FUND

TRANSFERS

CRITERIA
COA Circular No. 2007-001 dated

October 25, 2007

- Revised guidelines in the granting,
utilization, accounting and auditing of
funds released to NGOs/POs

POSSIBLE RISK AREAS

Risk

that transfer of government funds maybe

released/granted to unqualified, inexistent or bogus
NGOs/POs, if the Section 4.4 of COA Circular 2007001 or requisites for entitlement of government
funds are not complied with.
Risk that the funds transferred to NGOs/POs may
not be used/utilized for its intended purpose/s or in
accordance with the MOA if not directly monitored
by the Government Organization.
Risk that the fund transfers to NGOs/POs may not
be properly recorded in the books of accounts, thus,
monitoring of liquidation could not be possible.
.

AUDIT OBJECTIVES &

PROCEDURES
To ascertain compliance with the revised
guidelines
in
the
granting,
utilization,
accounting and auditing the funds, and with
the documentary requirements as set forth
under COA Circular No. 2007-001 dated
October 25, 2007.
Review of the accreditation, awarding, and
monitoring procedures of the Government
Organization (GO).
Obtain and review transactions and assess
whether the funds were used for the purpose/s
intended and disbursed in accordance with
existing laws, rules and regulations.
1.

AUDIT OBJECTIVES &

PROCEDURES

2. To ascertain the compliance by Source Agency,

Implementing Agency and Non-Government
Organization/Peoples Organization (NGO/PO) with
the provisions of the Memorandum of Agreement
(MOA) entered into by and among them.

Obtain and review copies of MOA.

Obtain documents evidencing compliance with

the MOA and confirm it by interview and
inspection with the concerned parties.

Inspect selected infrastructure and noninfrastructure projects and equipment.

AUDIT OBJECTIVES &

PROCEDURES
3. To ascertain economy, efficiency and
effectiveness of fund utilization.
Obtain and review transactions and assess
whether the funds were used for the purpose/s
intended and disbursed in accordance with
existing laws, rules and regulations.
4. To validate the receipt of the benefits, such as
services, projects, goods or funds, by the intended
beneficiaries.
Interview concerned officials and staff of the
auditees, administer questionnaires to selected
beneficiaries, and confirm authenticity of
documents from concerned parties.

TENTATIVE AUDIT
OBSERVATION

The propriety of the fund

transfers of the GO to
various NGOs/POs relative
to MRDP2 Projects could
not
be
established
because of the culpable
violations
of
vital
provisions of COA Circular
No.
2007-001
dated
October 25, 2007.

1. None of the recipient NGOs/POs who applied for

funding have complied with the provisions of Section
4.4.3 that reads,

Financial reports, audited by an independent Certified

Public Accountant, for the past three years preceding
the date of project implementation, to ensure that it has
a stable financial condition and that the funds provided
by the GO shall not be its sole source of funds. For
NGO/PO which has been in operation for less than three
(3) years, report of accomplishment or any equivalent
proof certified by its President and Secretary that it had
previously implemented similar projects shall be
required, in addition to the financial reports for the
years it has been in operation.

Review of DVs and supporting documents

pertaining to fund transfers to various NGOs/POs
revealed that they failed to submit financial
reports for the past three years preceding the
date of project implementation duly audited by an
independent CPA and a report of accomplishment
or any equivalent proof certified by its President
and Secretary that it had previously implemented
similar projects.
Moreover, it was observed that majority of the
POs are newly created, thus they have no
financial statements showing results of operation
and
financial
position.
Because
of
the
noncompliance with the above provisions, the
assessment of the NGOs/POs financial capacity is
not
possible,
yet,
the
municipality
still

2. The recipient NGOs/POs also failed to comply

with Section 4.4.8 which states,
A sworn affidavit of the Secretary of the
NGO/PO that none of its incorporators,
organizers, directors or officials is an agent of or
related by consanguinity or affinity up to the
fourth civil degree to the officials of the GO
authorized to process and/or approve the
proposal, the MOA and the release of funds.
Relationship of these nature shall automatically
disqualify the NGO/PO from being granted the
fund.

The recipient NGOs/POs failed to submit

the above documents in compliance with
Section 4.4.8 of COA Circular 2007-001.
Thus, conflict of interest, independence
and objectivity in the awarding of recipient
NGOs/POs could not be ascertained.

3. Section 4.5.1 states,

The GO shall identify the priority projects under

its WFP which may be implemented by the
NGO/PO, their purpose/s, specifications and
intended beneficiaries as well as the time frame
within which the projects are to be undertaken.
To
ensure
transparency,
the
foregoing
information shall be made public via newspapers,
agency websites, bulletin boards and the like, at
least three months prior to the target date of
commencement of the identified projects.

There were no documents evidencing

that the information was made
known to the public by means stated
above, thus, transparency could not
be established.

4. Noncompliance with the provisions of Section

4.5.2 was also noted because no report of the
selection process made by the Bids and Awards
Committee (BAC) or an equivalent committee was
submitted attached to the DVs.
According to Section 4.5.2, For each project
proposal the GO shall accredit the NGO/PO
project partners through the BAC, or a committee
created for the purpose which shall formulate the
selection criteria. The Committee shall perform
the selection process, including the screening of
the qualification documents, ocular inspection of
the NGOs/POs business site, and evaluation of the
technical and financial capability of the NGO/PO.

5. Review of the Memorandum of Agreement

(MOA), executed between the Municipality of
Isulan and the recipient NGOs/POs, disclosed
that the following terms of reference required
under Section 4.5.3 of COA Circular 2007-001
were not stipulated in the MOA, to wit:
a. Time schedules for the releases of funds,
periodic inspection/evaluation, reporting, and
monitoring requirements.
b. Specific period to liquidate the funds
granted to NGO/PO, with the GO.

c. Visitorial audit by the officials and personnel

of the Commission on Audit (COA) authorized
to perform the audit under an approved office
order.
d. Institution of legal action by the GO against
the defaulting NGO/PO which fails to complete
a project covered by the MOA, or for a material
violation of the provisions of the MOA or of
COA Circular 2007-001, and in any of these
cases, its subsequent disqualification from
applying for another project in any other GO.

e. In case of dissolution of a recipient NGO/PO,

voluntary or involuntary, the lien of granting GO
on its assets, in accordance with existing laws,
to the extent of the unexpended or unutilized
portion of the fund.
f. Maintenance by the NGO/PO of a separate
savings account for each fund received from the
GO.
g. The return by the NGO/PO to the granting GO
of any amount not utilized to complete the
project, including interest, if any.

With these deficiencies it could be

understood that, after all, no fund transfer
should have been done. Also, due to the
deficiencies noted above, the MOA can be
assessed to have been too loose to the POs.
Aside
from
the
absence
of
the
abovementioned terms of reference, both the
GO and the NGO/PO made lapses in the
performance of the MOA and Project
Proposal. As a result of interview with the
POs, it was disclosed that they do not know
well of the Project Proposal. It is because it
was the focal person of the Municipal
Agriculture Office who made the proposal.
This can be alleged as having a conflict of

Also, the municipality failed to conduct

periodic
monitoring
and
inspection
resulting to the non-implementation of
some of the project components stated in
the proposal. In effect, the programs and
projections in the proposal were not
followed and achieved.

6. Majority of the recipients

NGOs/POs have an equity equivalent
to less than 20% which is not
compliant to the provisions of
Section 4.5.4 of COA Circular 2007001.
Section 4.5.4 states,
The NGO/PO shall have an equity
equivalent to 20% of the total project
cost, which may be in the form of
labor, land for the project site,

The table below shows the equity that should have been
invested by the POs:
PO
Samahan
ng
Manggagawang
Bukid
ng
Dansuli
Purok
7,
Laguilayan
Farmers
Association
Laguialyan
Smnall Farmers
Association
Samahan
ng
Manggagawang
Bukid ng Bual
Bamabad
Farmers
Association

Total Project
Cost

185,000

Equity Should Be
Equity
(20%)
(Amount/%)

37,000
20,000/11%

Variance

17,000 lower

185,000

37,000

20,000/11%

17,000 lower

185,000

37,000

20,000/11%

17,000 lower

185,000

37,000

20,000/11%

17,000 lower

185,000

37,000

20,000/11%

17,000 lower

7. The recipient NGOs/POs failed to

comply with the provisions of Section
5 by not keeping and maintaining
financial and accounting records.

Section 5.1 of COA Circular 2007-001 mandates

NGOs/POs to keep and maintain financial and
accounting records of the funds granted by GO in
accordance
with
the
Philippine
Accounting
Standards. Also, they shall submit the required
financial reports to the GO as agreed upon in the
MOA and make available all record and documents,
including disbursement vouchers relative to the
utilization of the funds, to the COA Auditors.
In the interview of some POs Presidents, they
pointed out that due to lack of knowledge in
accounting, they could not establish financial
records.

It is stated in Section 4.1 that GO funds

granted to NGOs/POs shall retain their
character as public funds. And as public
funds, they must be utilized in accordance
with the intended purpose. Financial
records will show if the funds are properly
utilized. However, no financial and
accounting records were kept by the POs.
And as a result, the team could not
ascertain the propriety of the transactions
that transcribed.

8. No recipient PO complied with Section

5.4, which states, Within sixty (60) days
after the completion of the project, the
NGO/PO shall submit the final Fund
Utilization
Report
certified
by
its
Accountant
and
approved
by
its
President/Chairman to the GO, together
with the inspection report and certificate
of project completion rendered/issued by
the GO authorized representative, list of
beneficiaries
with
their
acceptance/acknowledgment
of
the
project/fund/goods/services received. The
validity of these documents shall be
verified by the internal auditor or

Audit disclosed that the recipient

NGOs/POs failed to submit Fund
Utilization Report for the funds
released from the municipality as
required under Section 5.4 of COA
Circular 2007-001.

Interview with a number of POs

Presidents/Treasurer/Secretary
revealed that they were not aware
that the same should be liquidated.

It was also found out that the entry made by the

accounting unit was a debit to Government
Equity and a credit to Cash in Bank upon release
of funds. This is contrary to Section 32 of the
Manual on the New Government Accounting
System for Local Government Units, stating,

Sec. 32. Due from NGOs/POs (133). This account

is used to record the release of funds entrusted
to
Non-Governmental
Organizations/Peoples
Organizations (NGOs/POs) for the implementation
of government projects.

Debit this account for:

Release of funds entrusted to
NGOs/POs

Credit this account for:

Liquidation of funds entrusted to
NGOs/POs
Refund of unused fund
Entry Should be:
Due from NGOs/POs
xxx
Cash in Bank
xxx

Due to the erroneous entry, the GO is not

aware that the release should be treated
as receivable and should be liquidated by
the POs. This is maybe the reason why the
GO did not enforce the liquidation of the
released funds. Also, the account Due from
NGOs/POs is understated.


Comply
strictly
with
the
provisions of COA Circular 2007001 relative to the granting,
utilization
and
accounting/auditing
of
fund
transfers to NGOs/POs.

The End...