commission for the Project, are comprised of the statement of financial position as at December 31, 2018, and the statement of funds received and uses of funds, statement of expenditures by project component, statement of designated accounts and the statement of cash receipts and payments for the year then ended and a summary of significant accounting policies and other explanatory information. In our opinion, the project financial statements present fairly, in all material respects, the financial position of the Project as at December 31, 2018, and of the funds received and expenses incurred for the year then ended, as carried in the books of accounts maintained by the Commission for the Project, in accordance with the accounting policies described in Note 2 to the project financial statements, the guidelines of the International Bank for Reconstruction and Development (the World Bank). and the relevant terms of the grant agreement. Certified Public Accountants grantthornton.com.ph Punongboyan S Aroulio (P&A) is the Philippine member firm of Grant Thornton International Ltd Offices in Coaite, Cebu, Daco BOA/PPC Cert of Peg. No. 0002 SEC Accreditation No. 0002-FP-5 P&A GrantThornton An instinct for growth Basis for Opinion We conducted our audit in accordance with Philippine Standards on Auditing (PSA). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Project Financial Statements section of our report. We are independent of the Commission in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the project financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Matter This report is intended for the information of the Commission and the World Bank. However, upon release by the World Bank, this report is a matter of public record and its distribution is not limited. Responsibilities of Management and Those Charged with Governance for the Project Financial Statements Management is responsible for the preparation and fair presentation of the project financial statements in accordance with the accounting policies described in Note 2 to the project financial statements, the Wortd Bank guidelines, and the relevant terms of the agreement, and for such internal control as management determines is necessary to enable the preparation of these project financial statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the Commission's financial reporting process. Auditors' Responsibilities for the Audit of the Project Financial Statements Our objectives are to obtain reasonable assurance about whether the project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSA wii always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these project financial statements. As part of an audit in accordance with PSA. we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Certified Public Accountants Punongboyar & Araullo (PSA) is the Philippine member firm of Grant Thornton International Ltd P&A GrantThornton An instinct for growth * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the project financial statements, including the disclosures, and whether the project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. PUNONGBAYAN & ARAULLO By: Renan A. Piarnonte Partner CPA Reg. No. 0107805 TIN 221-843-037 PTR No. 7333700, January 3, 2019, Makati City SEC Group A Accreditation Partner - No. 1363-AR-1 (until Mar. 1, 2020) Firm - No. 0002-FR-5 (until Mar. 26, 2021) BIR AN 08-002511-37-2016 (until Oct. 3, 2019) Firm's BOA/PRC Cert. of Reg. No. 0002 (until JuL 24, 2021) April 30, 2019 Certified Public Accountants Punongboyon & Aroullo (PSA] is the Philippine member firm of Grart Thornton International Ltd COMMISSION ON AUDIT STATEMENT OF FINANCIAL POSITION DECEMBER 31,2018 COVERING THE SUPREME AUDIT INSTITUTION CAPACITY DEVELOPMENT FUND CAPACITY DEVELOPMENT SUPPORT FOR THE COMMISION ON AUDIT PROJECT (SAI CAPACITY DEVELOPMENT FUND GRANT NO. TFOA1162) Notes ASSETS CURRENT ASSETS Cash and cash equivalents 3 P 2,037,650 Receivables 4 78 Other assets 4 24,970 Total Current Assets 2,062,698 NON-CURRENT ASSET Information and communication equipment 5 621,923 TOTAL ASSETS P 2,684,621 LIABILITIES AND FUND BALANCE CURRENT LIABILITIES Financial liabilities 6 P 882,848 Inter-agency payables 6 28,746 Other payables 6 631,303 Total Liabilities 1,542,897 FUND BALANCE Accumulated surplus (deficit) 2 1,141,724 TOTAL LIABILITIES AN D FUN D BALAN CE P2,684,621 See Notes to Project Financial Statements. COMMISSION ON AUDIT STATEMENT OF FUNDS RECEIVED AND USES OF FUNDS FOR THE YEAR ENDED DECEMBER 31, 2018 COVERING THE SUPREME AUDIT INSTITUTION CAPACITY DEVELOPMENT FUND CAPACITY DEVELOPMENT SUPPORT FOR THE COMMISION ON AUDIT PROJECT (SAI CAPACITY DEVELOPMENT FUND GRANT NO. TFOA1162) FOR THE YEAR ENDED ACCUMULATED DECEMBER 31, 2018 TO-DATE Funds Income: SAI Capacity Development Fund Grant P P 14,040,420 Interest Income 1,792 6,498 Other Income 291 291 2,083 14,047,209 Uses of Funds* 1. Adoption and Implementation of International Standard of Supreme Audit Institution-based Philippine Public Sector Standards on Auditing 5,168,573 7,813,686 2. Development and Adoption of a Specialized Audit Manual for Disaster-related Funds and Activities 1,090,805 5,003,751 6,259,378 12,817,437 Effects of exchange rate changes 74,140 ( 88,048) EXCESS (DEFICIT) OF FUNDS RECEIVED OVER EXPENDITURES (P 6,183,155) P 1,141,724 * Please refer to the Statement of Expenditures by Project Component for the breakdown of expenditures incurred, See Notes to Project Financial Statements. COMMISSION ON AUDIT STATEMENT OF EXPENDITURES BY PROJECT COMPONENT FOR THE YEAR ENDED DECEMBER 31,2018 COVERING THE SUPREME AUDIT INSTITUTION CAPACITY DEVELOPMENT FUND CAPACITY DEVELOPMENT SUPPORT FOR THE COMMISION ON AUDIT PROJECT (SAI CAPACITY DEVELOPMENT FUND GRANT NO. TF0A1162) FOR THE YEAR ENDED ACCUMULATED Notes DECEMBER 31, 2018 TO-DATE Component 1- Adaption and Implementation of International Standard of Supreme Audit Institution-based Philippine Public Sector Standards on Auditing Traiungs 7 P 4,594,696 P 6,904,041 Operating costs 8 573,877 909,645 5,168,573 7,813,686 Component 2 - Development and Adoption of a Specialized Audit Manual for Disaster-related Funds and Activities Trainings 7 576,765 4,383,546 Operating costs 8 514,040 620,205 1,090,805 5,003,751 TOTAL EXPENDITURES P 6,59,378 P 12,817,437 See Notes to Project Financial Statements. COMMISSION ON AUDIT STATEMENT OF DESIGNATED ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2018 COVERING THE SUPREME AUDIT INSTITUTION CAPACITY DEVELOPMENT FUND CAPACITY DEVELOPMENT SUPPORT FOR THE COMMISION ON AUDIT PROJECT (SAI CAPACITY DEVELOPMENT FUND GRANT NO. TFOA1162) Bank: Land Bank of the Philippines Account number: 1694-0077-04 Project fund balance at beginning of year ( P 7,324,879) Balance of the designated account as of December 31, 2018 2,037,650 Total amount of expenditures claimed during the year 6,259,378 Other reconciling items: Financial liabilities ( 882,848) Communication and information equipment 853,300 Other payables ( 631,303) Depreciation ( 231,377) Inter-agency payables ( 28,746) Other assets 24,970 Interest income ( 1,792) Other income ( 291) Receivables 78 Effects of exchange rate changes ( 74,140) Total funds received as accounted for - See Notes to Project Financial Statements. COMMISSION ON AUDIT STATEMENT OF CASH RECEIPTS AND PAYMENTS FOR THE YEAR ENDED DECEMBER 31, 2018 COVERING THE SUPREME AUDIT INSTITUTION CAPACITY DEVELOPMENT FUND CAPACITY DEVELOPMENT SUPPORT FOR THE COMMISION ON AUDIT PROJECT (SAI CAPACITY DEVELOPMENT FUND GRANT NO. TFOA1162) CASH FLOWS FROM OPERATING ACTIVITIES Cash Inflows Receipt of refund of cash advances P 273,777 Collection of receivables 22,863 Collection of interest income 1,792 Total Cash Inflows 298,432 Cash Outflows Payment of training and operating costs ( 4,010,406) Grant of cash advances ( 2,972,485) Remittance of taxes withheld ( 131,304) Others ( 1,689) Total Cash Outflows ( 7,115,884) Net Cash Used in Operating Activities ( 6,817,452) CASH FLOWS FROM AN INVESTING ACTIVITY Acquisition of information and communication equipment ( 53,300) Effect of Exchange Rate Changes on Cash in Bank 74,140 Decrease in Cash in Bank ( 6,796,612) CASH IN BANK AT THE BEGINNING OF YEAR 8,834,262 CASH IN BANK AT END OF YEAR P 2,037,650 See Notes to Project Financial Statements. COMMISION ON AUDIT NOTES TO PROJECT FINANCIAL STATEMENTS COVERING THE SUPREME AUDIT INSTITUTION CAPACITY DEVELOPMENT FUND CAPACITY DEVELOPMENT SUPPORT FOR THE COMMISION ON AUDIT PROJECT (SAI CAPACITY DEVELOPMENT FUND GRANT NO. TFOA1162) FOR THE YEAR ENDED DECEMBER 31, 2018 PROJECT INFORMATION 1.1 The Implementing Organization The Commission on Audit (COA or the Commission) is an independent constitutional commission established by the Constitution of the Republic of the Philippines. It has the primary function to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to, the government. It also promulgates accounting and auditing rules and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of government funds and properties. The head office of Commission is located at Commonwealth Avenue, Quezon City. 12 Project Description In 2015, the International Bank for Reconstruction and Development (the World Bank), acting as administrator of grant funds provided by multiple donors under the Supreme Audit Institution Capacity Development Fund, extended to the Commission a grant in an amount not to exceed United States (U.S.) $278,000. In 2018, the World Bank provided additional financial assistance in support of the Project by extending to the Commission an additional grant amounting to (U.S.) $25,000. The fund is for Capacity Development Support to the Commission on Audit under Grant No. TFOAll62 (the Project). The Project's objective is to increase uniformity of practice of audit and assurance services provided by the Supreme Audit Institutions of the Philippines (Commission on Audit) and promote its compliance with international audit guidelines and best practices in the specialized area of disaster related activities. The Commission started the project in 2016. The Project components are as follows: 1. Adoption and implementation of International Standard of Supreme Audit Institution (ISSAI)-based Philippine Public Sector Standards on Auditing (PPSSA). Provision of technical assistance in the following: professional staff capacity development by providing training on level 4 ISSAIs and the iCATs; and, -2- * organizational system capacity development through adoption and dissemination of PPSSAs along with guidance and practice notes, and audit manuals. 2. Development and Adoption of a Specialized Audit Manual for Disaster-related Funds and Activities * provision of technical assistance in the professional staff capacity development by providing training on accounting and auditing guidelines related to Disaster Risk Reduction and Management Fund; and, * development of a specialized audit manual as a guide for the audit of disaster-related funds. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 21 Basis ofPreparation The accompanying project financial statements have been prepared and maintained on the accrual basis in accordance with the Philippine Public Sector Accounting Standards. 2.2 Functional and Presentation Currency The accompanying project financial statements are presented in Philippine Peso (PHP), the currency of the country in which the Project is operating. 2.3 Cash and Cash Equivalents Cash and cash equivalents include bank deposit that is testricted to specific purposes bound by the contracted agreements. 2.4 Receivables and Other Assets Receivables and other assets comprise of cash advances to officers and employees for project expenses. 2.5 Information and Communication Equipment Items of information and communication equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized while expenditures for repairs and maintenance are charged to expense during the period in which they are incurred. Depreciation on information and communication equipment is calculated using the straight-line method over its estimated useful life of five years. 2.6 Financial Liabilies, Inter-Agency and Other Payables Financial liabilities, inter-agency and other payables are obligations on the basis of normal credit terms and do not bear interest. 27 Accumulated Surplus (Deficit) The amount included in fund balance includes accumulated excess of grant funds received over expenses reduced by funds returned to funding agencies/partners and other adjustments. 2.8 Grant Funds The World Bank advances grant funds into a designated account of the Commission to finance eligible expenditures for the Project and for which supporting documents are provided at a later date. 2.9 Costs and Expenses Costs and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in fund balance. Costs and expenses are recognized in the statement of funds received and uses of funds when paid rather than when the obligation is incurred, except for accrual of certain personnel, benefits, and other operating costs. 2.10 Foreig Currency Transactions and Translation The accounting records of the Commission are maintained in Philippine pesos. Foreign currency gains and losses resulting from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currency are recognized in the statement of funds received and uses of funds. 2.11 Provisions Provisions, if any, are recognized when the Project has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. 2.12 Contingencies Contingent liabilities are not recognized in the project financial statements. They are disclosed in the notes to the project financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the project financial statements but are disclosed in the notes to project financial statements when an inflow of economic benefits is probable. 2.13 Events After the End of the Reporting Period Any post-year-end event that provides additional information about the Project's financial position at the end of the reporting period (adjusting event) is reflected in the project financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the project financial statements. -4- 3. CASH AND CASH EQUIVALENTS As of December 31, 2018, the Project has cash in bank amounting to P2,037,650. Cash in bank generally earns interest based on daily bank deposit rates. Interest income earned on savings deposits amounted to P1,792 for the year ended December 31, 2018. 4. RECEIVABLES AND OTHER ASSETS The composition of these accounts as of December 31, 2018 is as follows: Receivables Due from national government agencies P 78 Other assets Advances to special disbursing officer 24,970 P 25,048 5. INFORMATION AND COMMUNICATION EQUIPMENT The gross carrying amounts and accumulated depreciation of information and communication equipment as of December 31, 2018 are shown below. Cost Balance at beginning of year P 800,000 Additions during the year 53300 Balance at end of year 853,300 Accumulated depreciation Balance at beginning of year ( 76,000) D ep re c ia tio n d u rin g th e y e a r (1 5 5 ,3 7 7 ) B a la n c e a t e n d o f y e a r (2 3 1 ,3 7 7 ) P 61.923 Depreciation charges are recorded under Operating Costs in the statement of expenditures by project component. 6. FINANCIAL LIABILITIES, INTER-AGENCY AND OTHER PAYABLES The composition of these accounts as of December 31, 2018 is as follows: Financial liabilities Accounts payable P 758,255 Due to officers and employees 124,593 882,848 Inter-agency payables Due to Bureau of Internal Revenue 28,746 Other payables 631.303 P 142.897 -5- 7. TRAININGS Trainings represent expenditures incurred by the Commission to conduct training, including meals and accommodation, travel and transportation, purchase of supplies and materials, and other training-related costs. The details of training expenses by nature are shown below. For the Year Ended Accumulated December 31, 2018 To-date Meals and accommodation P 3,225,403 P 5,883,220 Travel and transportation 1,906,406 5,302,878 Supplies and materials 35,902 93,239 Others 3.750 8,250 P-- 5.4A6 P 11,287,587 The summary of training expenses incurred by each project component is shown below. For the Year Ended Accumulated December 31, 2018 To-date Component 1 P 4,594,696 P 6,904,041 Component 2 576,765 4.383.546 P-5,7161 P-11287587 8. OPERATING COSTS Operating costs mean reasonable recurrent expenditures incurred by Commission required for the implementation, monitoring and evaluation of the Project. The details of operating costs by nature are shown below. For the Year Ended Accumulated December 31, 2018 To-date Professional fees P 672,000 P 880,919 Depreciation 155,376 231,376 Representation 23,431 172,969 Others 237,110 244.586 P-,082,12 P-L529I850 The summary of operating costs incurred by each project component is shown below. For the Year Ended Accumulated December 31, 2018 To-date Component 1 P 573,877 P 909,645 Component 2 514.040 620.205 P1,82912 -- 29,85U0