COMMISSION ON AUDIT CIRCULAR NO. 77-55 March 29, 1977

TO : All Heads of Departments; Chief of Bureaus and Offices; Provincial Governors and City Mayors; Managing Heads of Government-Owned or Controlled Corporations and Self- Governing Boards, Agencies and Commissions; Corporation, Provincial, City and National Auditors; and Others Concerned.

SUBJECT : Rules and regulations on the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds and property.

1. PURPOSE:

This Circular is issued in order to enable the Commission on Audit to effectively discharge its mandated responsibility to prevent irregular, unnecessary, excessive, or extravagant expenditures of funds or uses of property by virtue of Section 2, Article XII-D of the Constitution which empowers it to "promulgate accounting and auditing rules and regulations including those for the prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and property."

2. DECLARATION OF POLICY:

In the exercise of the regulatory power vested upon it under the aforequoted provision of Section 2, Article XII-D of the Constitution, and conformably to the injunction embodied in Presidential Decree No. III dated January 26, 1973, the Commission on Audit adheres to the policy that government funds and property should be fully protected and conserved and that irregular unnecessary, excessive, or extravagant expenditures or uses of such funds and property should be prevented. On the proposition that improper or wasteful spending of public funds or immoral use of government property, for being highly irregular or unnecessary, or scandalously excessive or extravagant, offends the sovereign people's will, it behooves the Commission on Audit to put a stop thereto.

In undertaking this assigned task, the Commission on Audit shall consider and attach equal importance to the goals and objectives of the audited agency, entity or instrumentality in terms of economy, effectiveness and efficiency.

3. DEFINITIONS, CONCEPTS AND STANDARDS:

An essential feature of auditing rules and regulations designed "for the prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and property" would comprise the definitions of these terms within the context of the enabling constitutional provision. It is desirable that the distinguishing characteristics of each of these types of fund expenditures or property uses be clearly outlined or spelled out.

The terms "irregular", "unnecessary", "excessive" and "extravagant", when used in reference to expenditures of funds or uses of property, are relative. The determination of which expenditure of funds or use of property belong to this or that type is situational. Circumstances of time and place, behavioral and ecological factors, let alone political, social and economic conditions, would certainly interplay to influence any such determination. Viewed from this

perspective, transactions under audit are to be judged on the basis of not only the standard of legality but also those of regularity, necessity, reasonableness and moderation.

Thus -

a) Regularity signifies adherence to established rules, regulations, procedural guidelines, policies, principles or practice that have gained recognition in law; conformity with prescribed usages, rules or discipline; observance of established pattern, course or mode of action, behavior, or conduct.

A transaction conducted in a manner that deviates or departs from, or does not accord with such standard is deemed as "irregular". An anomalous transaction, or one that fails or omits to follow, or violates appropriate and necessary rules of procedure, is likewise "irregular". Irregularity should be distinguished from, not being synonymous with, illegality which denotes a radical defect that taints the transaction with nullity.

b) Necessity connotes responsiveness to the exigencies of the service; indispensableness of an act as dictated by the demands of good government; requirement or need under the circumstances of the case; determinable or ascertainable utility at the moment; essentiality to a desirable or projected end.

An expenditure for something that is not essential, or can be dispensed with without loss or damage, or not responsive to the exigencies of the service, or is useless, or not needed or required by the circumstances of the case is "unnecessary".

c) Reasonableness denotes inexpensiveness, or moderation in price. Pertinent indices of reasonableness of expenditure are the costliness of operation of the agency in the attainment of a particular objective, and economy in the use of resources. An "excessive" expenditure would be a breach of this standard since the amount involved is exorbitant or exceeds what is usual or proper, or is greater than the usual amount, or is unreasonably high, or is beyond the just measure or amount, or is in excess of reasonable limits. It is the established policy of the government to effect economy in the procurement of government supplies, materials, equipment and the like. Thus, the President in two (2) memoranda dated August 24, 1967 and September 15, 1967, to the members of the Cabinet, directed that "in order to preclude overpricing, all government offices shall deal directly and solely with reputable manufacturers in all procurement of government supplies, materials, equipment and the like," and that "all government offices shall henceforth no longer deal with middlemen-dealers, distributors, commission agents, jobbers, financiers."

d) Moderation signifies restraint, judiciousness, economy, or absence of excess. An expenditure or use of funds or property would offend this standard if it is "extravagant", that is, it exceeds the bounds of propriety, or is immoderate, profuse, prodigal, lavish, luxurious wasteful, grossly excessive, superfluous, injudicious, or unrestrained.

4. EXEMPLIFICATION:

Hereunder enumerated are typical cases and situations illustrating the four (4) types of transactions as hereinabove defined and conceptualized. This exemplification is by no means exclusive. A variety of other similar situations may arise and the determination of the type or category to which they may belong shall be guided by the particulars of each case on the basis of the standards set therefor.

I. Expenditures of funds

A. "Irregular" -

1. Payment of claims under a contract awarded not strictly in accordance with the prescribed modes of procurement of supplies, materials and equipment.

2. Purchase of items from jobbers or middlemen in violation of a presidential directive to acquire the same directly from reputable manufacturers or their duly registered and licensed distributors.

3. Claim for reimbursable allowances while on leave of absence, or on official trip abroad with benefit of travel allowances.

4. Claim for commutable allowances while on extended leave, or on official trip abroad especially where during such period another official who was designated to the position of the incumbent of such leave or trip, in a substitute capacity, was authorized to and did collect the said allowances.

5. Collecting allowances from different agencies covering and corresponding to the same period.

6. Grant of reimbursable representation or transportation allowance to an employee whose duties do not involve entertainment of visitors or undertaking any official travel.

7. Grant of subsistence allowance to a member of the board of a government corporation covering the day before, during and the day after each board meeting attended although such board member resides in the city or place where the principal office of the corporation is situated.

8. Accommodation of private persons in the purchase of gasoline out of government funds for stock and subsequent use by a government agency.

9. Drawing by the agency head of any replenishment treasury warrant or check without the previous cash advance having been liquidated or the covering disbursement vouchers being submitted for accounting purposes.

10. Payment of claims not approved by the proper approving official, or approved by an official upon an undue delegation of authority by the proper approving official.

11. Payment for repair of government property or equipment undertaken by shops, mechanics or contractors not duly accredited in accordance with an existing government policy.

12. Payment for emergency purchases where there is no emergency, or in case of significant amounts, where no canvass was conducted of at least three (3) dealers certified as bona fide by the Bureau of Domestic Trade or Bureau of Domestic Trade or Bureau of Supply Coordination.

13. Commutation of money value of leave credits by officials or employees still in the service without actually going on leave, or unsupported by a statement showing the balances of leave credits certified to by the proper official.

14. Payment for purchases of private lands with a mortgage encumbrance but without the consent or conformity of the mortgagee.

15. Payment of claims under Section 699 of the Revised Administrative Code, as amended, without the report of the proper Committee on Physical Examination.

16. Reimbursement of expenses incurred by persons other than authorized representatives of a government agency for attending conferences, meetings and other official functions.

17. Reimbursement of traveling expenses of directors of a government corporation, with principal office in the Metro Manila area, who reside outside of said area and are already receiving commutable transportation allowance.

18. Payment of overtime pay to employees who have not rendered the minimum number of working hours in a week.

19. Repair of private motor vehicles of officials in the motor pool of the agency.

20. Payments of claims under contracts upon blind certifications of availability of funds by the Chief Accountant of the agencies concerned.

21. Payments made on the basis of certification of funds in excess of authorized allotments and actual releases of funds, not covered by Request for Obligation of Allotments (ROA).

22. Payments for ghost travels of officials and employees sanctioned by the administrative officials concerned who approve their itineraries.

23. Payment of labor payrolls without proof of on-the-spot inspection of the laborers in the project sites, or of actual work done for the period of the claims, or of proper identification of the laborers, or of approval of program of work.

24. Payment of wages of laborers under a labor payroll to only one person.

25. Payments on the basis of split requisitions, purchase orders, or vouchers.

B. "Unnecessary"-

1. Claims for travel expenses where the travel is not for a very urgent official business, or can be dispensed with, or not required by exigencies of the service.

2. Payments for telegram or long distance telephone calls where the business transacted thereby is not exceptionally urgent or absolutely necessary, and ordinary means of communication would be as effective.

3. Grant of overtime pay for work that is not of such an urgent nature as to require completion within a specified time, or that can very well be undertaken during regular office hours.

4. Expenses for advertisements of anniversaries, etc., in newspapers, TV, or radio merely for publicity or propaganda purposes.

5. Payments for similar publicity of ordinary, day-to-day accomplishments or activities of an agency.

6. Expenses for program, excursions, and similar social affairs especially those which do not promote public interest.

7. Purchase of supplies and materials in quantities beyond that needed by the agency for a determinable period, resulting in overstocking thereof.

8. Payments in connection with overemployment of laborers and employees.

9. Purchase of air-conditioners where these are not needed and can be dispensed with (e.g., in Baguio and other naturally cool places of work).

C. "Excessive"-

1. Overpricing of purchases, characterized by grossly exaggerated or inflated quotations, in excess of the current and prevailing market price, or that officially certified by the proper government agency, or beyond tolerable mark-ups.

2. Payment for repair of government equipment at an exorbitant cost, exceeding a certain percentage, say, 50% of the current market price of the same or similar equipment.

3. Purchase of an item priced as brand new although it is actually second hand.

4. Payment of extra emoluments in amounts beyond the ceiling fixed under existing COA circulars.

D. "Extravagant"-

1. Items under "unnecessary" expenditures, supra, may at the same time be considered extravagant.

2. Purchase of luxurious and expensive office furnishings for ordinary office buildings (e.g., imported rugs, carpets, draperies, wall decors, utensils, desks, chairs, chandeliers, lamps).

3. Purchase of luxury, high-priced cars with luxurious accessories, or aircraft for official use (e.g., limousines, expensive planes, helicopters) to be maintained at tremendous cost.

4. Installation of highly-sophisticated outdoor signs, billboards, neon signs advertising the office.

5. Purchase and installation of expensive construction materials for ordinary office buildings (e.g., marble).

6. Purchase of expensive drinks (e.g., imported, first-class liquor), cigarettes or cigars, and expensive food to be served during meetings and other official functions.

7. Payment for rent of expensive halls or rooms in luxury hotels or restaurants used for meetings and other official functions, or for billeting of foreign guests, or for entertainment purposes.

8. Payment of travel expenses for an unusually large entourage of traveling officials, or for an unusually protracted travel time, especially to expensive out-of- town places like Baguio.

9. Reimbursement of transportation expenses including taxi fare where ordinary means of transportation (like jeepney or bus) would have been more economical.

II. Uses of property

A. "Irregular" -

1. The use of government motor vehicle with an improperly accomplished trip ticket, or without the marking "For Official Use Only" (with name of office).

2. The use of government motor vehicles by an official already enjoying commutable transportation allowance.

3. Bringing home government vehicles after office hours by officials to whom these are assigned.

4. Using government vehicles with broken or tampered-with speedometers.

5. Use of office equipment and property without proper identification or inventory markings.

B. "Unnecessary" -

1. Use of government vehicles for unnecessary trips.

2. Use of air-conditioners when not needed, or even during the absence of the official in whose office the air-conditioners are installed.

3. Use of table lamps while working in the office even though the room is adequately illuminated from ceiling lights.

C. "Excessive"/"Extravagant" -

1. Items under "unnecessary", supra, may at the same time be considered "excessive"/"extravagant", especially in view of the energy crisis.

2. Government drivers operating government vehicles at top speed or in any other manner wasteful of gas consumption.

3. Office typists using expensive paper only for drafts of official communications, or as duplicates/carbon copies thereof in excessive number.

4. Wasteful, injudicious, uneconomical use of office paraphernalia (e.g., paper clips, ball pens, pencils, bond paper, record blotters, etc.)

5. Copying machine operators' extravagance in turning out excessive quantities of copies of official documents (e.g., mimeographed copies, xerox copies, etc.), using expensive paper for the purpose.

5. RESPONSIBILITIES:

It shall be the direct responsibility of the heads of national government agencies, government-owned or controlled corporations, and local government units to prevent or minimize wasteful expenditures of funds or uses of property. Concomitant thereto, they shall submit within thirty (30) days from the date of issuance of this Circular to this Commission, thru their respective resident auditors, their recommended standards for the determination of whether or not an expenditure of fund or use of property is irregular, unnecessary, excessive, or extravagant. This set of standards, once approved and adopted by this Commission, may be the basis of audit from the viewpoint of regularity, necessity or reasonableness of the transactions involved.

6. AUDITORIAL ACTION:

Whenever, in the course of audit and guided by the set of standards aforementioned, an auditor is convinced and has satisfied himself that the transaction in question is irregular,

unnecessary, excessive, or extravagant, he may pursue any of the following alternative courses of action:

In-pre-audit -

a) The auditor may tentatively suspend payment on the proposed expenditure and require compliance with certain auditing requirements within the period prescribed by existing regulations. After the lapse of said period without the requirements having been complied with, such tentative suspension shall become a final disallowance; or

b) If the auditor is unsure of his position, or the case is a borderline or controversial one or of first impression, he may elevate the matter to the Commission on Audit, thru proper channels, for final decision in accordance with COA Office Memorandum No. 475, dated November 27, 1973.

In post-audit -

The auditor may outright disallow payment or follow alternative step no. 2 for pre-audit, supra.

7. AGENCY ACTION:

The audited agency, entity or instrumentality may take exception to the adverse findings of the auditor within a period of thirty (30) days from date of notice of the suspension or disallowance made by the latter.

Should the auditor insist on the position he has taken, he may elevate the matter to the Commission on Audit, thru proper channels, for final decision. On its part, the audited agency, entity or instrumentality may, on its own accord, likewise elevate the matter to the Commission on Audit. Thereafter, if said audited agency, entity or instrumentality is not satisfied with the decision of this Commission, it may further avail itself of the appropriate legal remedies by way of seekingrelief against such decision.

8. REPEALING CLAUSE:

Any provision of existing rules and regulations inconsistent herewith is hereby amended or repealed accordingly.

9. EFFECTIVITY:

This Circular shall take effect immediately.

(SGD.) FRANCISCO S. TANTUICO, JR., Acting Chairman