P400K SHORTFALL: COA flags lax controls in Iloilo City treasurer’s office

By Joseph Bernard A. Marzan

The Commission on Audit (COA) flagged the Iloilo City Treasurer’s Office (CTO) for weak internal controls after a cashier failed to remit PHP 440,369.25 in collections on a single day in February 2024.

In its 2024 Annual Audit Report, COA cited a shortage in the collections of an Accountable Officer (AO) on Feb. 20, 2024, due to lapses in the implementation of the CTO’s Standard Operating Procedures (SOP).

The designated verifier and liquidating officer were cited for failing to validate receipts, reconcile declared and actual collections, and properly turn over funds to the cashier.

The CTO reported the incident to COA the next day, Feb. 21, and submitted certified copies of the Reports of Collections and Deposits (RCDs), a blotter report, and other documents dated Feb. 20.

During a cash count on Feb. 21, auditors noted that no cash, cash items, or accountable forms were presented.

The audit team concluded its review on Aug. 19, 2024, confirming a balance of accountability amounting to PHP 440,369.25, based on the RCD.

A demand letter was sent to the AO on Aug. 22, but was returned unserved after the officer had moved out of their last known address.

The CTO later informed COA that the officer had died on Sept. 10, 2024.

COA then officially declared the balance as a shortage.

“Since no cash and cash items were presented during the cut-off, a demand letter to immediately produce the missing funds within 72 hours was served to the concerned AO through registered mail on August 22, 2024, and a copy was likewise served to the CTO,” COA said.

“The registered mail was returned to the audit team on September 6, 2024, because the AO moved out of her last known address. On September 12, 2024, the City Treasurer informed [us] that the AO died last September 10, 2024. With this information and the return of registered mail, the balance of accountability is now considered a shortage.”

LIABILITIES

The report also placed responsibility on the verifier and liquidating officer for neglecting due diligence as outlined in the CTO’s SOP.

The verifier failed to reconcile the declared collections with the remitted amount.

The liquidating officer, meanwhile, accepted the RCD despite incomplete remittance and signed the verification box acknowledging receipt of PHP 488,019.25.

“Although there was a handwritten annotation on the side of [the liquidating officer’s] signature that she only acknowledged the receipt of PHP 47,650.00, she is not relieved from her accountability,” COA said.

The city treasurer was also cited for failing to take immediate action when the AO did not remit the collections in full and for allowing the officer to leave without securing accountability.

COA invoked Section 105(2) of Presidential Decree No. 1445, or the Government Auditing Code of the Philippines, which holds officers liable for losses caused by negligence or misuse of government funds.

“In the instant incident of shortage, the verifier, liquidating officer, and city treasurer did not observe due diligence in the performance of their functions and implementation of the supposed internal control,” the report stated.

“Furthermore, the annotation in the RCD of incomplete remittance and filing of a blotter report did not cure their laxity and accountability, considering that the shortage was from the same-day collection of the concerned AO.”

RECOVERY EFFORTS

COA considered the PHP 440,369.25 as a government loss because the city treasurer failed to prevent the unauthorized handling of collections.

The assistant treasurer informed the audit team that a waiver was secured from the AO, allowing her terminal leave benefits to be applied against the missing funds.

However, COA discovered that the CTO had not filed a claim against the AO’s fidelity bond, as provided under Section 8.3 of Treasury Circular No. 02-2019.

The circular allows agencies to recover losses through the Fidelity Fund, which covers the amount of the approved bond or the actual loss, whichever is lower.

Under Section 3.0(h) of the same circular, a fidelity bond is defined as a guarantee obtained by an AO from the Bureau of the Treasury to ensure proper handling and accounting of public funds.

As of Jan. 13, 2025, PHP 304,209.86 had been applied from the AO’s terminal leave benefits, with a claim against the fidelity bond now being processed to recover the remaining balance.

RECOMMENDATIONS

COA made the following recommendations, which the city government agreed to implement:

• Expedite the processing of the fidelity bond claim to fully recover the shortage;
• Enforce accountability on the personnel responsible for the control failure; and
• Strengthen internal controls over cash collection and deposit processes.

The city also agreed to a recommendation for its Internal Audit Services Office to conduct a management audit of the CTO, review current control mechanisms, and suggest improvements to prevent similar incidents.

COLLECTION PROTOCOL

As cited in the audit report, the CTO’s protocol on collections and remittances requires collectors to issue receipts for all collections and prepare daily RCDs.

The collector submits the RCD – together with duplicate and triplicate copies of issued and unissued Accountable Forms (AF) – to the verifier, who examines the correctness of the information in the RCDs.

The verifier also notes the following information on the back of the last AF and RCD:

1. The quantity and series of AFs issued;
2. The recalculated total collections; and
3. The dates of collections and verification.

The verifier then signs both documents.

The collector then forwards the verified RCD, together with the total cash and check collections, and duplicate copies of the AFs, to the liquidating officer.

The liquidating officer is required to inspect whether the RCD is verified and the cash and checks match the denomination prepared by the collector. They then prepare their own RCD and turn over all the cash and checks remitted by collectors to the cashier.

The cashier is obliged to deposit all cash and checks received before 11:00 a.m. of the next working day.

This process is in accordance with Section 307 of Republic Act No. 7160 (Local Government Code of 1991), which requires local government officers who are authorized to receive and collect money from taxes, revenues, and receipts of any kind to remit the full amount to the local government’s treasury.

The COA report also cited Section 89 under Book II of the Local Treasury Operations Manual (LTOM), which allows the treasurer to designate liquidation officers whenever necessary.

The liquidation officer, under the LTOM, is allowed to receive collections from collectors and tellers and is obliged to perform procedures for the receipt and verification of collections turned over to them.