Team 27 Aom Lnb Disbursements.docx

Republic of the Philippines COMMISSION ON AUDIT Local Government Sector Nueva Ecija B – Audit Team No. 27 ===================================================================== AOM No. 2017- 002 (LnB) Date: September 15, 2017 AUDIT OBSERVATION MEMORANDUM (AOM)

For:

THE BOARD OF DIRECTORS Liga ng mga Barangay - Bongabon Chapter

Attention

:

HON. MICHAEL F. SARMIENTO Liga ng mga Barangay, President HON. NELSON C. MORALES Liga ng mga Barangay, Treasurer

Due to absence of budget appropriation, the corresponding disbursement vouchers and their supporting documents, all disbursements of the Liga ng mga Barangay – Bongabon Chapter for CYs 2014, 2015 and 2016 were highly irregular, in violation of pertinent provisions of RA No. 7160, the Local Government Code & P.D. No. 1445. Section 505 (b) of the Local Government Code states that “All funds of leagues shall be deposited as trust funds with its treasurer and shall be disbursed in accordance with the board of director's resolutions, subject to pertinent accounting and auditing rules and regulations”. Guided by this provision and to evaluate their compliance, the Audit Team, in a letter dated August 22, 2017 duly received by the Chapter on the following day - August 23 2017, requested the submission the necessary accounts/documents for three calendar years 2014, 2015 and 2016, including the Disbursement Vouchers (DVs) and its supporting documents as well as the Chapter’s Board Resolutions. After a series of follow-ups, only the following documents/reports were submitted: a. League’s Accountable Forms (Liga ORs) b. Written partial list of disbursements c. Few ORs and other documents supporting Chapter’s disbursements However, the Chapter President together with the Treasurer begged for an extension of time to submit the requested documents/reports pertaining to the audit, explaining that on such short notice that they had not given enough time to prepare. The Audit Team granted but likewise started the conduct audit. As of this writing no other documents/reports were submitted. 1

Based on the foregoing, we conducted review based on the limited documents submitted and conduct evaluation of the gathered facts to establish the manner how funds were being utilized by its officers and board of directors. We found out that said League substantially did not comply with the pertinent rules and regulations provided by its governing law in the disbursement of funds and incurred the following lapses and deficiencies: 1. No budget appropriation had been prepared and approved by the board and instances of payments were not supported by board resolution, thus, irregular COA Circular No. 2012-003 dated October 29, 2012 defines irregular expenditure as follows: The term “irregular expenditure” signifies an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in laws. Irregular expenditures are incurred if funds are disbursed without conforming with prescribed usages rules of discipline. There is no observance of established patter, course, mode of action, behavior, or conduct in the incurrence of an irregular expenditure. A transaction conducted in a manner that deviates or departs from, or which does not comply with standards set is deemed irregular. A transaction which fails to follow or violates appropriate rules of procedure is, is likewise, irregular. Furthermore, PD No. 1145 requires that financial transactions and operations of any government agency shall be governed by the fundamental principles. Section 4(1) of which states that No money shall be paid out of any public treasury of depository except in pursuance of an appropriation law or other specific statutory authority. Finally, Section 1(c) of Article VIII of the Liga ng mga Barangay’s Constitution and Bylaws requires the Board of Directors to prepare and approve a budget showing anticipated receipts and expenditures for the year, including the plans or schemes for funding purposes. The above provisions express the indispensable requirement for Liga disbursements. Review and verification of the pertinent documents/reports submitted by the Chapter disclosed that neither board resolution nor any kind appropriation had been prepared and approved throughout its operations for CYs period 2014, 2015 and 2016. As a result, the Leagues obligated and paid claims without the corresponding approved budget. The failure of the League officers to prepare, maintain and keep reliable disbursement records and documents required signifies that the expenditures were not subjected to standard accounting process. In addition, Chapter obligated and paid claims without the corresponding approved ordinance, resolution nor law, a deviation to the established rules and regulations that have gained recognition in laws, making it highly irregular.

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Chapter President however explained he did not know that a budget should be prepared. He argued that most of their disbursements were only small claims for meals and snacks used during the Chapter meetings, thus, he thought that would be unnecessary and inconvenient to make an appropriation as well as board resolution on that matter. 2. The designated Treasurer was not aware with his functions that resulted in nondocumentation of disbursements and non-maintenance of records and reports thereto pertaining. Accounting and reporting on government transactions and operations must be assembled and reported objectively. Thus, pertinent provisions of Section 4 of the State Audit Code mandated the following based on the principle of sound accounting and reporting: xxx 5. Disbursements or disposition of government funds or property shall invariably bear the approval of the proper officials. 6. Claims against government funds shall be supported with complete documentation. 7. All laws and regulations applicable to financial transactions shall be faithfully adhered to. 8. Generally accepted principles and practices of accounting as well as of sound management and fiscal administration shall be observed, provided that they do not contravene existing laws and regulations. Apart from all other considerations, the above fundamental principles are the minimum requirement and yet the most exemplary to qualify disposition of government of funds. These principles however should also be present to the Leagues as duly recognized government organization. In addition, the Liga’s Constitution and By-Laws specifically designates to the Treasurer the following duties and responsibilities in consonance with the above requirements: 1. To be the custodian of all Liga Chapter’s assets, properties, funds and securities, and to submit to the Board of Directors, through the President, an annual inventory thereof at the end of the year and for the above purpose, to maintain a bank account, if necessary, with the President as co-signatory, in the name of the Liga Chapter; 2. xxx 3. To disburse funds, under the authority of the President, in accordance with standard accounting and auditing procedures; 4. To render monthly report to the Board of Directors during monthly meetings or whenever called upon by the Board to do so;

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5. To submit to the President an audited annual financial statement duly certified by him/her; 6. To certify the availability of funds whenever necessary; 7. xxx

Given these duties and responsibilities, the Treasurer is a main actor in the financial aspect, compliance with the legal requirements of disbursements, reporting on the current financial status and maintenance of relevant documentation and reporting, therefore, he should be working closely with the Chapter President and other concerned officer to properly utilize and safeguard the leagues funds. Our inquiry disclosed that the Treasurer himself was not aware of his official functions and duties Chapter Leagues Treasurer. As a result the following discrepancies/lapses are noted: 1. No disbursement vouchers has been prepared for all the Leagues disbursement but rather only list of snacks with corresponding cost has been furnished to the audit team. 2. Disbursements were not properly documented nor authorized 3. Payments of disbursements were made in the form of cash, due to maintenance of savings account. 4. Financial transactions and operations of the League were not properly recorded, thus proper accounting thereof could not be established. 5. No financial reports had been prepared, 6. Disbursements were effected by persons other than the Treasurer. We discussed the above matters to the Liga Treasurer and in defense, he replied that he was just recently appointed and unaware of the duties and functions he has to comply with. Nevertheless, he acknowledged the audit observations and would abide by the cited regulations in their next financial transactions. It is the policy of the State that all resources of the government shall be managed, expended or utilized in accordance with law and regulations, and safeguard against loss or wastage through illegal or improper disposition. Without adherence to the existing laws and regulations, personnel who committed infractions thereof shall be subject to liability under Section 103 of PD 1445 which states: Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor. In the process of compliance and based on the actions of the Liga officers, the Audit Team observed that they were short of knowledge and consciousness in the performance of their respective duties and responsibilities most particularly to the financial transactions and operations. We recommend that the Board of Directors:

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1. require the Liga Treasurer to perform his duties and functions as prescribed by law and promulgated by the overseeing body or authority; and 2. instruct the Liga President to conscientiously observe the rules and regulations on the proper disposition of Liga funds, appropriate documentation of disbursements and relevant reporting of legitimate expenditures. May we have your comments on the foregoing observation within fifteen (15) calendar days from receipt hereof.

EVELYN S. MANANGKIL Audit Team Leader

ATTY. ANTONIO F. MARZAN OIC-Supervising Auditor

PROOF OF SERVICE OF COPIES OF AOM Name

Position/Office

1. Michael Sarmiento

LnB, President

2. Nelson Morales

LnB, Treasurer

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Received by (Signature )

Date