REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF BUDGET AND MANAGEMENT

GENERAL SOLANO STREET, SAN MIGUEL, MANILA

CIRCULAR LETTER No.: 2020-8

May 26, 2020

For : Heads of Departments, Bureaus, Offices and Agencies of the National

Government, Including Government-Owned or -Controlled
Corporations (GOCCs)/Government Financial Institutions (GFIs), State
Universities and Colleges (SUCs), Local Government Units (LGUs), and
All Others Concerned

Subject : REVISED PHILIPPINE GOVERNMENT INTERNAL AUDIT

MANUAL (PGIAM)

1.0 Background

1.1 The PGIAM was first issued by the Department of Budget and Management
(DBM) through Circular Letter No. 2011-5 dated 19 May 2011 pursuant to its
mandate under Executive Order No. 292, s. 19871, and the following Office of
the President (OP) issuances directing said Department to promulgate the
necessary rules and regulations for the strengthening of the internal control
systems in government:

Administrative Order (AO) No. 119, S. 19892, as amended by AO No. 278,

s. 1992 and AO No. 70, s. 2003;
Memorandum Order No. 277, S. 1990; and
Memorandum Circular No. 89, s. 20056.

Administrative Code of 1987, 25 July 1987, as amended

2Directing the Strengthening of Internal Control Systems of Government Offices, Agencies. Government-Owned or Controlled
Corporations and Local Government Units in their Fiscal Operations, 29 March 1989
Directing the Strengthening of the Internal Control Systems of Government Offices, Agencies. Government-Owned and/or Controlled
Corporations, Including Government Financial Institutions and Local Government Units, in Their Operations, 28 April 1992
Strengthening of the Internal Control Systems of Government Offices, Agencies. Government-Owned and/or Controlled Corporations,
Including Government Financial Institutions, State Universities and Colleges and Local Government Units, 14 April 2003
Directing the Department of Budget and Manement to Promulgate the Necessary Rules, Regulations or Circulars for the
Strengthening of the Internal Control Systems of Government Offices, Agencies, Government-Owned or Controlled Corporations and
Local Government Units. 17 January 1990
6 Reiterating Compliance with A. 0. 70, s. 2003 'Strengthening of the Internal Control Systems of the Government Offices, Agencies,

Government-Owned and/or Controlled Corporations, Including Government Financial Institutions, State Universities and Colleges and
Local Government Units" and Its Implementing Guidelines under DBM Budget Circular No. 2004-4, 18 August 2005

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 1.2 The PGIAM complements the DBM-issued National Guidelines on Internal
Control Systems (NGICS)7, which serves as a guide to the heads of agencies
in strengthening their respective internal control systems to better respond to
the requirements of the publics they serve.

1.3 Section 124 of Presidential Decree No. 1445, s. 19788, as amended, stipulated
that the direct responsibility to install, implement and monitor a sound system
of internal control rests with the agency head.

Accordingly, all heads of government agencies were directed under the

aforecited OP issuances to strengthen their respective internal control systems,
and establish an Internal Audit Service/Unit (IAS/IAU) as may be necessary to
be a key part thereof.

1.4 After nine (9) years since its issuance, the 2011 PGIAM has been revised to clarify
and address various emerging issues and concerns that are relevant in the
effective and efficient conduct of internal audit in the government.

Such issues and concerns were gathered from internal auditors during the
series of internal audit fora for departments and GOCCs that were conducted
by the DBM in 2019, as well as the focus group discussions with departments
concerned during the implementation of the DBM project under the Budget
Reform Program entitled, "Assessment of Internal Control and Internal Audit in
National Government Agencies" in 2018 and 2019.

1.5 Moreover, the Manual has been revised to have certain provisions clarified and/or
harmonized with pertinent laws, rules, regulations, guidelines and standards on
the matter, including the Commission on Audit's (COA) Internal Audit Standards
for the Philippine Public Sector (IASPPS)9. These provisions of the IASPPS were
previously coordinated by the DBM with the COA so as to clarify and/or address
the matter.

2.0 Purposes

2.1 The PGIAM primarily aims to assist government agencies concerned in the
Executive Branch in establishing and thereafter strengthening their internal
audit function to promote effective, efficient, economical and ethical operations
in government, among other objectives.

2.2 Specifically, it serves as a generic guide for internal auditors in government to

help them (1) understand the legal bases, nature and scope of the internal
audit function in the Philippine public sector, including the institutional
arrangements, protocols and processes for the conduct of the same,
(2) identify and prioritize potential audit areas for appraisal as they progress
in the internal audit activity, and (3) describe the procedures logically to
facilitate a structured and systematic approach in internal auditing.

Issued through DBM Circular Letter No. 2008-8, 23 October 2008

Government Auditing cde u/the P/i ilippines, 11 June 1978
Issued under COA Resolution No. 201 8-007, 1 February 2018

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2.3 Among the major changes that have been effected in the revised Manual are
as follows:

Delineation of roles and responsibilities of various key players in the

organization on internal control and internal audit to foster participation and
involvement at all levels;

Improvement in the communication between the IAS/IAU and its principal,

including the reportorial line of the IAS/IAU to the head of the department
or agency;

Provision of more comprehensive and detailed workflow charts/diagrams of

key internal audit processes, and generic templates on internal audit
reports, plans and communications to better guide internal auditors;

Inclusion of actual examples of non-audit functions, as well as the

appropriate series of actions to be taken by the IAS/IAU when it is instructed
to do the same;

Inclusion of good practices by the lAS of certain departments in the

Executive Branch relative to organizing the IA, as well as certain phases of
the IA process;

Clarification on the distinction between internal audit and internal quality

audit, the latter of which is being conducted as part of the implementation
of an Iso 9001 certified quality management system;

Clarification on certain provisions of the COA IASPPS, which include the

following:

Authority, purpose and functions of an IAS/IAU;

Involvement of internal auditors in the improvement of operations, and
the provision of assistance on the effectiveness of governance, risk
management and control processes;
Appropriate series of actions to be taken by the IAS/IAU when it receives
a request from internal and external parties for a copy of internal audit
plans, reports and other related/supporting documents; and
Exhaustion of administrative remedies in the case of non-resolution of
certain issues within the agency.

2.4 The revised PGIAM is divided into two (2) parts:

Part I: Guidelines - outlines the basic concepts and principles of internal

audit and the internal control system, as well as the policies and standards
that will guide government agencies in organizing, managing, and
conducting an effective internal audit; and

Part II: Practices - contains the approaches, tools and techniques that
could be used to facilitate the conduct of internal audit activities by the
IAS/IAU, to assist the agency head in undertaking a separate evaluation of
the internal control system to determine if controls are well designed and
properly implemented.

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3.0 Applicability

3.1 The content of the revised PGIAM is consistent with existing national laws, rules
and regulations, as well as international best practices to the extent allowed by
Philippine jurisprudence.

Hence, the same is applicable to all departments and agencies of the Executive
Branch, including GOCCs/GFIs and SUCs.

3.2 While the PGIAM is also applicable to LGUs, an Internal Audit Manual for
LGUs was issued through Local Budget Circular No. 110, s. 2016 to serve as a
practical guide in establishing and operationalizing internal audit in the
Philippine local government setting.

Pending the revision of the Internal Audit Manual for LGUs to harmonize the
same with the changes made in the revised PGIAM, the LGUs shall adopt the
applicable provisions of the latter to further strengthen their respective internal
control systems through the conduct of internal audit.

3.3 The Judicial and Legislative Branches and the Constitutional Offices are also
encouraged to utilize the revised PGIAM in the operationalization of their
internal audit function.

4.0 Guidelines

4.1 The revised PGIAM, which is made an integral part of this Circular Letter and
could be downloaded from the DBM website10, shall govern the internal audit
work in the agencies under the Executive Branch of the Philippine government.

Thus, government agencies concerned are directed to make use of the same
as their guide in executing the internal audit function in their respective offices.
They should refrain from using other guidelines and standards on internal
auditing that are inconsistent with existing Philippine laws, rules and
regulations, and/or not applicable for adoption by the Philippine public sector.

4.2 Internal audit is the evaluation of management controls and operations

performance, and the determination of the degree of compliance of internal
controls with laws, regulations, managerial policies, accountability measures,
ethical standards and contractual obligations. It involves the appraisal of the
plan of organization and all the coordinated methods and measures, in order
to recommend courses of action on matters relating to operations audit and
management control.

It is drawn from the power of control and supervision of the agency head.

4.3 The IAS/IAU shall focus on the performance of their functions consistent with
the Administrative Code of 1987, as amended, as reiterated in the NGICS, other
DBM issuances and the revised PGIAM.

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 The IAS/IAU should not perform non-audit functions, which include
participation in the operations and processes of another unit in the
organization, such as governance, supervision and control, management and
process improvements, risk management, and risk assessment. These are in
conflict with the post-audit function of the IAS/IAU.

4.4 The conduct of audit shall adhere to the principles of internal auditing indicated
in the revised Manual that would help make internal audit an effective and
reliable tool in support of management policies and controls. These principles
include, among others, the following:

Practice of objectivity and impartiality, and avoidance of conflict of interest;

Use of evidence-based approaches;
Adherence to the code of conduct and ethics in the Philippine public sector;
and
Adherence to the hierarchy of applicable standards and practices.

4.5 All agencies shall be guided by the delineation of the roles and responsibilities
on internal control and internal audit as provided in the revised PGIAM.

In particular, internal auditors should not be responsible for establishing

internal controls. As a management control, internal control requires the
participation and involvement of the agency head, officials and personnel at all
levels, including the various organizational units therein, in order to ensure that
the agency's mandate and sectoral goals are achieved efficiently, effectively
economically, and ethically.

For internal audit, the Department Secretary/Head of Agency or the Governing

Body/Audit Committee shall provide the overall strategic direction in the
conduct of internal audit in the organization, from planning to performance
evaluation. On the other hand, the auditees shall play a cooperative role in the
course of the conduct of internal audit by the IAS/IAU.

5.0 Resolution of Issues

Issues and concerns that may arise in the implementation of this Circular, including
cases/situations not covered herein, shall be submitted to the DBM for resolution.

6.0 Separability

If any part or provision of this Circular Letter is held invalid or unconstitutional, the
other provisions not affected thereby shall remain in force and effect.

7.0 Repeal

DBM Circular Letter No. 2011-5 dated 19 May 2011 is hereby repealed. All other
existing guidelines, circulars or issuances, or parts thereof, which are inconsistent with
this Circular Letter are hereby repealed, amended or modified accordingly.

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8.0 Effectivity

This Circular Letter shall take effect fifteen (15) days after its complete publication in
the Official Gazette and the filing of three (3) certified true copies thereof with the
Office of the National Administrative Register of the University of the Philippines Law
Center.

Secretary