Organizing the Bureau of Internal Revenue's Internal Audit service

• Main Author: Fernandez, Lorna M.
• Format: text
• Language: English
• Published: Animo Repository 2001
• Subjects: Internal revenue > Philippines; Philippines Bureau of Internal Revenue
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/3988
• Institution: De La Salle University

Corruption is a prevalent problem of the Philippines. The World Bank, in its report submitted to the President, called for a national strategy to focus on reducing opportunities for corruption. Reforming the budget processes to achieve discipline is a promising area to address corruption issues. Some of the key potential actions to reform the budget are: (1) enhancing the integrity and effectiveness of government-wide and agency-level financial management systems (2) improving program performance monitoring and evaluation and (3) simplifying public procurement. A major factor contributing to corruption in the country is what the World Bank called the poor incentive framework governing civil service. A reconstructing of the civil service to reinforce merit and provide adequate financial compensation and accountability for performance is a must. The Bureau of Internal Revenue is ranked in some surveys as one of the most corrupt agencies of the government. Its function is to collect funds for the use of the government. For the current year 2000, its assigned collection goal is more than P397 billion, almost 80 percent of the total revenue requirement of the national government. For this reason, any shortfall in its collection adversely affects the economic development plans of the national government and ultimately influences the quality of life of the common Filipino. With the current economic crisis, the Bureau needs support to attain this gigantic revenue target. Failures in achieving the annual revenue collection goals are oftentimes attributed to the alleged inefficiency and widespread corruption in the revenue service. For the past years, the Bureau has always been in the limelight because of the tax scams uncovered involving its own people. The following incidents are proof of rampant corruption in the revenue service. Sometime in 1997, a tax syndicate has diverted P297 million in revenue taxes from various government and private entities into their own private accounts. Another tax collection scam of undetermined amount was also uncovered involving employees of the Bureau, wherein, checks payable to the Bureau of Internal Revenue were diverted to the syndicate's personal account by altering the payee's name BIR into B.I. Reyes or B.I. Ramos. Again, the government lost approximately P72 million in another tax scam involving 17 revenue collection officers. Their internal revenue collections were not reported/remitted. Revenue official receipts issued to taxpayers did not tally with the COA auditor's copies. Also, there are so many cases of revenue accountable officers who had incurred shortages based on the findings of the auditors of the Commission on Audit. Added to these is the undetermined amount of the taxpayer's money wasted on stockpiling of the different tax forms and printed materials, which later on become obsolete. One could just imagine the huge amount of revenues lost due to corruption. The management of the Bureau immediately addressed the loophole in the tax collection systems. Banks were no longer allowed to accept checks as payments for internal revenue taxes to ensure that revenue collections will be protected from illegal diversion. The taxpayers were not satisfied with the new procedure. Erring revenuers are given penalty that is appropriate and just. Meanwhile, revenue collections were affected. These unfortunate incidents demonstrate the defects in the collection/payment system of the Bureau and the weaknesses in its internal control system as well. These could have been prevented had there been closer monitoring of revenue collections/payments by the responsible office/officials of the the Bureau. The Bureau of Internal Revenue recognizes that the solution to revenue shortfall lies not with the implementation of new taxes but with achieving a more efficient and effective tax collection and administration. Thus, the Internal Audit Division is created under Executive Order No. 175, not to act as a watchdog, but to assist the management in achieving efficiency and effectiveness in the discharge of its function. Under EO 175, the Internal Audit Division is under the supervision of the Assistant Commissioner, Inspection Service, who reports directly to the Deputy Commissioner, Legal and Inspection Group (see Annex A-1). It has three sections under it namely Fiscal Audit, Performance Audit and Computer Audit Sections. Its functions are stated in Revenue Administrative Order No. 12-2000 (Annex A-2). It has a total of 41 employees as per approved plantilla (Annex A-3). At present, one of the priorities of the government is good governance. Increased revenue collection is urgently needed to finance vital economic and developmental programs of the government and to attain fiscal stability in the midst of current Asia's economic crisis. There is a need to streamline the organizational structure of the Bureau of Internal Revenue to truly transform it into a world class revenue agency. This paper aims to propose enhancements in the organizational structure of the Bureau of Internal Revenue under Executive Order No. 175, particularly in the area of internal audit, to attain its purpose of assisting tax administrators to achieve efficiency and effectiveness in the discharge of their function. This assistance to management calls for an affective approach to internal auditing.