Republic of the Philippines COMMISSION ON AUDIT Baybay Water District Baybay, Leyte Office of the Auditor Audit Team

17 Audit Group E, Leyte Audit Group AOM No.: Date : For : Mr. Cyril Luis L. Arradaza General Manager Attention: Erlinda A. Mendez Division Manager, ASD

BWD 10-006(2009)
December 6, 2010

We have conducted a cash examination on the cash and accounts of Mr. Epefanio G. Perez, Cashier and at the same time, the designated Disbursing Officer, of the Baybay Water District on August 3, 2010. The examination covers the period from January 1, 2008 to August 3, 2010 and observed the following deficiencies/errors: 1. The Cashier failed to deposit in full, his daily total collections, to the Districts authorized depository bank in violation of Section 69 of PD 1445, thus, exposing government funds to possible loss and/or misuse. Section 69 of PD 1445 provides the following: x x x 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. x x x The respective treasuries of these agencies shall in turn deposit with the proper government depository the full amount of the collections not later that the following banking day. The District has two (2) tellers who receive payments direct from the concessionaires. Their daily collections are remitted to the Cashier daily. In turn, the Cashier deposits the remittances made by the two (2) tellers, including his own collections to the Districts authorized depository bank, supposedly on a daily basis, or if not made possible, on the next banking day. In the review and analysis of the Cash on Hand - Cashier account, it was disclosed that the Cashiers collections, including that of the Tellers remittances were not deposited in full on the following day and/or the next banking day to its authorized depository bank. This practice exposes the Cashiers undeposited collections which accumulated to as much as P282,734.04 to possible loss and/or misuse.

AOM No.: Date :

BWD 10-006(2009)
December 6, 2010

The Cashier explained that deposits are made daily, but because banks have cut-off time in accepting cash and check deposit, collections received after these cut-off times ( 1:00 PM for checks and 3:00PM for cash) are usually deposited the next banking day. To confirm the justifications cited by the Cashier, a comparison and analysis was made on his daily collections and deposits from CYs 2008, 2009 and part of CY 2010. Attached as Annexes A to C are the results of our analysis. Said Annexes would show that not all collections were deposited in full the following day and/or the next banking day. Annexes A to C showed that a maximum of P282,734.04, P86,864.53 and P23,804.18 remained at the custody of the Cashier for CYs 2008, 2009 and part of 2010, respectively. Verbal query was made on this irregularity and the Cashier confirmed that these usually happened during paydays when collections were used to pay the salaries and wages of employees pending encashment of the payroll check. Recommendations: Refrain from using the collections in paying the employees salaries and wages as this violates the provisions of Section 69 of PD 1445. Require the Cashier to deposit all his collections on a daily basis. Any collections made after the banks cut-off time should be deposited the next banking day to avoid accumulation of cash in the Cashiers custody. 2. The payroll fund was not properly maintained by both the Cashier and the Accounting Division in accordance with the provisions of COA Circular No. 97-002 dated February 10, 2010, thus the accountability of the Cashier could not be readily established. COA Circular No. 97-002 dated February 10, 1997 provides the following guidelines: Sec. 2. Ideally, cash should be handled under the principles of imprest system to wit: 2.2 2.1 All payments must be made by check. Only payments in small amounts maybe made through the petty cash fund. In practice, however, there are certain instances when it may be very difficult, impractical or impossible to make payments by check. In such case, payments maybe made by the disbursing officer in the form of cash through his cash advance. Sec. 3. Cash advance shall be of two types, namely, the regular cash advances and the special cash advances. 3.1 Regular cash advances are those granted to cashiers, disbursing officers, paymasters, and/or property/supply officers for any of the following purposes:

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BWD 10-006(2009)
December 6, 2010

3.1.1 salaries and wages 3.1.2 commutable allowances 3.1.3 honoraria and other similar payments to officials and employees 3.1.4 petty operating expenses consisting of small payments for maintenance and operating expenses which cannot be paid conveniently by check or are required to be paid immediately Sec. 6.2 The Accountable Officer shall maintain separate cashbooks for salaries, wages, allowances, etc. and for petty operating expenses. The Accountable Officer shall record the transactions in the prescribed cashbooks daily. He may record each invoice/receipt/voucher individually or the total disbursements for the day depending on the volume of the transactions. The Accountable Officer shall reconcile the book balance with the cash on hand daily. He shall foot and close the books at the end of each month. The Accountable Officer and the Accountant shall reconcile their books of accounts at least quarterly.

Sec. 6.3

The Cashier who is also the designated Disbursing Officer makes cash advances every 15th and 30th day of each month for payment of employees payroll. However, review of Districts payroll fund disclosed the following: a. Check withdrawals for payment of permanent employees overtime pay, CNA incentives, special allowances, mid-year and year-end benefits, and salaries and wages of contractual employees totaling P6,571,443.92 for CYs 2008 and 2009 were recorded as outright expense in the books of accounts and not as cash advances, hence no liquidation was made by the Cashier for these check withdrawals. Please refer to Annex D for the listing of supposedly cash advances but were taken up by management as outright expense. b. Only check withdrawals for payment of permanent employees payroll and sometimes of laborers payroll were recorded as cash advances in the books of accounts. However, only cash advances from January 1 to June 15, 2009 were recorded in the Cashiers cashbook while cash advances from June 16, 2009 to December 31, 2009 amounting to P4,569,126.55 were not recorded in the Cashiers cashbook. Please refer to Annex E for the listing. c. The corresponding liquidations of these cash advances were also not recorded in the Cashiers cashbook. d. The daily and/or monthly balances of the Cashiers accountability is not reflected in his cashbook because of the unrecorded financial transactions.

AOM No.: Date : e.

BWD 10-006(2009)
December 6, 2010

All check withdrawals for payment of salaries and wages and commutable allowances of all employees of the District, effective January 2010, were recorded as outright expense and no longer as cash advances of the Cashier.

Management confirmed that they decided to change the prescribed procedures on the payment of salaries and wages and the like, to its officers and employees to minimize the workload of its personnel and to save time and cost of office supplies. They believe that their current practice does not contradict, in any way, with the effective controls in place, considering that the total amount withdrawn exactly tallies with the net amount of the payroll for every pay period. Further, the Cashier justified that all check withdrawals for payroll purposes were recorded in his cashbook as cash advances. Managements justification could not be accepted as their current practice violates existing rules, laws and regulations in the granting, utilization and liquidations of cash advances. Besides, it weakens the internal control over cash custodianship because accountability of the Cashier on unclaimed wages could no longer be established as these were recorded already as expense. As a result, the accountability of the Cashier as of a given date could not be readily established and the required quarterly reconciliation of cashbook and GL balances was not made possible. May we have your comments on the foregoing audit observations within three (3) working days from receipt hereof. CHERRY G. GLODO State Auditor IV (Team Leader)

ROSAVILLA C. TAN Supervising Auditor Proof of Receipt of AOM:

Mr. Cyril Luis L. Arradaza, General Manager Date: _____________