COMMISSION ON AUDIT MEMORANDUM NO.

94-014 February 22, 1994

TO : All COA Directors/Officers-In-Charge, Heads of Auditing Units, and Others

Concerned.

SUBJECT: Salary deduction scheme (Payroll Deduction) initiated by rural banks with
various government offices for the payment of financial assistance (loans)
granted to government employees.

For the information of all concerned, quoted hereunder is the full text of the letter dated
February 4, 1994 of the Chairman, this Commission, to the Chief Operating Officer, Rural
Banks Association of the Philippines, pertaining to the above subject, to wit:

February 4, 1994

"Mr. Virgilio S. Coronado, Jr.

Rural Bankers Association
of the Philippines
RBAP Bldg., A. Soriano Ave.,
corner Arzobispo Street
Intramuros, Manila

"Dear Mr. Coronado:

This is to acknowledge receipt of your letter dated January 10, 1994, informing
us that local COA auditors have prohibited and/or stopped the salary deduction
scheme (payroll deduction) initiated by rural banks with various government offices
for the payment of financial assistance (loans) granted to government employees.

"As gleaned from said letter, it is your position that such prohibition/stoppage
is not in order in the light of the provision of R.A. No. 7353 otherwise known as the
'Rural Banks Act of 1992' which reads as follows:

'Sec. 12. In addition to the operations specifically authorized in this Act, any
rural bank may:

xxxxx.

'(h) Extend financial assistance to private and public employees in

accordance with the provisions of Section 5 of Republic Act No. 3779, as amended.'

"Hence, you request guidelines on the afore-quoted provision of the law.

"Section 5 of R.A. 3779 or the 'Savings and Loan Association Act' referred to
in Sec. 12(h) of R.A. 7353 pertinently provides:

'Sec. 5. Powers of savings and loan association. - A savings and loan

association shall be incorporated under the Corporation Law, and in addition to the
 powers therein granted whenever applicable, it shall exercise the following:

'(a) To grant loans of not exceeding the amount deposited by the borrower
plus his four months' salary or regular income in the case of a permanent employee
or wage earner, or seventy percent of the fair value of any property acceptable as
collateral on first mortgage that he may put up by way of security: Provided, That
no loan shall have a maturity date of more than one year: And provided, further,
That in case of a borrower who is a permanent employee or wage earner, the
treasurer, cashier or paymaster of the office employing him is authorized, the
provisions of any existing law, rule and regulation to the contrary notwithstanding, to
make deductions from his salary, wage or income pursuant to the terms of his loan,
to remit deductions to the savings and loan association, and to collect such
reasonable fee for his services as may be authorized by rules promulgated by the
Monetary Board. xxx.' (Underscoring Supplied)

"Since Section 12 of R.A. 7353 is explicit that financial assistance (such as

salary loan) extended by rural banks to private or public employees shall be in
accordance with Section 5 of R.A. 3779, this Commission believes and so holds
that the reported order of prohibition and/or stoppage of salary deduction scheme is
bereft of legal basis.

"This notwithstanding, please be reminded of the specific provision in the

General Provisions of R.A. 7645 (General Appropriations Act - 1993) relative to
salary deductions of government employees, to wit:

'Sec. 41. x x x. Provided, that such deductions, shall not reduce the
employee's take home pay to an amount lower than one thousand pesos, after
deducting all other statutory deductions. x x x.'

"We hope that this will serve as your guide on the matter.

Very truly yours,

(Sgd.) PASCASIO S. BANARIA

Chairman"

Please be guided accordingly.

(SGD.) PASCASIO S. BANARIA, Chairman