Findings No.1 COA Annual Audit Report 2006

July 28, 2008

The granting, utilization and liquidation of Cash Advances amounting P14,056,917.00 for the 250th Anniversary Celebration were not in accordance with COA Circular No. 97-002, Section 124 of PD 1445 and contrary to a sound internal control system, thus exposing government funds to the risk of possible misuse and misapplication.

COA Circular No. 97-002 provides among others, rules and regulations on the granting, utilization and liquidation of cash advances, as follows:

Sec. 3.2 – Special Cash Advance are those granted on the explicit authority of the Head of Agency only to duly designated disbursing officer or employees for other legally authorized purpose.

Sec. 4.1.1 – No cash advance shall be given unless for a legally specific purpose.

Sec. 4.1.2 – No additional cash advance shall be allowed to any official or employee unless the previous cash advance given to him/her is first settled or a proper accounting thereof is made.

Sec. 4.1.4 – Only permanently appointed officials shall be designated as disbursing officers. Elected officials may be granted a cash advance only for their official traveling expenses.

Sec. 4.1.7 – The cash advance shall be used solely for the specific legal purpose for which it was granted. Under no circumstance shall it be used for encashment of checks or for liquidation of a previous cash advance.

Sec. 4.4.3 – The cash advance shall be supported by the following documents:

Copy of authority by the Agency Head (attachment to the initial cash advance)

Copy of the approved application for bond (attachment to the initial cash advance)

Budget for COE of the Agency activity.

Sec. 5.2 – The Accountable Officer (Special Disbursing Officer) shall prepare the Report of Disbursements in three copies and submit the same with duly accomplished vouchers/payroll and supporting documents to the Accountant. For payments based on receipts and invoices only, he shall prepare a liquidation voucher which shall be submitted with the report and supporting documents to the Accountant. He shall ensure that receipt of the report is properly acknowledged by the Accountant. The Accountable Officer shall be deemed to have complied with the requirements or proper accounting for the cash advance upon the receipt by the Accountant of the liquidation documents.

Furthermore, Section 124 of Presidential Decree No. 1445 provides that it shall be the direct responsibility of the agency head to install, implement and monitor a sound system of internal control.

In line with the afore-cited provision, Section 123 defines internal control as the plan of the organization and all coordinated methods and measures adopted within the organization or agency to safeguard its assets, check the accuracy and reliability of its accounting data and encourage adherence to prescribed managerial policies.

Audit disclosed that the City Government of Ozamiz has set aside P20 million pesos for the 250th Anniversary Celebration of El Fuerte de la Concepcion del Triunfo. It was observed that the flow of transactions in commemorating for the said activities were facilitated through cash advances. Each Committee Chairman was designated as Special Disbursing Officer (SDO) that authorized him/her to make cash advance.

Verification disclosed that out of the P20 million budget, P14,056,917.00 was released as cash advances to finance various expenses to carry out said celebration. (Annex 1) However, audit revealed some observations that contravened to the existing rules and regulations on the granting, utilization and liquidation of said cash advances, which are summarized as follows:

Of the P14,056,917.00 budget for the 250th Anniversary Celebration, P7,865,920.00 was released to other LGU officials who are not Special Disbursing Officers and who were only authorized to make cash advance being the Committee Chairman in violation of Section 3.2 of the aforecited COA Circular. (Annex 2)

There were cash advances granted to Special Disbursing Officers and other LGU officials without indicating the specific purpose of the cash advance. The purpose indicated in the Disbursement Voucher was quite broad, that is, for the 250th Anniversary Celebration. The designation of Special Disbursing Officer was for a specific assigned activity, hence, the purpose of the corresponding cash advance granted should likewise be specific and not just merely stipulating the 250th Anniversary Celebration. Said deficiency contravened Section 4.1.1 of said COA Circular. (Annex 3)

Additional cash advances were granted to designated Special Disbursing Officers and other LGU officials even if the previous cash advance is not settled and had remained outstanding for a period of two to four months contrary to Section 4.1.2 of said COA Circular. Records showed that concerned SDOs have unliquidated cash advances amounting P332,255.40. (Annex 4)

Cash advances at P 20,000.00 each were granted to Mr. Fortunato Saquin, ABC President and Mr. Jun Francisco, SK Chairman who are not permanently appointed officials in violation of Sec. 4.1.4 of said COA Circular.

Cash advances amounting to P 815,000.00 were used other than the specific purpose for which they were granted contrary to Section 4.1.7 of said COA Circular. (Annex 5)

Various cash advances were not supported with detailed list of expenses to support the amount of cash advance and the initial cash advances were not supported with Authority and approved bond application. Some were not properly bonded as Special Disbursing Officers, yet they were allowed to draw cash advance contrary to Section 4.4.3 of said COA Circular. (Annex 1)

The prescribed procedures as to the utilization of cash advance for special project were not followed because payments were directly made to the suppliers by the Special Disbursing Officer. As such, transactions did not pass through its proper procurement procedures whereby the Special Disbursing Officer shall only pay duly approved vouchers for expenses chargeable against their cash advances. Besides, there were no Reports of Disbursements prepared as liquidation to the cash advance since the official receipts and other forms of evidence of payments were just attached to the liquidation voucher as the liquidation of the cash advance which is contrary to Section 5.2 of said COA Circular.

The City Accountant, who is responsible for recording all financial transactions of the city, was also allowed to draw cash advances being the Chairman on Search for Ms. Tourism 2006, contrary to a sound internal control system.

The above-cited deficiencies were attributed to non-adherence to prescribed rules and regulations and failure to adopt control measure on the granting, utilization and liquidation of cash advances.

As a consequence, a number of designated Special Disbursing Officers incurred expenses without undergoing the normal process of disbursement, hence this situation opened the opportunity to commit fraud or conceal any irregularities.

Management Comment

Management justified the deficiency for the reason that no official will accept sole responsibility of huge amount of cash advance. As such, a number of officials and employees were granted cash advance with the contention that this would facilitate all transactions that may eventually contribute to the success of the occasion.

Recommendation

Refrain from granting cash advances to LGU officials who are not designated as Special Disbursing Officers for a particular activity.

Instruct the City Accountant to require that the specific purpose of the cash advance be indicated in the Disbursement Voucher.

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Written by admin · Filed Under Commission on Audit, Ozamiz City