Conflict of Interest for Government Auditors Notarizing Audited Agency Documents in the Philippines

Introduction

In the Philippine public sector, the integrity of government auditing processes is paramount to ensuring transparency, accountability, and the proper stewardship of public funds. The Commission on Audit (COA), as the supreme audit institution under the 1987 Constitution, is tasked with examining, auditing, and settling all accounts pertaining to the revenues and expenditures of government agencies. However, a potential ethical dilemma arises when government auditors engage in notarial services for documents originating from the very agencies they audit. This practice raises significant concerns about conflict of interest, which could undermine the independence and objectivity required in auditing.

This article explores the legal and ethical dimensions of such conflicts in the Philippine context. It examines the relevant constitutional provisions, statutes, administrative rules, and ethical standards that govern government auditors and notaries public. By delving into the principles of independence, impartiality, and public trust, the discussion highlights why notarizing audited agency documents by COA auditors constitutes a prohibited conflict of interest, the potential ramifications, and measures to mitigate such risks.

Constitutional and Legal Framework

The 1987 Philippine Constitution establishes the foundational basis for auditing independence. Article IX-D, Section 2, mandates that the COA shall have exclusive authority to define the scope of its audit and examination, and it emphasizes the need for the Commission to perform its functions "in accordance with law." This implies a duty to maintain unquestionable integrity and freedom from any influence that could impair judgment.

Key Statutes Governing Auditors and Notaries

Presidential Decree No. 1445 (Government Auditing Code of the Philippines): Enacted in 1978, PD 1445 outlines the principles and procedures for government auditing. Section 26 underscores the independence of auditing officials, stating that auditors must be free from any obligation or relationship that could interfere with their professional judgment. While it does not explicitly address notarization, the code's emphasis on avoiding "any interest, financial or otherwise" in audited entities indirectly prohibits activities that could create perceived or actual biases.
Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees): This 1989 law is central to addressing conflicts of interest in government service. Section 7(b) prohibits public officials from engaging in any transaction or activity that constitutes a conflict of interest, defined as a situation where a public official's private interests could improperly influence the performance of official duties. For COA auditors, notarizing documents for an audited agency could be seen as a private interest (e.g., earning notarial fees or fostering undue familiarity) that clashes with their duty to impartially scrutinize the agency's financial records.
Act No. 2711 (Notarial Law), as amended by the 2004 Rules on Notarial Practice: Notarization in the Philippines is regulated under these provisions, which require notaries public to be lawyers in good standing or, in some cases, non-lawyers commissioned by the courts. Government employees, including auditors who may be licensed lawyers, can serve as notaries, but Rule II, Section 1 of the 2004 Rules mandates that notaries must act with impartiality and avoid any personal interest in the documents they notarize. Importantly, Supreme Court decisions have clarified that notaries must not notarize documents where they have a direct or indirect interest, as this violates the notary's role as a disinterested witness.
COA-Specific Regulations: The COA has issued various circulars and resolutions to reinforce auditor independence. For instance, COA Resolution No. 2011-006 adopts the Philippine Government Internal Audit Manual, which stresses that auditors must avoid situations that could compromise their objectivity. COA Circular No. 2009-006 prescribes the Code of Ethics for COA Officials and Employees, aligning with international standards like those from the International Organization of Supreme Audit Institutions (INTOSAI). This code explicitly prohibits auditors from providing non-audit services to audited entities, which could extend to notarial acts, as these might be construed as advisory or facilitative services.

Ethical Standards for Accountants and Auditors

Government auditors, often certified public accountants (CPAs), are bound by the Code of Ethics for Professional Accountants in the Philippines, promulgated by the Board of Accountancy under the Professional Regulation Commission (PRC). Section 220 of this code requires auditors to identify threats to independence, such as self-review threats (where an auditor reviews their own work) or familiarity threats (arising from close relationships with the audited entity). Notarizing an agency's documents could create a self-review threat if the notarized document later becomes subject to audit, or a familiarity threat by establishing a non-audit relationship.

Additionally, the Philippine Standards on Auditing (PSA) 220, which governs quality control for audits, mandates safeguards against conflicts, including rotation of audit personnel and prohibition of certain non-audit services. While notarization is not explicitly listed as a non-audit service, its nature as a legal attestation could fall under prohibited activities if it involves the audited entity's operations.

Analysis of Conflict of Interest

Nature of the Conflict

A conflict of interest occurs when a government auditor notarizes documents from an audited agency because:

Impairment of Independence: Auditing requires an unbiased evaluation of financial statements and compliance. By notarizing a document (e.g., a contract, affidavit, or financial report), the auditor effectively vouches for its authenticity, which could prejudice their ability to later question its validity during an audit. This dual role blurs the line between observer and participant.
Perceived Bias: Even if no actual impropriety exists, the appearance of conflict can erode public trust. For example, if an auditor notarizes a procurement contract for an agency and later audits that contract's implementation, stakeholders might suspect leniency or oversight.
Financial Incentives: Notaries charge fees (regulated under Executive Order No. 109, series of 2003), creating a pecuniary interest. RA 6713's Section 7(d) prohibits public officials from accepting gifts or benefits that could influence their duties, and notarial fees from an audited agency could be interpreted as such.
Legal Overlap: Documents notarized by auditors might include those related to financial transactions, such as deeds of sale for government assets or sworn statements of assets and liabilities. If these documents are part of the audit scope, the auditor's notarial act could constitute a self-interest threat under ethical standards.

Specific Scenarios in Philippine Government

In practice, COA auditors are assigned to resident positions in various government agencies, departments, and local government units (LGUs). This proximity increases the risk of requests for notarial services. For instance:

An auditor stationed in a national agency might be asked to notarize employee affidavits or inter-agency agreements.
In LGUs, where resources are limited, auditors might face pressure to provide notarial services as a "courtesy," inadvertently creating obligations.

Such actions contravene COA's policy on non-audit services, as outlined in COA Memorandum No. 2005-027, which prohibits auditors from engaging in activities that could impair independence, including consulting or legal services for auditees.

Comparative Insights

While focused on the Philippines, parallels exist with international standards. The INTOSAI Code of Ethics (ISSAI 30) emphasizes that supreme audit institutions must avoid any relationships that could influence audits. Similarly, the U.S. Government Accountability Office's Yellow Book prohibits auditors from performing non-audit services that involve management functions, akin to notarization's attestative role.

Consequences of Violations

Violations of conflict of interest rules can lead to severe repercussions:

Administrative Sanctions: Under RA 6713, penalties include suspension, removal from office, or fines up to three times the monetary value involved. COA may impose disciplinary actions per its internal rules, including demotion or dismissal.
Criminal Liability: If the conflict involves graft, Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) may apply, particularly Section 3(k), which penalizes divulging confidential information or giving undue advantages. Notarization could be seen as providing an undue benefit.
Professional Repercussions: The PRC or Supreme Court may revoke a CPA license or notarial commission. Supreme Court rulings, such as in A.C. No. 5859 (Re: Complaint Against Atty. Wilfredo B. Clavecillas), have disbarred notaries for conflicts in notarial acts.
Audit Invalidity: Compromised audits could lead to disallowed expenditures, surcharges against agency officials, or even judicial review of COA decisions.

Recommendations and Best Practices

To prevent such conflicts:

Policy Reinforcement: COA should issue a specific circular prohibiting auditors from notarizing any documents related to audited agencies, extending to family members or affiliates.
Training and Awareness: Mandatory ethics training for auditors, emphasizing RA 6713 and COA codes.
Segregation of Duties: Encourage agencies to use external notaries or designate non-audit personnel for notarial needs.
Reporting Mechanisms: Establish whistleblower protections under RA 6713 to report suspected conflicts.
Auditor Rotation: Regular rotation as per PSA standards to minimize familiarity.

Conclusion

The prohibition against government auditors notarizing audited agency documents in the Philippines is rooted in the imperative to preserve auditing independence and public confidence. By adhering to constitutional mandates, statutory laws like RA 6713 and PD 1445, and ethical codes, the COA upholds its role as a guardian of public funds. Addressing this conflict not only mitigates risks but also strengthens the overall governance framework, ensuring that audits remain a robust check against corruption and inefficiency. Stakeholders must remain vigilant to sustain these principles in an evolving public sector landscape.