COMMISSION ON AUDIT CIRCULAR NO.

75-12 November 28, 1975

TO : Provincial, City, and Municipal Treasurers, Provincial and Entity Auditors and All
Others Concerned.

SUBJECT : Accounting and Auditing Instructions for the Implementation of Presidential

Decree No. 477, otherwise, known as "The Decree on Local Fiscal
Administration," and Presidential Decree No. 557.

Pursuant to Section 80 of Presidential Decree No. 477, dated June 3, 1974, the following
accounting, auditing, an other related financial procedures are hereby prescribed for the
observance and compliance by local government units (provinces, cities, and municipalities).

I - ACCOUNTING CONCEPT AND GENERAL INSTRUCTIONS

A. Accounting Concept. A system of accounting for each province, city, and

municipality shall provide a complete and reliable record of its financial transactions
and operations and accounting control over revenues or income, expenditures,
assets and liabilities, as well as appropriations. The accounts should be kept in such
detail as is necessary to meet the needs of each local governmental unit concerned
and at the same time be adequate to furnish the information needed by central
fiscal/control agencies, like the Commission on Audit, the Department of Finance,
and the Department of Local Government and Community Development.

B. General Instructions. Pending completion and issuance of an updated Local

Government Accounting and Auditing Manual, local government units shall, to the
extent applicable, continue to record their financial transactions and operations in
accordance with existing laws, rules and regulations not inconsistent with the
provisions of Presidential Decree No. 477 and other subsequent decrees. In like
manner, the barangays shall also continue to record their financial transactions in
accordance with the methods and procedures prescribed under GAO Provincial
Circular No. 1 of July 1, 1966, otherwise known as the Revised Barrio Accounting
system (now Barangay - "Barangay" is the new nomenclature for "barrio" by virtue of
P.D. No. 557). Barangay development fund transactions, however, shall be recorded
in accordance with the instructions prescribed in this circular. The necessary
guidelines are provided in the paragraphs that follow.

II - FUND STRUCTURE, ACCOUNT CODE AND ACCOUNTING OPERATION

A. General Definition of Fund. Fund is defined as "a sum of money or other resources
set aside for the purpose of carrying out specific activities or attaining certain
objectives in accordance with special regulations, restrictions or limitations and
constituting an independent fiscal accounting entity." Pursuant to Section 7, 8 and
Article I, Chapter II of Presidential Decree No. 477, Provincial, city and municipal
governments shall maintain three major funds, namely: the Local Funds, the Special
Education Fund and the Trust Funds.
B. Local Funds. Based on the sources of income or resources and types of activities
which they finance, local funds are classified into General Fund and Infrastructure
Fund.

1. General Fund. This consists of monies and resources not otherwise accruing
to any other fund. It includes the revenue from all general tax levies and also
miscellaneous revenues and receipts that are not law or contractual agreement
applicable to specified uses.

Monies and resources of the General Fund shall be available for the payment
of expenditures, obligations or purposes not specifically declared by law as
chargeable to, or payable from any other fund, though transfer of monies or
resources there from to other funds of the local government for their
augmentation and use may be made by proper appropriation.

The General Fund includes special accounts for: Public Utilities and Other
Economic Enterprises; Barangay Development Fund; and Loans, Interests,
Bond Issues and Other Contributions for specific purposes.

Section 13, Article II, Chapter II of Presidential Decree No. 477 authorized
Local Government units to maintain in their respective General Fund these 3
special accounts defined below:

A. Public Utilities and Other Economic Enterprises. This special account is

used to account for the financing of self-supporting enterprises which
render services to the public.

B. Barangay Development Fund. This special account is constituted by

annual contributions from each province, city or municipality in amounts
not exceeding five hundred pesos per barangay. This fund shall be spent
solely for community development projects which meet the requirements
set forth by the Secretary of Local Government and Community
Development.

C. Loans, Interests, Bond Issues and Other Contributions. This special

accounts used to account for receipts and disbursements form the
proceeds of loans, interests, bond issues and other contributions for
specified purpose or purposes.

2. Infrastructure Fund. This consists of monies and resources raised or

earmarked by law, including those which, under existing laws, accrue to the
road and bridge fund, allotments under Republic Act No. 917, as amended, and
transfers from the General Fund, which shall be available exclusively for
specific purposes enumerated in Section 7(b), Article I, Chapter II of
Presidential Decree No. 477, as follows:

a. The repair, maintenance, improvement and construction of roads, bridges

and highways. However, in applying this fund to such uses, adequate
 provision shall be made for the maintenance of existing unabandoned
roads and bridges before any new construction is undertaken.

b. The provision and maintenance of wharves, piers, and docks, in

accordance with plans and specifications furnished by the proper national
office, and for removing obstructions to navigations.

c. The subsidizing or acquiring, operating, and maintaining means of water

transportation within the province or city or between the province or city
and neighboring provinces and cities or islands or the dredging of rivers
and providing facilities for communication and transportation by river, as
well as establishing and operating telephone systems.

d. The construction, improvement, maintenance and repair of wharves, piers

and docks, plazas, parks, monuments and playgrounds: street lighting;
artesian wells; irrigation systems; flood control systems; sewerage and
drainage systems; and other permanent public improvements.

e. The acquisition of lands and buildings for public use.

Construction of roads and bridges shall include preliminary investigation and

surveys besides the actual construction.

Subject to approval of the Secretary of Finance, the Local board or council

may, upon proper justification, transfer any unappropriated balance of this fund
to cover exceptionally urgent needs of the province, city or municipality.

As an accounting entity with its own self-balancing set of capable of being

drawn into a trial balance, the Infrastructure Fund shall be identified in the
books of accounts under fund code "I". Separate books of accounts shall be
maintained for this fund.

Upon its establishment, the road and bridge fund, both "J" and "JJ", of
provinces, cities and municipalities and the permanent public improvement
fund, fund code "L" of municipalities shall be deemed ipso facto abolished and
all assets, resources, liabilities, surpluses and deficits of the funds herein
abolished are hereby automatically transferred to the Infrastructure Fund. In
case of difficulty, however, in identifying and segregating account balanced that
pertain to the Infrastructure Fund, this fund shall least start with the "J", "JJ"
and "L" current budgetary accounts, including their surpluses or deficits and
related account balances. Other unidentifiable account balances may remain
with the General Fund.

C. Special Education Fund. This consists of the respective share of provinces, cities
and municipalities in the proceeds of the additional one percent real property tax
levied and appropriated for educational purposes under Republic Act No. 5447, as
amended by Section 41 and 87(b) of Presidential Decree No. 464, otherwise known
as the Real Property Tax Code."

D. Trust Fund. This consist of private and public monies which have officially come into
the possession of the government or of a government officer as trustee, agent, or
 administrator, or which have been received as a guaranty for the fulfillment of some
obligations. A trust fund is available only for the specific purpose for which it was
created or for which it came into the possession of the government. Section 4 of
GAO Provincial Circular No. 11, dated April 30, 1968, enumerates the various trust
fund items as follows:

a. Disbursing funds;

b. All authorized payroll deductions for remittance to creditor agencies, like the
GSIS, PHHC, PNB, SSS, Medicare, Bureau of Prisons, BIR, and even private
insurance companies and other private entities; where payroll deductions under
judicial, quasi-judicial or administrative directions;

c. Municipal and barangay deposits by other officials and/or private parties other
than deposits for goods and services to be delivered at some future date which
shall be taken up as deferred credits to income;

d. Rentals collected for the use of property belonging to other entities which
rentals, by law or regulations, have not been ceded to the local government
unit involve;

e. Shares of governmental entities other than the collecting or receiving local

government unit involved; and

f. All other moneys and property including sinking fund accumulations coming
into the possession and/or custody of the local treasurers for the benefit of a
particular person or entity for a specific purpose.

III - ACCOUNTS CODES AND ACCOUNTING OPERATION FOR THE BARANGAY

DEVELOPMENT FUND AND OTHER GENERAL FUND SPECIAL ACCOUNTS

A. Definitions. For the purpose of accounting for the Barangay Development Fund, the
present chart of account shall be expanded to include the following:

Trust Fund

Barangay Development Fund -B-2-25. This account shall be used in the Trust
Fund books of the province and city to record (credit entry) the amount of
Barangay Development Fund contributed by the city as well as the province
and its municipalities. It shall be debited whenever said fund is transferred for
use in approved barangay development projects by the city or municipality.

General Fund

1. Current Surplus, Barangay Development Fund -C(E). This account represents

the unappropriated account of the Barangay Development Fund. It shall be
simultaneously debited and credited to take up the releases received which are
considered automatically appropriated by the province, city or municipality for
barangay development projects, which amount shall not exceed P500 for each
barangay. The excess of its resources over its obligations will constitute the
current surplus of the fund.
 2. Barangay Development Fund Project - C-34. This expense account shall be
credited in the General Fund books upon receipt of releases from the provincial
treasurer in case of municipalities and upon transfer of fund from the Trust
Fund Project, in case of cities. It shall be debited to record all expenses
incurred in the prosecution of approved development projects.

3. Aid to Barangay Development Fund - C-47. This expense account shall be

used in the books of the General Fund of the province, city and municipality to
record the contributions made by them to the Barangay Development Fund. It
is credited when the appropriation for such contribution has been approved. It
shall be debited upon making the contribution.

4. Contributions, Barangay Development Fund - Ca-74. This income account

shall be used in the books of the General Fund of the municipality to record the
releases received from the provincial treasurer to finance approved barangay
development projects. In the books of the city, this account is used to record
the transfer of fund from the Trust Fund to the General Fund to finance
approved barangay development projects. This income account shall be
simultaneously debited and credited to take up the releases received which are
considered receipts automatically appropriated.

The present chart of account shall likewise be expanded to include the current
surplus accounts of the other General Fund special accounts. For this purpose, the
following account codes shall be used:

a. Current Surplus, Public Utilities

and Other Economic Enterprises C(N)

b. Current surplus, Loans, Interests, Bond

Issues, and Other Contributions C(O)

B. Accounting Operations, General Fund Special Accounts

1. Public Utilities and Other Economic Enterprises. The accounting procedures

prescribed under GAO Provincial Circular No. 11, dated April 30, 1968, as
amended and the chart of accounts given in Chapter XXX of the Revised
Manual of Instructions to Treasurers, 1954 edition, as far as applicable, shall be
used in recording the financial transactions and operations of public utilities. All
the accounts of public utilities shall be recorded in the books of the general
fund. The public utility record however, shall show the details of these
accounts which need not be shown in the monthly trial balance. (See appendix
"B"). The use of the following accounts will be enough to show the results of
operations of a public utility.

Receipts from public utilities........................................... Ca-41

Operations of public utilities........................................... C-35
Current surplus, public utilities and other
economic enterprises..................................................... C(N)
Capital assets, public utilities......................................... X-66
 Capital surplus............................................................... Z-(?)

In the case of other economic enterprises, like public markets and

slaughterhouses, the same accounting procedures apply and the results of
operations will be reflected in the following accounts; (See also appendix "B").

Receipts from markets and slaughterhouses................. Ca-42

Operations of markets and slaughterhouses.................. C-36
Current surplus, public utilities and
economic enterprises .................................................... C(N)
Capital assets, markets and slaughter-
Houses........................................................................... X-58
Capital surplus.............................................................. Z-(?)

The net profits derived from the operations of public utilities and other
economic enterprises, when not needed for the return of the advance made
therefore, shall be spent solely for the improvement of the public utility or
economic enterprises concerned.

2. Barangay Development Fund.

a. Funding and Operating Procedures. Section 13-B,Article II, Chapter II of

Presidential Decree No. 477 provides that the provincial or city treasurer
shall be the custodian of the annual contributions made by each province
and its municipalities or City to the Barangay Development Fund. In line
with this concept and in order to ensure the adequate funding of approved
community development projects, the fund generated from the annual
contributions shall be treated as Trust Fund in the hands of provincial or
city treasurers.

In the case of provinces, the Barangay Development Fund shall be

considered a common fund at the municipal level. The provincial
treasurer shall determine, on the basis of the approved provincial and
municipal fund budgets for the fiscal year, the total provincial and
municipal contributions accruing to the barangays of each municipality
and record in his books such amounts by municipality. Remittance and/or
transfers to the Barangay Development Fund shall be made monthly at
amounts not less than one twelfth (1/12) of the annual contribution
appropriated by the province and its municipalities. Lump sum remittance
and/or transfer may be authorized provided it is made during the first
quarter of the fiscal year.

The provincial treasurer shall
municipal treasurer concerned
disbursement and accounting
municipality shall exceed the
barangays thereof.
make releases from this fund thru the
who shall be responsible for the proper
of the same. No releases to any one
total contributions pertaining to all the

In the case of cities, the city treasurer concerned assumes the role of
custodian and disbursing and accounting officer of the Barangay
 Development Fund. Similarly, the fund shall be treated as a common
fund.

b. Accounting Procedures. Fund releases or transfers to the Barangay

Development Fund shall be considered receipts automatically
appropriated in the books of cities and municipalities. Disbursement for
duly approved community development projects chargeable against the
Barangay Development Fund shall require the approval of the city or
municipal mayor, as the case may be, who shall act as fund administrator
and project director.

Municipal treasurers shall be responsible for the proper disbursement of,

and accounting for the Barangay Development Fund released thru them
by the provincial treasurer.

They shall maintain a record of all receipts and expenditures of such

community development fund projects for which releases of funds have
been made. The project records consisting of project cost sheet (See
appendix "D") should agree with the controlling account C-34 in the
general ledger.

City treasurer shall likewise maintain a separate record of receipts and

expenditures of each community development project for which funds
have been transferred. In both instances, the project cost sheet, General
Form No. 107, prescribed under GAO General Circular No. 102, dated
August 31, 1967, shall be used as subsidiary ledger in recording
transaction involving construction projects of government entities.

The releases taken up under account "C-34, Barangay Development

Fund Project, shall be treated as continuing appropriation until the project
is completed or abandoned. Any unexpected balance shall be reverted to
the Barangay Development Fund, B-2-25, by specific action of proper
authorities.

Illustrative entries to take up in the books of the province, city and

municipality the contributions to and operations of the Barangay
Development Fund are shown in Appendix "A".

3. Loans, Interests, Bond Issues and Other Contributions for Specific Purposes.
The proceeds of loans, interests, bond issues and other contributions for
specific purposes shall be recorded as special accounts under the General
Fund.

Appropriations and expenditures there from for the construction of permanent

improvements for which the loans was obtained, interest was earned, bonds
were issued or contributions were received, shall be distinguished from the
accounts by the symbol "C(O)" placed after the usual account code (Example:
Sundry economic development, C-32-C-O. If there are appropriations from the
local funds for the same improvements, these appropriations will not be
merged with the appropriations of the of the special accounts and will be
accounted for under the respective funds to which they originally pertain.
 Likewise, repayment of loans or sinking fund installments shall be taken up
under the funds from which they were paid.

Expenses will be charged first to the appropriations for the project from other
local funds, if there be any, and then from those of the special accounts. In
making the capital account adjustment, however, all expenses without
distinction will be charged to the corresponding fixed asset account and
recorded in only one plant card. Expenditures from the special accounts shall
be strictly limited to the purpose for which the funds were secured.

Subsidiary records to control the income and expenditures of this special

accounts shall be maintained thru the use of the ledger control sheet,
Provincial Form No. 107(A).

Illustrative entries to take up in the books of the province, city and municipality
the proceeds from, and disposition of, loans and bond issues are shown in
Appendix "C".

IV - SEPARATION OF BOOKS AND DEPOSITORY ACCOUNTS

Subject to the following restrictions, local treasurers shall maintain separate

depository accounts for each fund, namely: the General Fund, the Infrastructure Fund,
the Special Education Fund, and the Trust Funds in their custody or administration.

1. Provincial and city treasurers shall maintain their depository accounts only with
the banks duly designated as government depositories by the Central Bank of
the Philippines.

2. Municipal treasurers shall deposit their funds with the Provincial treasurer who,
in turn, shall deposit the same with duly designated banks.

3. Upon resolution by their respective local legislative bodies provincial, city and
municipal treasurers may directly deposit with duly designated banks excess
local funds under time deposit accounts. In the case of municipal funds, such
time deposits shall be approved by the provincial treasurer and the provincial
auditor and shall be taken up under account "A-1-5". Earnings of time deposit
accounts shall accrue to the proper fund.

4. All checks drawn against any depository account shall be made by the
provincial or city treasurer, as the case may be, and shall be pre-audited and
countersigned by the local auditor concerned. In the case of temporary
absence or capacity of the above-named officials, these duties shall devolve
upon the immediate assistant.

Provincial, city and municipal treasurers shall, likewise, maintain separate books of
accounts for each funds: the General Fund, the Infrastructure Fund, the Special
Education Fund, and the Trust Funds.
V - EXPENDITURES AND DISBURSEMENTS

A. Expenditures. Expenditure accounting is interlinked with the budgetary process.

The account structure is linked with the budget classification.. The same funds,
functions,organizational units and activities, character and object of expenditure
classifications are used for accounting and budgetary purposes. Presidential Decree
No. 477 provides some changes in expenditure classification. Aside from changes in
the fund structure, there was also a change in the character classification of
expenditures. In line with Section 14(h) and (i) and 17, Article I, Chapter III of
Presidential Decree No. 477, present expense object classification should be
realigned into two primary categories, namely: (1) current operating expenditures,
and (2) capital outlay.

Current operating expenditures refer to the purchase of goods and services for
consumption during the current fiscal year, including the acquisition of furniture and
equipment
costing less than P100.00 usually used in the conduct of normal government
operations.

Capital outlays or capital expenditures refer to the purchase of goods and services
for a life-expectancy extending beyond the fiscal year and which add to the life of the
assets of the local government concerned, except furniture and equipment costing
less than P100.00 usually used in the conduct of normal government operations.

B. Disbursements. Section 2, Chapter 1 of the Presidential Decree No.477 sets forth

the fundamental principles that govern local government disbursement, to wit:

1. "No money shall be paid out to the treasury except in pursuance of a lawful
appropriation or other specific statutory authority."

2. "Public funds and monies shall be spent solely for public purposes.

3. "Trust funds shall not be paid out of the treasury except in fulfillment of the
purpose for which the trust fund was created or fund received."

4. "Every officer of the government whose duties permit or require the possession
or custody of government funds shall be properly bonded and such officer shall
be accountable and responsible for said funds and for safekeeping thereof in
conformity with the provisions of law."

Conformably to these principles, disbursement of local government funds shall

adhere strictly to the following basic requirements:

1. There shall be an approved budget for the local government fund concerned
upon the basis of which disbursements may be made, unless restrained by the
Secretary of Finance, the Provincial Treasurer or the Municipal Treasurer, as
the case may be, within the regulatory period prescribed by law.
 2. The proposed expenditure is in conformity with the existing rules and
administrative regulations.

3. Fund and appropriation are available for the purpose as duly certified by the
local treasurer concerned.

4. The claims for payment has been established thru documents/ evidences and
approved by the office or department head or his duly authorized
representative.

The foregoing guidelines shall apply not only to actual disbursements but equally in
taking up obligation of expenditures at the end of the fiscal year.

C. Prohibitions or restrictions in the disbursement of local funds.

Government disbursement operation is generally characterized with certain

prohibitions or restrictions. In local government, the following are the applicable
prohibitions or restrictions in the disbursement of local funds:

1. Restrictions upon limit of disbursements. Disbursements in accordance with

appropriations in the approved budget may be made from any local fund,
namely: the General Fund and the Infrastructure Fund, in the custody of the
provincial, city and municipal treasurers, provided that the same shall not
exceed actual collections plus fifty per cent in the case of provinces and cities
and twenty- five per cent in the case of the municipalities, of the uncollected
estimated revenue accruing to said funds: Provided, however, that no cash
overdraft shall be incurred at the end of the fiscal year.

In the case of the public calamities, the Secretary of Finance, in the case of
provinces and cities, and the provincial treasurer, in the case of municipalities,
may authorized the local treasurer to continue disbursement from any local
fund in excees of the limitation herein provided, but only for such purposes and
amounts as are included in the budget, as said official may determine, upon
consultation with the local board or council. In such a case, the first collections
during the ensuing year shall be applied to the overdraft so incurred. Until such
overdraft is fully covered, local treasurers shall confine their disbursement to
salaries and wages, statutory and contractual obligations, provided that same
have been provided in the current budget.

2. Failure to enact an annual budget.

a. If any of the budgetary requirements set forth in Section 27 of the decree

is not complied with and the annual budget is still pending review by the
Secretary of Finance or the Provincial Treasurer, as the case may be, the
local treasurer should limit fund disbursements to the annual
appropriations authorized in the preceding year's annual supplemental
budgets for salaries and wages of existing positions, statutory and
contractual obligations, and essential operating expenses until he
receives the action taken on the annual budget for the new fiscal year by
the reviewing officer, whereupon he shall act accordingly.
 Moreover, in view of the provisions of Section 28 of the decree,
appropriations set aside in the annual budget for the new fiscal year for;
(1) creation of new positions, and (2) salary increases, shall not be
disbursed until the treasurer receives the action taken on the budget by
the reviewing officer.

b. If the local legislative body fails to approved the annual budget before the
beginning of the ensuing fiscal year, or when a duly enacted budget is
declared inoperative in its entirety, the annual appropriations for salaries
and wages of the existing positions, statutory and contractual obligations
and essential operating expenses authorized in the annual and
supplemental budgets for the preceding fiscal year shall be deemed
automatically re-enacted and disbursements of funds shall be in
accordance therewith until a new budget or a revised budget meeting the
objection of the reviewing officer is approved.

In the implementation of a re-enacted budget, the local treasurer

concerned shall exclude from the estimates of income for the preceding
fiscal year those realized from non-recurring sources, like national aids,
proceeds from loans, sale of assets, prior year adjustments and other
analogous sources of income.

Should the revised income estimates be less than the aggregate re-
enacted appropriations, the treasurer shall accordingly advise the local
board or council which shall, within ten days from receipt of such advice,
make the necessary adjustments or reductions. The revised
appropriations authorized by the board or council shall then be the basis
for disbursement.

c. Following receipt of the advice of adverse action taken on the local

budget, it shall be unlawful for the local treasurer concerned to make
further disbursement of funds from any of the items of appropriations
declared inoperative, disallowed or reduced.

3. Use of appropriated funds. The enactment of a budget is a legislative act.

Funds shall be available for the payment of obligations exclusively for the
specific purposes for which they have been appropriated. Transfer or reversion
of appropriations from one item to another shall be made only by the local
legislative body. No overdraft in appropriation shall be incurred at any given
time. Closing entries shall be used to adjust over and underestimated
revenues and to revert excess appropriations to the unappropriated balance at
the end of the fiscal year without the need of legislative action.

4. Disbursement of appropriation for development projects. Appropriations for

development projects funded from the twenty per cent of the annual internal
revenue allotment of the local government and from the Barangay
Development Fund shall not be disbursed until after the corresponding work
programs shall have been reviewed by the Secretary of Local Government and
Community Development or his duly authorized representatives.
5. Certification on, and approval of, vouchers. Disbursement of local government
funds shall be made only upon properly certified vouchers and payrolls.
Monies shall not be disbursed unless the treasurer concerned certifies that
appropriations and funds are available for the purpose and the head of the
department or office who has administrative control of the fund concerned
certified and approved the claims involved as to validity, propriety, and legality.
In the case of municipalities, the approval of the Municipal Mayor shall be
required when local funds are involved.

In the case of temporary absence or incapacity of the department head or chief

of office, the officer next-in- rank shall automatically perform this function and
he shall be fully responsible therefor.

6. Prohibition against expenditure for religious or private purposes. Public funds

shall be used exclusively for public purposes. No public money shall be
appropriated or applied for the benefit of any religious sect or activity nor any
other undertaking or purpose of private character.

7. Prohibition against expenses for reception and entertainment. No money shall

be appropriated, used or supplied for entertainment or receptions except to the
extent of representation allowances authorized by law or executive order or the
reception of visiting dignitaries of foreign governments or foreign missions or
when expressly authorized by the President in specific cases.

8. Prohibition against advance payments. To safeguard the funds of local

government, no disbursement shall be made therefrom on account of any
contract for which no services have as yet been rendered or no deliveries of
supplies/materials have as yet been made, except with the prior approval of the
President upon recommendation of the Secretary of Finance and the Chairman
of the Commission on Audit, and provided that appropriations for said
expenditures are set aside in the current annual or supplemental budgets.

9. Cash Advance.

a. No cash advance shall be granted to any local official or employee,

appointive or elective, unless pre-audited by the auditor concerned and
for a legally authorized specific purpose.

b. No additional cash advance shall be allowed unless the previous cash

advance is first settled or a a proper accounting made thereof.

c. A cash advance shall not be used for exchanging warrants or checks, and
no part thereof shall be transferred to any other accountable officer
without the prior direction of the head of office or department and
approval of city auditor.

d. Cash advances will be liquidated within ten days after serving the
purpose for which the cash advance was granted.
 e. Under the circumstance shall a cash advance be allowed to remain
unliquidated at the end of the fiscal year even if the officer or employee
concerned should again need the cash
advance.

Vl - ACCOUNTABILITIES AND RESPONSIBILITIES OF LOCAL AND OTHER OFFICERS

In line with the basic principle and concept set forth in Section 2, Chapter I of
Presidential Decree No. 477 on local fiscal affairs, the following guidelines, instructions, and
rules and regulations on accountabilities and responsibilities of local and other officers are
hereby issued for the information, guidance and/or compliance of those concerned:

1. Accounting for monies received by public officers. Except as otherwise specifically

provided by law or competent authority, all monies officially received by a public
officer in any capacity or upon any occasion shall be accounted for as government
funds.

2. Payment of government monies into treasury. Officers of the government

authorized to receive and collect monies arising from taxed, revenues, or receipts
of any kind shall remit the full amount as received and collected by them into the
treasury to branch of government to which such officers in their collecting capacity
respectively pertain, to the credit of the particular account or accounts to which the
monies in question initially belong. The amount of such collections ultimately
payable to other branches of the government shall thereafter be transferred to the
respective treasuries of these branches under regulations prescribed in Section
356 and Section 497 to 514, Chapter XVI of the revised Manual of Instructions to
Treasurers.

3. Accounting for revenues. Estimated revenues which remain unrealized at the

close of the fiscal year shall not be booked or credited to the unappropriated
surplus or any other account. The practice of debiting accounts receivable for
unrealized revenue and crediting the same to the surplus account or any other type
of accounting entry to attain the same end is hereby prohibited.

4. Accounting for obligations. All lawful expenditures and obligations incurred during
the year shall be taken up in the accounts of that year.

5. Person accountable for government funds. Every officer of the local government
entrusted with the custody or possession of government funds shall be primarily
accountable and responsible therefor and for the safekeeping thereof. Other
officers who, though not accountable by the nature of their duties, may likewise be
similarly held accountable and responsible for government funds through their
participation in the use or application thereof.

6. Prohibition against pecuniary interest. To ensure impartiality in his official

actuations, the provincial, city or municipal treasurer, or other accountable officers
shall disassociate himself directly or indirectly from any contact, work or business
with the government which involves the functions of his office. This prohibition
shall likewise apply to officers having administrative control of the appropriations or
funds against which payments of the contract, work or business will be charged.
 7. Rendition of accounts. Provincial, city and municipal treasurers and other
accountable officers shall render their accounts of one month on or before the
twentieth day of the succeeding month to the provincial or city auditor concerned.
The accounts shall consists of the journal voucher covering disbursements,
collections, liquidations and other special journal vouchers together with their
supporting documents; the corresponding journals; the trial balances and
supporting schedules; the monthly statement and inventory of accountable forms;
and other financial reports which the provincial or city auditor concerned may
require from time to time.

Accountable supply and property officers shall submit to their respective local
treasurers their inventories of supplies and materials, plant and equipment, and
semi-expendable property semi- annually on or before the tent day of duly and
January as of June thirtieth and December thirty- first, each, respectively. The
Provincial, city and municipal treasurers shall, after verification, in turn submit to
their respective provincial or city auditors the same inventories including those of
his office annually on or before the tenth day of July, as of June thirtieth each year.

8. Preparation of the trial balance and supporting statements. At the end of each
month, the provincial, city or municipal treasurer shall prepare separate trial
balances and supporting schedules for the (1) General Fund, (2) Infrastructure
Fund, (3) Special Education Fund, and (4) Trust Fund. Statements showing the
status of the four funds shall be prepared and submitted together with the trial
balances and supporting schedules to the provincial or city auditor concerned not
later than the twentieth day of the following month or the fortieth day in the case of
year-end financial statements.

Within forty days the close of each month or sixty days after the close of each fiscal
year, the provincial, city or municipal treasurers shall furnish their respective local
legislative bodies with such trial balances and supporting schedules together with
the statements showing the status of the funds under the custody or administration
of such treasurer.

VII - AUDIT RESPONSIBILITIES

A. Audit and certification of accounts. Each provincial or city auditor shall examine,
audit and settle the accounts of the provincial, city or municipal treasurers and
other accountable officers under their respective jurisdiction within one hundred
eighty days after receipt of such accounts. The local auditors shall certify to the
balances arising in the accounts settled by them to the Chairman of the
Commission on Audit and to the provincial, city or municipal treasurer and other
local accountable officials concerned.

At least once a quarter or as often as necessary due to change of accountable

officer or other justifiable reasons, the provincial or city auditor concerned shall
send a written notice under Certificate of Settlement to each treasurer or
accountable officer whose accounts have been audited and settled in whole or in
the part by him, stating the balances found due thereon and certified, and the
changes of differences arising from the settlement by reason of disallowances,
charges, or suspensions. The certificate shall be properly itemized and shall state
the reasons for disallowances, charges or suspensions of credit. A charge of
 suspension not satisfactorily explained or adjusted within ninety days after receipt
of the certificate or notice by the local treasurer or accountable officer concerned
shall become a disallowance, unless the Chairman of the Commission on Audit,
upon favorable recommendation of the provincial or city auditor, shall, in writing
and for good cause shown, extend the time for answer beyond ninety days.

Similar Certificate of Settlement shall be prepared for other local officials who may
be held jointly and severally liable with the treasurer or accountable officer for any
loss or improper or unauthorized use or misappropriation of government funds or
property.

B. Auditorial visitation. The books, accounts, papers and cash of any provincial, city
or municipal treasurer or any other accountable officer shall at all times be
available for audit by representative of the Commission on Audit.

In cases where the examination of the accounts of the local treasurer discloses a
cash shortage, the provisions of Section 55 of the Presidential Decree No. 477
shall be observed. However, before doing so, the examining officer must ascertain
definitely the existence of the cash shortage by observing the following procedures.

1. Verification of examination by witnesses. Upon discovery of a cash shortage,

the examiner will call upon two local officials to verify the count of cash and
the report of examination and certify to their findings. If such two local
officials are not available, employees or other reliable private persons in good
standing in the community may be used in their stead.

2. Presentation of formal written demand upon defaulting officer. The

examining officer shall always make a formal written demand upon the
defaulting local treasurer to produce and to restitute immediately the missing
funds. Receipt of the letter of demand served upon the defaulter shall be
acknowledge by him in writing stating the time and date it was received by
the defaulting officer.

3. Gathering of evidence. The examiner will, without loss of time and right on
the spot where the shortage is discovered, gather the necessary evidences,
documentary or otherwise, against the defaulter. Immediate investigation
shall be conducted and all the witnesses called in and bound by sworn
testimonies or affidavits. Whatever testimony may be secured from the
defaulter shall always be reduced in writing, witnessed by at least two
disinterested but responsible persons.

4. Request for issuance of search warrants. If after the written demand the
defaulter fails to restitute immediately the missing funds, the examiner will
immediately ask the proper court to issue a search warrant so that the
corresponding order may be given and the person, or house premises of the
defaulter mentioned in the warrant may be lawfully searched. The examining
officer shall try to be present during the search of the house and the premises
of the defaulter so that he maybe on hand to identify the object being
searched and be witness to any amount seized by virtue of such order.
 5. Notification of the head of office and Chairman of the Commission on Audit.
The immediate head of office of the defaulter and the Chairman of the
Commission on Audit shall immediately be notified of the discovery of a cash
shortage by any fastest means of communication. The message shall give
the extent of the shortage and shall report the action taken by the examiner.
If the office has been seized, temporary relief of the defaulter or designation
of his successor shall be requested from the head of office.

6. Preparation of the report of examination. The proper report of examination

shall be made in seven copies by the examiner. One copy shall be furnished
the immediate superior of the defaulter, one copy to the provincial or city
auditor, two copies to the provincial or city fiscal, and three copies to the
Chairman of the Commission on Audit.

7. Filing the criminal complaint. Except when it is plainly evident that there is no
criminal intent on the part of the local treasurer relative to the cash shortage,
and the amount involved is small, and is refunded at once by him, criminal
complaint shall be filed immediately before the proper court.

C. Review and analysis of trial balance and related documents. The provincial or city
auditor shall immediately review and analyze the trial balance and supporting
schedules as well as the statements on the status of funds and appropriations
submitted by the proper local treasurer or accountable officer. The auditor
concerned shall report immediately to the Chairman of the Commission on Audit
any expenditure in excess of appropriation or available funds or any other form of
overdraft. The attention of the local chief executive, the local legislative body and
the local treasurer shall be called. Nothing herein shall be consulted as legalizing
overdrafts both in funds or in appropriations except to the extent authorized under
Section 44, Chapter IV of Presidential Decree No. 477. In no case shall trust fund
be used for purposes other than those for which the trust fund has been
constituted.

D. Weekly verification of cash ledgers. The provincial or city auditor, or whomsoever

he may designate, shall make weekly verification of the cash ledgers of each fund.
Should any misposting be discovered, corresponding adjustment or correction shall
immediately be caused. In the case of municipalities, this shall be done by the
municipal treasurer or whomsoever he may designate for the purpose.

E. Reconciliation of aids or contributions to the barangay development fund. At the

end of the fiscal year, provincial and city auditors shall see to it that in the
verification of the closing journal vouchers and the books of accounts of local
governmental units as well as in the preparation of the financial statements
(Budget and Operating Statements), the present practice in reconciling inter-
agency aids or contributions (Aids or Contributions from the Local government unit
to another) shall be applied and observed for the Barangay Development Fund.

Specific procedures and/or guidelines in the reconciliation of the Barangay

Development Fund (Specific Account) of the General Fund include the following:
 Provincial and Municipal Level

a. The sum of the debit totals of account C-47 of the General Fund of the
province and its municipalities shall equal the credit total minus beginning
balance, if any, of account B-2-25 of the provincial Trust Fund.

b. The sum of the debit totals of account Ca-74 as well as the sum of the credit
totals of account C-34 minus beginning balance, if any, of the Barangay
Development Fund (Special Account) of the General Fund of the aforesaid
municipalities shall likewise equal the debit total of account B-2-25 of the
provincial Trust Fund during the fiscal year.

City level

a. The debit total of account C-47 of the General Fund shall equal the credit
total minus beginning balance if any, of account B-2-25 of the Trust Fund.

b. The debit total of account B-2-25 of the Trust Fund shall likewise equal the
debit total of account Ca-74 as well as the credit total minus beginning
balance, if any of account C-34 of the Barangay Development Fund (Special
Account) of the General Fund during the fiscal year.

VIII - AMENDATORY AND REPEALING PROVISIONS

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

IX - EFFECTIVITY

This circular shall take effect immediately.

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