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D. Preparation of Notice of Defects/Deficiencies of Contract

Where in the review of contracts, the auditor finds provisions which are contrary to laws, rules and regulations or where there are other defects or deficiencies of the contract, he must call the attention of management immediately so that the necessary adjustments/corrections may be made, thereby avoiding possible audit suspensions/disallowances in the process.

The notice of defects/deficiencies of the contract is usually given to management after the technical review thereof, where necessary, has been undertaken by the Technical Services Office of COA.

Applicable Laws, Rules and Regulations

COA Circular No. 76-34 dated July 15, 1976 - Notice of Defects/Deficiencies of Contract

Within five (5) days from receipt, the unit or agency Auditor, the Regional Director or the Commission on Audit, as the case may be, shall call the immediate attention of management regarding defects/deficiencies of the contract and suggest such corrective measures as are appropriate and warranted to facilitate the processing of the claim upon presentation.

A copy of any letter/purchase order, irrespective of amount, and each of every supporting documents, shall, within five (5) days x x x, be submitted to the unit or agency Auditor concerned, who, shall, within a period of five (5) days from receipt point out to management defects and/or deficiencies thereof.

COA Memorandum No. 95-088 dated July 3, 1995

The results of the review and evaluation of the contracts and the verification of the CAF shall be communicated to the Agency Head, as soon as practicable without prejudice to the execution/implementation of the contract. In any case the results of the review of the contract and verification of the CAF shall be considered in the post-audit of the related transaction.

COA Circular No. 96-010 dated August 15, 1996

A.1 x x x The auditor concerned shall, within five (5) days following his receipt thereof, inform management in writing of any defect and/or deficiencies in audit (COA Circular No. 76-34 dated July 15, 1976).

Illustrative Decision

COA Decision No. 350 dated November 7, 1984 - Failure of the auditor to communicate alleged defects in the transaction considered immaterial/insignificant

That the auditor failed to communicate his findings of alleged defects in the transaction to the agency before the job order was issued and that no fact-finding investigation was ever conducted would not alter the conclusion reached therein specifically in the face of the positive findings that the prices of Continental Woodcraft and Upholstery Shop were excessive.