Republic of the Philippines

COMMISSION ON AUDIT
Local Government Sector
Nueva Ecija B and Aurora Group

CONFIDENTIAL
28 September 2017

THE BOARD OF DIRECTORS

Federation of the Liga ng mga Barangay - Laur Chapter

Attention : HON. GUILLERMO S. MARIANO

Liga ng mga Barangay, President

Management Letter on the Audit of the

Liga ng mga Barangay - Municipality of Laur, Nueva Ecija
For the calendar years 2014, 2015 and 2016

We respectfully transmit the Management Letter on the audit of the Liga ng mga
Barangay - Municipality of Laur, Nueva Ecija for the calendar years 2014, 2015 and
2016. The Audit was conducted by the team consisting of Ms. Evelyn S. Manangkil,
Audit Team Leader, and Ms. Digna C. Pascual and Mr. Johnson M. Palmares, as
members.

The audit was aimed at reviewing the financial transactions, particularly in

determining whether the (a) collections/receipts of membership dues and financial
assistance from Local Government Units (LGUs) were properly recognized and (b)
disbursements of these funds were being managed and utilized pursuant to the relevant
prescribed or promulgated rules and regulations governing the Liga ng mga Barangays.

The following is the list of recommendations:

Collections and Deposits

We recommended that:

a. The Liga ng mga Barangay President should refrain from assessing its
members/barangays and collecting annual membership dues that are more
than the authorized amount and timely remit the remittances thereof.

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 b. The Liga ng mga Barangay President should abstain from the cashiering
functions and let the appointed Treasurer to perform her duties and
responsibilities whch include the (i) the issuance of official receipts for all
collections and reporting of accountability for funds and accountable forms;
(ii) maintenance of banks accounts for Liga’s monies; and (iii) the accounting
and reporting of funds disbursements or expenditures.

c. The Liga President and the Treasurer should safekeep and maintain the
Liga’s accountable forms and records in their possession to the exclusion of
other offices including the local DILG which may not be held liable in case of
loss or wastage of Liga’s funds.

d. The Liga Treasurer should adhere strictly on the preparation of records and
reports relevant to the status, condition, and operations of the Liga including
the accountability of accountable forms; and determine the amount of bond
which would be the basis in procuring Treasurer’s insurance.

e. The Liga Treasurer should transfer the Liga funds to an authorized

government depository bank in the name of the League to protect government
funds as required under Section 129 of GAAM Vol. 1, while all payments must
be made by check in compliance with Section 172(b) of the same Manual.

Disbursements/Utilization of Funds

We recommended that the Board of Directors:

a. require the Liga Treasurer to perform his duties and functions as prescribed
by law and promulgated by the overseeing body or authority; and

b. 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.

We wish to express our appreciation to Hon. Guillermo S. Mariano, the Chapter

President and to the staff of the Liga ng mga Barangay for the cooperation and
assistance extended to us during the audit.

Truly yours,

ATTY. ANTONIO F. MARZAN

OIC-Supervising Auditor

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 DETAILED AUDIT FINDINGS AND RECOMMENDATIONS

Deficiencies in Collections and Deposits

1. The Liga ng mga Barangay – Laur Chapter enjoined its members to remit annual
membership dues that are more than the set threshold of P2,000.00 but failed to
remit the corresponding shares to concerned offices for CYs 2014, 2015 and 2016.
Moreover, collections were not deposited to Authorized Government Depository
Bank in violation of the pertinent provisions of Presidential Decree No. 1445 and
the Liga ng mga Barangay Constitution and By-laws of the Liga ng mga
Barangay.

As the basic political unit, the barangay serves as the primary planning and
implementing unit of government policies, plans, programs, projects and activities
in the community, and as a forum wherein the collective views of the people may be
expressed, crystallized and considered, and where disputes may be amicably settled.
On the other hand, the Liga ng mga Barangay is the organization of all barangays,
vested with the same powers and authority, whose purpose is the ventilation,
articulation, and crystallization of issues affecting barangay government
administration and securing solutions thereto, through proper and legal means. (Sec.
491 of R.A. 7160)

Thus, with wide range of powers and authority vested to this recognized
government organization, it is also incumbent to their officials to comply with
applicable laws, rules and regulations. Hence, the Local Government Code of 1991
expressly states that “All funds of the leagues shall be deposited as trust funds with
the treasurer and shall be disbursed in accordance with the board of directors;
resolutions subject to pertinent accounting and auditing rules.”, giving the
Commission on Audit (COA) the jurisdiction to audit their accounts.

In relation thereto, an evaluation of management for collections/receipts of the Liga

ng mga Barangay- Laur Chapter for three calendar years CYs 2014, 2015 and 2016,
was undertaken to determine its compliance with existing rules and regulations. Our
evaluation, review and inquiry revealed the following:

a. Annual Membership Dues of P3,000.00 were collected, more than the set
threshold of ₱2,000.00.

Section 1, Article VIII of the Constitution and By-Laws states that the Liga in
all levels may derive its funds through the following means:

a. Regular fees and dues from its members;

b. Fund raising campaigns or activities;

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 c. Contributions, donations, grants and other forms of aid from local
government units; and
d. Proceeds realized from their corporate activities.

Review of the pertinent records revealed that Liga ng mga Barangay – Laur
Chapter earned most of its revenues as operational funds from sharing scheme
(annual membership dues from barangays) in accordance with the pertinent
provisions of its Constitution and By-Laws. We noted, however, that the amount
sanctioned from its members exceeded the amount of P2,000.00 as therein
provided. Our inquiry disclosed that the dues were increased to ₱3,000.00 in CY
2013.

Section 2 of the Constitution and By-Laws provides:

Fees and Dues. Annual membership dues in the amount of two

thousand pesos(P 2,000.00) or such amount as maybe determined
by the National Liga Executive Board shall be collected from each
Sangguniang Barangay throughout the country every first (1) quarter
of the year xxx (emphasis ours)

The Liga ng mga Barangay – Laur Chapter President explained that he just
continued the practice of collecting P3,000.00 annual membership dues from
the previous Liga President. He averred that increasing the amount is allowed
provided that the members Punong Barangay agreed and said agreement was
duly supported by a resolution. We asked the copy of the basis or the
resolution in this matter but he failed to provide one as of this writing as the
said resolution was not turned-over by the former President. Even assuming
that there was in fact a resolution, the same would be void as the preceding
provision states that the power to determine the amount of membership dues
rests with the National Liga Executive Board, and not to the local chapter.

b. Annual Membership Dues for CYs 2014, 2015 and 2016 were not remitted
to Provincial Chapter – ₱55,000.00

Pursuant to Art. XIII, Sec. 3 of the Constitution and By-Laws of the National
Liga ng mga barangay which is made suppletory to the pertinent chapter of the
Local Government Code, all barangays are to pay membership dues to the
National Liga ng mga Barangay, Regional, Provincial and Municipal Chapter,
throughout the country every first (1st) quarter of the year, and the proceeds
shall be distributed as follows:
In case of Component City or Municipal Chapter:
 Municipal/City Chapters – 50%
 Provincial or Metropolitan Chapters - 25%
 Regional - 12.5%
 National Liga ng mga Barangay - 12.5%

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 In case of City (HUC/ICC) Chapters:
 City Chapters - 75%
 Regional Chapter - 12.5%
 National Liga ng mga Barangay - 12.5%

Clearly, the Barangays are required to pay their membership dues while the
Ligas are mandated to remit the allocated percentages of collections to the
Provincial, Regional and National Liga ng mga Barangay. However, our
verification revealed that no dues were remitted for CYs 2014, 2015 & 2016.
Upon inquiry on the existence of unremitted collections intended for the
provincial, regional and national chapters amounting to ₱55,000.00, the
Treasurer immediately presented the said amount to the Audit Team. He further
explained that he opted to keep the funds anyway these are intended for
remittance to the Province. However, acceptance of remittance did not take
place because every time he went to the Office of the Provincial Chapter, no
officers were around.

During the audit, the Treasurer deposited the amount of ₱ 55,000.00 furnishing
the Audit Team of the copy of the bank validated deposit slip.
c. Collections were not deposited in the Authorized Government Depository
Bank

Further review of records revealed that the Liga ng mga Barangay – Laur
Chapter disclosed that collections were not deposited regularly and intact to its
authorized government depository bank in violation from the requirements of
Section 69 of PD 1445 which states:

Section 69. Deposit of moneys in the treasury.

1. Public officers authorized to receive and collect moneys

arising from taxes, revenues, or receipts of any kind shall remit
or deposit intact the full amounts so received and collected by
them to the treasury of the agency concerned and credited to the
particular accounts to which the said moneys belong.
2. xxx

3. Pending remittance to the proper treasury, collecting officers

may temporarily deposit collections received by them with any
treasury, subject to regulations of the Commission.

4. The respective treasuries of those agencies shall in turn

deposit with the proper government depository the full amount of
the collections not later than the following banking day.

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Aside from membership dues, registration fees for various seminars were also
receipted using Liga Official Receipt. These seminars according to the Liga
Chapter President were sponsored/conducted by the DILG,

A total of ₱ 952,500.00 worth of Registration Fees, as shown in Appendix A,

from its component barangays was collected for CYs 2014, 2015 & 2016 but all
said collections were not deposited intact to its authorized government
depository bank despite the ORs used were under the accountability of the Liga.

The Liga President disclosed that collections and receipts were not properly
accounted and the official receipts of the Liga ng mga Barangay were likewise
not properly utilized to reflect total funds collected by the Liga. The official
receipts were not kept by the Liga ng mga Barangay Treasurer but by a staff
under the Office of the DILG – Laur which uses the Liga’s accountable forms
(OR) in acknowledging receipts of registration fees on seminars it initiated. The
said collections from DILG-sponsored seminars were not remitted to the Liga
Treasurer. Neither had it shared information on the accounting thereof including
the disbursement and/or disposition.

In fact, when the audit team requested the Liga President to present the
Accountable Forms, he failed to comply immediately saying that ORs were in
the custody of the Office of the DILG.

The above conditions denied the Liga Treasurer to perform his duties and
responsibilities and establish the commensurate accountability therefore.

d. The designated collecting officer was (a) unaware of her functions as Liga
Treasurer and on the maintenance of records and reports for collections
as well as accountable forms, and (b) not properly bonded in accordance
with law.

As provided for under Section 493 of RA 7160, it is the board of directors who
shall appoint its secretary and treasurer.

Moreover, Section 505 (b) of RA 7160 provides that the treasurer shall be
bonded in an amount to be determined by the board of directors.

In addition thereto, Article VIII of the Liga ng mga Barangay’s Constitution and
By-laws designates the following powers and duties to the local chapter’s board
and its officers, to wit:

d.) The Treasurer

1. xxx

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 2. To collect and receive fees, contributions, donations, money,
materials and all other resources accorded to the Liga Treasury,
for which he/she issue the corresponding official receipts;
3. xxx;
4. To render monthly report to the Board of Directors during monthly
meetings or whenever called upon by the Board to do so;
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. To post bond for the faithful performance of duties; and

The above rules and regulations expressly dictate the duties and responsibilities
of the Treasurer of the League delineated by its own Constitutions and By-laws,
however, the same were not effectively exercised by the said officer.

In our review and inquiry, we noted the following deficiencies:

 Authority to receive collections

Our inquiry disclosed that some of the collections of the Leagues, particularly
those pertaining to registration fees, were not being received by the Treasurer
himself but rather a staff under the DILG office and the latter managed the
issuance of the corresponding official receipts corresponding. His actuations
were clearly unauthorized and encroaching the functions assigned to the Liga
Treasurer. There was no written appointment designating anyone to receive
the payment other than the treasurer.

 Treasurer’s bond not established

No records would show that the board set the amount of bond for the Liga’s
treasurer or that the treasurer himself caused the required steps to secure a
bond.

In an inquiry, The Liga Treasurer responded that he did not know that he was
also required to be bonded too.

 Maintenance of reports of collections and accountable forms

The receivers of accountable forms issued receipts for collections but they
ignored the preparation, maintenance and submission of corresponding
collection reports.

e. Maintainance of savings account with the Producers Savings Bank

Corporation – Laur Branch

The State Audit Code expressly provides the indispensible requirement of Public
officers authorized to receive and collect moneys arising from taxes, revenues,

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or receipts of any kind “to remit or deposit intact the full amounts so received
and collected by them to the treasury of the agency concerned and credited to
the particular accounts to which the said moneys belong.”(Sec 69. PD 1445)

Further, Section 129 of GAAM Vol. 1 prescribes that local treasurers shall
maintain depository accounts in the name of their respective local government
units with banks, preferably government-owned, located in or nearest to their
respective areas of jurisdiction.

Deposits to a qualified private bank may only be done if the nearest AGDB to
the agency concerned is inaccessible by ordinary means of transportation and
transporting /withdrawing the government funds to and from the said office is
impractical or risky and with the approval of the Monetary Board as prescribed
under Section 5(3) of BSP Circular No. 110.

The Liga ng mga Barangay – Laur Chapter maintains savings account with the
Producers Savings Bank Corporation – Laur Branch which is neither an
Authorized Government Depository Bank (AGDB) nor a qualified Government
Financial Institutions (GFIs). Also such account was not in the name of the Liga
ng mga Barangay-Laur Chapter but rather under the name of the President. Such
practice is a violation of Section 129 of GAAM Vol. 1.

Details of the account are as follows:

Guillermo Soriano Mariano [or]

Account Name:
Zosimo Jr. Gonzales Tabing
Account No. 1111-5100-8415
Account Type Savings Account

This practice of the League exposes to danger government funds in case of

insolvency or permanent closure of the bank. As a possible consequence, the
accountable officers liable thereof shall not be relieved from accountability for
they have violated rules and regulations.

Moreover, the Liga maintains a savings account instead of a current account,

thus payment of disbursements were made in the form of cash contrary to
Section 172(b) of the Government Accounting and Auditing Manual (GAAM)
Volume 1 which states that all payments must be made by check. In certain
cases when it may be very difficult, impractical or impossible to make payments
by check. In such a case, payments may be made by the disbursing officer in the
form of cash through cash advances.

The Liga Chapter President however, explained that the account was opened in
2014, which then had no government banks within the locality or its nearest
town.

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Considering that funds of the Liga are all sourced from annual dues and others
payments made by its member barangays, it is but proper to put a high regard on
how funds are managed and spent. Thus, the Section 2 of PD 1445 provides:

It is the declared policy of the State that all resources of the government
shall be managed, expended or utilized in accordance with law and
regulations, and safeguarded against loss or wastage through illegal or
improper disposition, with a view to ensuring efficiency, economy and
effectiveness in the operations of government. The responsibility to take
care that such policy is faithfully adhered to rests directly with the chief or
head of the government agency concerned.

The foregoing lapses may become the reason as well as an opportunity to public
officers to commit fraud and negligence and ultimately may result in loss or wastage
through illegal or improper disposition of government fund.

With the observations noted above, we recommended that:

a. The Liga ng mga Barangay President refrain from assessing its

members/barangays and collecting annual membership dues that are
more than the authorized amount and remit the corresponding proceeds
thereof.

b. The Liga ng mga Barangay President abstain from the cashiering

functions and let the appointed Treasurer to perform her duties and
responsibilities whch include the (i) the issuance of official receipts for
all collections and reporting of accountability for funds and accountable
forms; (ii) maintenance of banks accounts for Liga’s monies; and (iii)
the accounting and reporting of funds disbursements or expenditures.

c. The Liga President and the Treasurer safekeep and maintain the Liga’s
accountable forms and records in their possession to the exclusion of
other offices including the local DILG which may not be held liable in
case of loss or wastage of Liga’s funds.

d. The Liga Treasurer adhere strictly on the preparation of records and

reports relevant to the status, condition, and operations of the Liga
including the accountability of accountable forms; and determine the
amount of bond which would be the basis in procuring Treasurer’s
insurance.

e. Transfer of funds to an authorized government depository bank in the

name of the League to protect government funds as required under
Section 129 of GAAM Vol. 1, while all payments must be made by check
in compliance with Section 172(b) of the same Manual.

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Deficiencies in Disbursements/Utilization of Funds

2. Due to absence of approved budget and, board resolutions to effect the

disbursement and non-maintenance of complete disbursement vouchers and their
supporting documents, all disbursements of the Liga ng mga Barangay – Laur
Chapter in the amount of P 110,735.00 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 September 06, 2017, duly received by
the Chapter on the following day – September 07 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 authorizing the transactions.

The Chapter President together with the Treasurer begged for an extension of one
week to comply, collate and complete the requested documents. The Audit Team
granted their request. After a series of follow-ups, only the following
documents/reports were submitted:

a. Disbursement Vouchers (DVs)

b. League’s Accountable Forms (Liga ORs)
c. List of expenses written in columnar book
d. Board Resolutions

We conducted review based on the limited documents submitted and conduct

evaluation of the gathered facts to establish the manner how funds were being
managed and utilized by its officers and board of directors. We found out that said
League did not comply substantially with the pertinent rules and regulations
provided by its governing law and rules in the disbursement of funds amounting to
₱110,735.00 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

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

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 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
appropriation had been prepared and approved throughout its operations for CYs
2014, 2015 and 2016. As a result, the Liga obligated and paid claims totalling
₱110,735.00 as shown in Appendix B, without the corresponding authority per
se.

The failure of the Liga officers to prepare, maintain and keep the required
reliable disbursement records and documents signifies that the expenditures
were not subjected to standard accounting process.

The 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 supplies and 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 did not prudently perform his functions that
resulted in irregular process 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:

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 xxx xxx 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
Liga as a 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;

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

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 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. Financial transactions of the League were not properly recorded, thus

proper accounting thereof could not be established.

2. Disbursement vouchers were prepared for all the Liga disbursements, the
same were not properly documented nor authorized.

3. Payments of disbursements were made in the form of cash

4. 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 on June of last year and unaware of the
duties and functions which he has to comply with. In addition, he emphasize that
most of the disbursements were effected by the former treasurer. 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 recommended that the Board of Directors:

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 a. require the Liga Treasurer to perform his duties and functions as
prescribed by law and promulgated by the overseeing body or authority;
and

b. 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.

Management Comment

In an exit conference, the Liga Chapter President together with the Treasurer
expressed their gratitude to the audit conducted and agreed to abide with the foregoing
recommendations.

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