Unqualified, qualified, adverse? Heidi Mendoza explains COA's audit opinions

Former Commissioner Heidi Mendoza shed light on the different types of audit opinions that the Commission on Audit (COA) gives to government agencies in its annual reports.

On “The Mangahas Interviews,” Mendoza explained the differences between “unqualified or clean,” “qualified,” and “adverse” audit opinions as well as the “disclaimer” given by state auditors to various agencies.

The former COA commissioner earlier described the annual audit reports as a “break-up letter” to agencies.

Unqualified opinion

An unqualified or clean opinion given to a certain government agency means that the financial statement submitted matches what the COA has audited.

“Kumbaga pag sinabi ng ahensya, ‘Meron kaming P100 million sa bangko.’ Ang titignan ng auditor tama bang may P100 million na cash sa bangko,” Mendoza said.

(If the agency tells, “We have P100 million in the bank.” The auditors will check if there really is P100 million of cash in the agency’s bank account.)

However, she said an unqualified opinion does not necessarily mean that an agency is cleared of any procurement irregularities.

“The [unqualified] opinion is merely based on the financial statement. Hindi pwedeng sabihin na ‘yung clean audit report, tama na dun ang mga irregularities na sasabihin ng ahensya, ‘hindi may opinyon na kami kaya natanggal na ‘yung mga findings sa procurement’ hindi pwede ‘yon,” she said.

(The agency cannot say that just because they have a clean opinion, all the irregularities were negated.)

The former COA commissioner said the importance of an unqualified opinion can only be used to verify the financial health of an agency when it applies for loans.

“Kung ako ang bangko,  mahalaga sa akin na ang uutang ay may clean opinion. Bakit? aba makakabayad ba ang ahensyang ito,” Mendoza said.

(If I were a bank, it is important to. me that the borrower has a clean opinion. Why? Because this agency has the ability to pay.)

“Hindi pwede gamitin ang [clean] audit opinion na iwawagayway na sasabihin na free na kami sa finding on procurement irregularities,” she emphasized.

(A clean audit opinion cannot be flaunted to say that an agency is free from findings of procurement irregularities.)

Qualified opinion

A qualified opinion, on the other hand, means that the auditor has doubts on an agency’s financial statement.

For example, she said, “‘Yung account receivable hindi mo na-verify.”

“Because of that magkakaroon ng materiality level… Ito yung pamantayan kapag tinignan ulit kung hindi kayang mag issue ng clean opinion,” she added.

Nonetheless, she said a qualified opinion is still favorable because the auditor will specify the exceptions why it cannot give a clean or unqualified opinion.

Adverse opinion

An adverse audit opinion, Mendoza said, means that state auditors find that an agency’s financial statement is unbalanced.

“‘Pag sinabing adverse mukhang may hindi maipaliwanag… May nakita akong hindi tama. It does not present fairly, hindi balanse,” she said.

(When you say adverse, there is something that cannot be explained… I saw something that isn’t right. It does not present fairly, it isn’t balanced.)

Disclaimer

The former COA commissioner described a “disclaimer” given to an agency as the worst audit opinion.

Mendoza said state auditors issue a disclaimer because an agency refuses to submit financial records.

“Halimbawa tumanggi ang ahensya. Ayaw  mag-submit ng voucher,” she said.

(For example, an agency declined. It does not want to submit a voucher.)

“‘Pag sinabing ayaw mo magsubmit ng voucher, ano ngayon ang opinyon na maibibigay?” she said.

(If the agency does not want to submit, what opinion can be given?)

“Nilimitahan mo yung auditor na magsagawa ng financial analysis dahil hindi ka nagbigay,” she said.

(You limited the auditor to conduct a financial analysis because you refused to submit.)

Mendoza also explained the types of audit done by COA resident auditors—financial and compliance.

Financial audit

Audits regarding possible fraud are done by the the fraud audit unit.

"Financial audit ito po'y tuminitingin dun sa tama ba ang pagka-presenta ng financial statement," Mendoza said.

"Hindi lang yung presentation, 'yung form, kung hindi 'yung pagtupad o pagsagot niya within the standards of internationally accepted accounting standards," she added.

For instance, if an agency said that it had P100 million cash in the bank, the auditor would check if there was indeed that amount in the agency's account.

She said this was important because a financial audit is the basis of an audit opinion.

Compliance audit

"Sa compliance audit simple lang naman. Parang nanay, tinatanong ang anak. Paano mo ginastos yung baon mo? Ikaw ba nag-assignment na? Kung anong batas ng nanay, sinusunod nga anak," Mendoza said.

"Siyempre hindi naman batas ang COA. Ang COA tumitingin lang kung anong naging extent sa pagsunod sa mga batas. Hindi rin COA ang nagsasabi ng mga batas na ito. Kung minsan nagtataka kami. Bakit kaya nagagalit sa amin e hindi naman kami nag prescribe ng batas na yan," she added.

Fraud audit

Mendoza said that it was in the course of financial and compliance audit when suspected irregularities are observed.

She said the fraud audit unit is called in such instances.

Mendoza gave the example of documents presented during compliance audit showing the progress of a building's construction at too fast a pace.

She said suspicions especially involving huge amounts would lead to the fraud audit units getting called in to look deeper. —Joahna Lei Casilao/NB, GMA News