Republic of the Philippines

COMMISSION ON AUDIT
Local Government Sector
Nueva Ecija B – Audit Team No. 27
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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.

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 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 By-
laws 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 non-
documentation 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

Received by
Name Position/Office Date
(Signature )
1. Michael Sarmiento LnB, President
2. Nelson Morales LnB, Treasurer