How to Solve Audit Problems of the Government

On August 11, 2021, the Philippine Commission on Audit (COA) revealed that ₱67 billion of funds were misused by the Department of Health (DOH). This led to allegations of corruption, as well as a Senate investigation on the procurement activities of the DOH.

In the end, the Senate found a small company which used its connections to close a deal worth billions of pesos. This is what agents and brokers do anyway*. The best thing that the Sentate can do is to chase for tax payments.

*Our proposed Pool Clearing system aims to make middle men and brokers obsolete by connecting the buyer and seller directly.

No One Seems to Realize the Root Cause of the Problem

The executive was against the COA audit because it knew that there was no corruption nor overpricing. It argued that the Senate investigation was just a huge waste of time of both the executive and the senate who had to spend many hours per day questioning the Cabinet and other officials. It probably knew that it would end up as a tax avoidance issue* which is not worth the time of government’s top executives and instead should be delegated to the tax authority.

*Update Oct 2021: It was an issue with the tampering with the expiry dates

The Senate, on the other hand, wanted to prove plunder so that the ruling party would lose in the coming May 2022 elections. This whole thing exposes structural flaws in the government’s resource procurement, monitoring, and distribution system. This then is exploited by opportunist politicians to either feed off the flaws through overpricing, or accuse others of doing overpricing.

The job of checking overpricing is done by the Commission on Audit (COA) which is body set by the Constitution to be independent of the executive, legislative, or judiciary. The problem with this is:

• The COA can make reports, but cannot do anything about it
• The COA is separate from the executive, and so every audit will consume the time of both the COA and the executive which must furnish all documents and educate the COA during each audit

Because the COA report is independent, their 2020 report also had independent consequences to the executive and legislative:

• The DOH was accused of corruption, demoralizing healthcare workers
• The DOH had to allocate time and effort to answer the Senate’s allegations
• The Senate, and all the people involved in the hearing, had to sacrifice their time and effort for the hearings
• The executive had to defend the DOH by attacking the Red Cross, since the Senate hearing’s leader happens to be the chairman of the Red Crosss

The Solution: Unifying Audit, Procurement, and Distribution into a Resource Branch of Government

To prevent overpricing and questionable procurements, Taonomics proposes a fourth branch of government called the Resources branch.

If governments are the parents of a nation, the legislature and executive perform the fatherly duties while the justice and resources branch perform the motherly ones. The Resources branch will mimic the role of a housewife in budgeting the family’s expenses and in noting down the needs and condition of each child, which represents each citizen or group of citizens.

Instead of COA being an indepndent body, it will be a totally separate branch, unified with the tax authority (BIR), procurement service such as PhilGeps, and the Treasury.

The main duties or the resources branch will be:

• checking that all accounts of governments are in order, that all projects have their proper funds and resources in order to prevent costly delays and overruns
• checking the material condition of the people to ensure that economic justice is administered, or that the resources are going to the right recipients and being used efficiently
• handling the logistics for the system of barter tax farming
• to handle the government’s welfare department by redistributing goods and services to the needy
• to monitor the other branches of government to see it they are amassing wealth at the expense of others
• to monitor the morality level of other branches, including the applicants to them, to show whether such branches and candidates are moral or not. For example, it can proactively initiate action in the legislative to investigate abuses by the executive, and vice versa

In this way, the executive does not have to resort to middlemen such as Pharmally to buy supplies that are essential to government. It could be used for the pandemic in the following way:

1. The legislature assigns the budget to procure vaccines and medical equipment (PPE)
2. The resources branch queries all suppliers for prices and terms for everything even before the pandemic or national emergency happens (Adam Smith’s original proposal was for this office to prevent famines by ordering supplies in advance or from distant countries)
3. The executive sets the demand for the specifications and deadlines and authorizes the disbursement of funds from its budget
4. The resources branch makes the order directly to the overseas suppliers

If implemented in the current scenario, Vaccine czar Charlie Galvez would be working under the resources branch. Christopher Lao would then be the PPE czar, also working under the same branch. This system would be simpler by getting rid of the middleman:

The ultimate reason for creating the resources branch is to streamline not only financial aspects of public spending, but also revenue collection. This is because all of finance and accounting deals with the processing of numbers, which is a task that can be automated. This automation can make procurement faster and profile the questionable suppliers more effectively. In worst case scenarios, corruption investigators can have all the essential data by asking them from one branch, instead of asking from each ministry and supplier separately.

In addition, this system can streamline taxation so that tax policies will be more effective, and the legislature can have different budget projections accurately presented:

1. The legislature creates a new tax
2. The resource branch will show how and where it will be extracted from, together with projections on its effects
3. The ironed-out plan will then be sent to the executive for implementation
4. Anomalies in tax collection will be exposed and tried by the resource branch, with the judiciary supporting or overturning the judgment

The Resources branch takes away some of the motherly duties such as caring for the poor and arranging for the logistics of supplies, away from the father, or the executive. In this way, the father can focus on more important things. This branch is independent like the others. But while the executive and legislative are elected, the manpower for the judicial and resource branches are sourced from law schools and accounting or econometrics schools.

The 18th century British Exchequer is similar to the Resources branch: