Part I

Executive Summary

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EXECUTIVE SUMMARY

INTRODUCTION

It is the policy of the state to provide basic services and uphold and protect the
rights of the people for a peaceful and dignified life. The realization of this
policy, however, requires adequate funding.

Government funds are mainly sourced from collections by authorized

government agencies for taxes, customs duties and fees for services rendered.
These collections are intended to finance government’s budgetary requirements.
Any deficiency from collection are financed from domestic and foreign
borrowings.

The efficiency of the collection system, therefore, is crucial in the performance

of government’s functions particularly in the implementation of government
programs and projects.

The collection function is being performed by several government agencies in

charge of collecting taxes, duties and other fees required under existing laws,
rules and regulations. The collections are undertaken either by the National
Collecting Officers (NCOs) or the Authorized Agent Banks (AABs) as in the
case of the Bureau of Customs (BOC). They are governed by rules and
regulations issued by the Department of Finance (DOF), the Bangko Sentral ng
Pilipinas (BSP), the Bureau of the Treasury (BTr), the Department of Budget
and Management (DBM), the Commission on Audit (COA) and the respective
collecting agencies such as the BOC.

As required under existing guidelines, collections should be accounted for in

the following manner:

• Collections by AABs of the BOC are remitted to the BSP on the 11th day
from the date of collection.

• Collections by the designated NCOs/Local Treasurers (LTs) are deposited

to the Bureau of the Treasury (BTr) account maintained with the
Authorized Government Depository Banks (AGDBs) on the day of
collection or on the following day for collections after the deposits had
been made. These deposits are available for withdrawal by the BTr on the
6th day after the date of deposit.

As of audit date, there are 36 AABs and 4 AGDBs for BOC.

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 EXECUTIVE SUMMARY

For the year 2002, the BOC reported total collections of P98,328 M composed
of P97,871 M tax revenues and P457M non-tax revenues.

AUDIT OBJECTIVE

The audit was conducted to assess the adequacy of existing policies, procedures
and controls on national collections and effectiveness of their implementation in
ensuring that collections by the NCOs and AABs are deposited and remitted to
the BTr account on time and accurately reported and recorded in the books of
the BOC and the BTr.

AUDIT SCOPE AND METHODOLOGY

The audit focused on the evaluation of existing systems and procedures in

ensuring that collections are deposited and remitted to the BTr account and are
accurately reported and recorded. The validation of existing systems was tested
on recorded collections and remittances between the period January 2002 to
June 2003. The audit covered five national government agencies including the
BOC and the BTr.

The team assessed the adequacy of policies and procedures on the basis of the
following criteria:

• Adequate, clear and well-defined Policies and Procedures on the

deposit/remittance, recording, reporting, and reconciliation of collections;
• Sound Monitoring and Control Mechanisms; and
• Accurate and Reliable Accounting and Reporting System.

During the audit, the team performed the following audit procedures, among
others:

• Studied the system of national collections affecting the deposit/remittance,

reporting, recording and reconciliation;
• Assessed the adequacy of the existing system;
• Interviewed personnel involved in the collection system;
• Prepared and evaluated flowcharts covering different collection schemes such
as collection by the NCOs and collection of the BOC’s revenues thru AABs
using “over-the-counter” scheme; and

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 EXECUTIVE SUMMARY

• Analyzed the recorded collections and deposits/remittances as to accuracy and

timeliness.

The audit was conducted from July 1, 2003 to February 23, 2004 pursuant to
MS/TS Office Order No 2003-008 dated June 24, 2003.

AUDIT CONCLUSION

The audit disclosed that the existing policies and procedures to ensure that AAB
collections are accurately established and corresponding remittances are
properly monitored were inadequate. Likewise, the control mechanism required
under existing regulations to monitor unremitted collections was not in place.
These deficiencies are evident on the following instances:

• As the prescribed document under Joint Circular No. 5-85 dated June 6,
1985 by the DOF, DBM and COA to be used by the BOC as basis for
recording collections is not appropriate, the BOC is not using the same.
On the other hand, there was no provision on the document to be used
as basis for recording remittances. In view of this deficiency, the BOC
is currently using the BSP List of Remittances for simultaneous
recording of collections and remittances. Collections then are recorded
only upon remittance.

This practice cannot be considered appropriate and resulted in

unrecorded collections and remittances amounting to P70,652,872.24
and P78,223,991.72, respectively, for December 2002 and January
2003 alone when compared with the BTr and BSP records. The BTr
records were not even complete and accurate considering that 23 AABs
remitted amounts exceeding their reported collections by
P191,862,702.48 for the two sampled months alone. The excess
remittance could represent unrecorded collections. This manifests the
failure of both the BOC and the BTr to establish the total amount
collected and remitted.

• As total collections could not be accurately established, the total

amount to be remitted could not be properly monitored. In addition, the
BOC and the BTr do not keep records of any unremitted collections.
They both failed to maintain the required subsidiary ledger per AAB to
monitor unremitted collections at any given time. The presence of huge
outstanding balance of P 505,613,511.27 as of January 2003 under

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 EXECUTIVE SUMMARY

the BTr account “Other Receivables – Due from AABs” implies

unremitted collections for the period August to December 2002.
Several errors in recording were also noted by the team in the two
sampled months.

• The AABs’ failure to remit collections on time was also manifested on

the penalties and surcharges imposed by the BOC amounting to
P303,205.73 for CY 2002 alone.

Even collections by the NCOs were not also properly monitored. In several
instances, three NCOs were accumulating two to twenty days’ collections
ranging from P8,460 to P7,776,901.73 before these were deposited in tranches
and only after 32 to 53 days in some cases. The total deposited collections
could not also be established due to unreconciled records of the BOC and the
BTr with a difference of P2,777,963,561.31 for CY 2002. The difference
could be attributed to the failure of the NCOs to submit reports on time for
recording in the books of the BOC and errors in recording both in the BTr and
in the BOC books.

These deficiencies not only exposed government collections to possible loss or

misappropriation but also adversely affected the accuracy of the financial
reports, the cash position of the government and the required funding to finance
government projects.

As collection function is a vital component in ensuring economic development,

these concerns should be immediately addressed by the BOC and the BTr. The
team recommended certain measures to address these concerns for
consideration by both the BOC and the BTr.

MANAGEMENT’S REACTIONS TO AUDIT OBSERVATIONS

The results of the audit were forwarded to BOC on June 10, 2004 with a follow
up letter dated July 9, 2004 for their comments. As there were no comments
received to date, the report was finalized without them.