LTO-NCS2003-04C

Republic of the Philippines Commission on Audit

MANAGEMENT SERVICES Commonwealth Avenue, Quezon City, Philippines

Telephone Nos.: 931-9235 , 931-74-55

September 24, 2004

Ms. Anneli R. Lontoc Assistant Secretary Land Transportation Office East Avenue, Quezon City Madam:

We are pleased to transmit the report on the sectoral performance audit on the National Collection System of the Government as implemented by the Land Transportation Office. The audit was conducted in compliance with MS/TS Office Order No. 2003-008 dated June 24, 2003. The results of the audit were forwarded to your office for comments on June 8, 2004 with a follow up letter on July 8, 2004. As there were no comments received from that Office as of to date, the report was finalized without them.

The audit focused on the evaluation of the existing system, policies and procedures in ensuring that collections are deposited and remitted to the BTr account and are accurately reported and recorded. The validation of the existing system was tested on recorded collections and remittances between the period January 2002 to June 2003. The audit covered five national government agencies including the Land Transportation Office.

The team assessed the adequacy of the policies and procedures adopted

by the LTO on the basis of the following audit criteria: a. Adequate, clear and well-defined policies and procedures on the deposit and remittance, reporting, recording and reconciliation of collections; b. Sound monitoring and control mechanism c. Accurate and reliable accounting and recording System.

We look forward to the proper implementation of the recommendations

and we would appreciate being informed on the actions taken on this report within one month from receipt hereof.

We acknowledge the cooperation and assistance extended to the audit team by the officials and staff of the LTO.

Very truly yours,

By Authority of the Chairman;

ILUMINADA M.V. FABROA Director IV

Management Services Report No. 2003-04C

Sectoral Performance Audit

National Collection System

Land Transportation Office

Contents Page

Part I Executive Summary 1

Introduction 2 Audit Objective 3 Audit Scope and Methodology 3 Audit Conclusion 4 Managements Reactions to Audit Observations 5

Part II The National Collection System 6

Introduction 7 Agencies Responsible in the Collection Function 7

The LTO 8 The National Information Technology Plan 2000 9 Governing Rules and Regulations 12 LTOs Depository Bank 14 Collections for CY 2002 14 The System of Reporting Collections 15 The System of Recording Collections 17 Manner of Reconciliation 17 The Collection Flow 18

Part III Audit Observations 19

Chapter I Adequate,Clear and Well-Defined Policies and Procedures 20

Introduction 21 Observation 22

Chapter 2 Sound Monitoring and Control

Mechanisms 25

Introduction 26 Observation 27

Chapter 3 Accurate and Reliable Accounting

and Reporting System 3

Introduction 33 Observations 33

Part IV Recommendations 37

1

Part I

Executive Summary

EXECUTIVE SUMMARY INTRODUCTION It is the policy of the state to provide basic services, uphold and protect the rights of the people for peaceful and dignified life. The realization of this policy, however, requires adequate funding. Governments funds are mainly sourced from collections by authorized government agencies from taxes, custom duties and fees for services rendered. These collections are intended to finance the governments budgetary requirements. Any deficiency from collections are financed from domestic and foreign borrowings. The efficiency in collection system therefore is crucial in the performance of governments 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 rules and regulations. One of the government agencies authorized to collect certain fees is the Land Transportation Office (LTO). Collections are undertaken by the LTO through designated National Collecting Officers (NCOs) assigned in 12 Regional Offices with at least 15 to 36 District Offices each. Their performance is guided by the rules and regulations issued by the Department of Finance (DOF), Bureau of Treasury (BTr) and the LTO. As a general rule, collections by NCOs are required to be deposited to the BTr account maintained with the Authorized Government Depository Banks (AGDBs) within the day or the following day. Their collections are available for withdrawal by the BTr on the 6th day after the date of deposit. LTO is one of the bureaus under the Department of Transportation and Communication (DOTC). LTO envisions a well-developed transportation system that will play a vital role in improving the quality of life of the Filipino people, particularly by introducing a more viable means of land transport for users and commuters. To achieve this vision, LTO is performing the following functions:

Inspection and Registration of Motor Vehicles; Issuance of Licenses and Permits; Enforcement of land transportation rules and regulations Adjudication of traffic cases; and

EXECUTIVE SUMMARY

3

Collection of revenues for the government.

Collections by the LTOs designated NCOs at the Main Office are deposited to the BTr account maintained with the Land Bank of the Philippines (LBP) East Avenue Branch, one of the five AGDBs. For the year 2002, the LTO reported consolidated income of P6, 668,476,169.73 which is 25% higher than the reported income of P5,325,338,883.41 in CY 2001. Of the total income, about 39% represents collections by NCOs assigned at the Main Office and National Capital Region (NCR) while 61% was collected by NCOs assigned in the different Regional Offices. AUDIT OBJECTIVE

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

AUDIT SCOPE AND METHODOLOGY The audit focused on the evaluation of the existing system, policies and procedures in ensuring that collections are deposited and remitted to the BTr account within the reglementary period and are accurately reported and recorded. The validation of existing system was tested on recorded collections and remittances between the periods January 2002 to June 2003. The audit covered five national government agencies including the LTO. The team assessed the adequacy of policies and procedure adopted by the LTO on the basis of the following audit criteria:

Adequate, clear and well-defined policies and procedures on the deposit and remittance, reporting, recording, and reconciliation of collections;

Sound monitoring and control mechanism; and Accurate and reliable accounting and recording system.

EXECUTIVE SUMMARY

4

The following procedures, among others, were undertaken to attain the objective:

Studied the system of national collection affecting the deposit, remittance, reporting, recording and reconciliation;

Assessed the adequacy of the existing system; On selected basis, verified compliance with existing policies and

guidelines; Compared the BTrs and LTOs records using the Abstract of

National Collections generated by the BTr; Assessed the completeness and accuracy of the recorded

collections and deposits; and Interviewed personnel involved in the collection system.

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 concluded that the existing guidelines and procedures on collections and deposits prescribed under various issuances of the LTO and DOF are adequate to provide proper guidance to the NCOs on the manner of depositing and reporting collections. The team, however, noted that compliance with the requirement of depositing collections during the day was not properly monitored by the LTO and the BTr. Some NCOs deposit their days collection only on the following or several days after collection. This put to risks collections specially on Fridays and a day before the holiday reaching as much as P1.26M kept in a vault for two to seventeen days. The LTO and the BTr records on NCO collections were not also reconciled with a difference of P126,778,544.22 for CY 2002 alone. Both agencies were mandated under existing regulations to monitor NCOs collections. The presence of discrepancies manifests unaccounted deposits or errors and inconsistencies in recording. Under this condition, the accountability of the NCOs could hardly be established. The team also noted that the reliability and accuracy of the data generated by the Revenue Collection System developed by STRADCOM Co. was affected by the presence of systems deficiencies noted by the COA-ICTC which the LTO failed to address.

EXECUTIVE SUMMARY

5

As collection function is a vital component in ensuring economic development, these concerns should be immediately addressed by the LTO and the BTr. The team recommended certain measures to address these concerns for consideration by the agency. MANAGEMENTS REACTIONS TO AUDIT OBSERVATIONS The results of the audit were forwarded to LTO on June 8, 2004 with follow up letter dated July 8, 2004 for the comments. As there were no comments received as of to date, the report was finalized without them.

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Part II

The National Collection System

THE NATIONAL COLLECTION SYSTEM INTRODUCTION National collection refers to fees, charges, assessments and revenues collected by the LTO and other government agencies in the exercise of their function at such rate as are now or as may be approved by the Secretary concerned, for remittance to the BTr. AGENCIES RESPONSIBLE IN THE COLLECTION FUNCTION The agencies that play a great role in the collection system follow:

Agencies Functions

Department of Finance

Formulates Fiscal Policy; and Ensures adequate financing needs of the

country.

Bureau of the Treasury (BTr)

Maintains Treasurer of the Philippines (TOP) accounts; and

Informs BTr of the daily balance of TOP.

Maintains books of accounts of cash transactions of the National Government (NG);

Manages the NG cash resources; Issues, services, redeems government securities

for the account of the NG as may be authorized by the President pursuant to law;

Administers the Securities Stabilizations Fund by purchase and sale in the open market of government bills and bonds to increase the liquidity and stabilize the value of said securities in order to promote private investment in government securities.

Authorized Government Depository

Bank (AGDB)

THE NATIONAL COLLECTION SYSTEM

8

Department of Transportation

and Communication

LTO

BIR, BOC, and other collecting

agencies

AABs

Agencies Functions

Recommends and implements policies in transportation and communications.

Implements the rules and regulations issued by DOF, BTr and DOTC.

Collects the authorized fees; and Deposits the collection with the AGDB for

the account of TOP.

Assess and collect taxes, customs duties and other fees authorized under existing rules and regulations.

Collect taxes on behalf of the BIR and the BOC.

THE LTO LTO is created by virtue of Executive Order No. 125 dated January 20, 1987 as amended by Executive Order No. 226 dated July 25, 1987 to perform the following functions:

Inspection and registration of motor vehicles; Issuance of licenses and permits; Enforcement of land transportation rules and regulations; Adjudication of traffic cases; and Collection of revenues for the government

In the performance of its functions, the LTO is authorized under the DOTC-Department Order No.93-693 dated May 16, 1994, to collect the following fees:

Drivers License; Conductors Permit;


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Accreditation Fee; Motor Vehicle Registration; and Fines/Penalties for violations of Land Transportation Laws.

To undertake this function, it is divided into Law Enforcement Service and Traffic Adjudication Service composed of seven Division Offices:

1. Operation Division; 2. Management Information Division; 3. Finance and Management Division; 4. Administrative Division; 5. Intelligence and Investigation Division; 6. Field Enforcement Division; and 7. Traffic Safety Division.

Collections are undertaken by designated NCOs who are required to deposit their collections intact daily or the following day for collection after the deposit had already been made to the designated AGDBs.

To further meet public demand for government services nationwide, it is operating with 12 Regional Offices, composed of 141 District Offices, 73 Extension Offices, 27 Licensing Centers, 5 Motor Vehicle Inspection System (MVIS) and 10 Mobile Units. Its operation is guided by the policy of promoting and maintaining safe, efficient, comfortable and economical land transportation services throughout the country by providing a rationalized system of motor vehicle registration, license issuance, law enforcement and adjudication of traffic violations cases. The LTOs performance is expected to be enhanced thru the issuance of Executive Order No. 190 approving the governments National Information Technology Plan (NITP) 2000. THE NATIONAL INFORMATION TECHNOLOGY PLAN 2000 The NITP 2000 calls for the massive diffusion and use of Information Technology (IT) in government operations to improve delivery of services to the people; promote transparency in government transactions; increase capability to coordinate development planning and policy formulation; and improve the governments implementation of programs and projects. In consonance with NITP 2000, the LTO has initiated strategic modernization


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program which is anchored on the following projects:

IT infrastructure; Motor vehicle inspection/smoke emission testing stations; Motor vehicle titling system; Motor vehicle license plate production; Drivers licenses production; Drivers education and training centers; and National Land Transportation Authority (NLTA) legislation.

To implement the first six (6) projects, the LTO has embarked on a comprehensive computerization project. On December 15, 1997, the government, through the DOTC and LTO executed a contract for undertaking IT Infrastructure on March 26, 1998 with Stradcom Corporation. This project is the Philippine Governments first IT project to be implemented under the Build-Own-Operate (BOO) Scheme authorized under Section 2 of Republic Act (RA) No. 6957, as amended, otherwise known as the Build Operate- Transfer (BOT) Law. Under the BOO agreement, Stradcom will finance, construct, own, operate and maintain the IT infrastructure for LTO for 10 years. The project cost will be recovered from the computer fees collected for the use of IT facilities. At the option of the government, the agreement may be extended, but the total concession period shall not exceed 50 years. The LTO IT project encompasses the following:

Development and customization of the following applications:

* Front-end operation: - Motor Vehicle Registration System (MVRS); - Manufacturers, Assemblers, Importers and Dealers Reporting

System (MAIDRS); - Drivers Licensing System (DLS); - Law Enforcement and Traffic Adjudication System (LETAS); and - Revenue Collection System (RCS).

* Back-end Operation

- General Ledger System (GLS) - Human Resources Management System (HRMS); - Inventory Management System (IMS); and - Integrated Procurement and Disbursement Management System

(IPDMS).

Establishment of a Data Center The LTO Data Center will be housed inside the LTO System Management Center (SMC) in Quezon City. The SMC will serve as the main operation


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center that will house all applications and networking operations of LTO. Inside the LTO Data Center is a centralized data warehouse, which contains databases on motor vehicles and drivers licenses, among others.

Interconnection in the information highway to support the networking requirements of the system to cover the following offices:

* LTO central office * 15 regional offices * about 235 district and extension offices and licensing centers; * law enforcement units of LTO and other law enforcement agencies * all facilities of other LTO service contractors; and * DOTC, other government agencies and the private sector.

Supply, delivery, testing and installation of appropriate computing products

and other resources on an open client/server environment.

Provisions of IT services

Batch Back-end Processing Facility - This addresses force majeure scenarios like power failure. It allows the LTO to capture data processed manually into the LTO IT projects database. After manual processing of transactions, the data is encoded and uploaded to the database using the Batch Back-end Processing Facility in order to complete the built-up of the LTO IT Projects database.

As of December 5, 2003, the services that are partially computerized are the issuance of Drivers License (DL) and registration of motor vehicles (MVR). Some of the salient features of the contract with Stradcom are as follows:

The Contractor shall cause and be responsible for the design, installation,

adaptation, customization, completion, testing and commissioning, operation and maintenance of the entire information system that is constructed and installed in accordance with the Agreement and is capable of operating in accordance with the Operating Parameters. It was also agreed upon by the parties that the database shall remain the property of the DOTC/LTO throughout and after the term of the contract and ownership thereof shall not transfer to the contractor. The contractor merely has access to the database and can use the database for the operation of the IT facility;

The DOTC/LTO shall pay the contractor in Philippine currency in a local bank

(LBP) within 30 calendar days from receipt of billing, based on the number of motor vehicle registration and the number of drivers licensing transaction handled, the inspection report and other documents which may be required by the DOTC/LTO and COA;

The DOTC/LTO shall collect all Fees from the end-users and/or beneficiaries

of the IT based services and remit therefrom the agreed payment to the Contractor. The DOTC/LTO shall prepare a daily report indicating the total


12

volume of transactions conducted and the corresponding total fees due to the contractor and DOTC/LTO; and

The DOTC/LTO shall open a Trust Fund with the National Treasury and/or

any authorized government depository bank and deposit all the contractors fees collected into said fund.

The Revenue Collection System (RCS) application is responsible for handling fees and payments and generating periodic reports to summarize such activities. Based on the Manual of Operations/Users Manual, the system basically consists of several payment processes, an End-of-Day and End-of-Month processes. The payment processes refer to the different types of payment transactions such as regular fees payments, fees payments by deposit, and settlement of fees involving over/double payments. The respective official receipts for these transactions are generated by the system. The End-Of-Day processes include cash balancing, cheque balancing, daily report generation, and the preparation of the daily collection for deposit. The End-of-Month processes include monthly report consolidation and submission of the necessary documents to COA and DOTC. The following are the RCS generated reports at the end of the day:

Daily Abstract of Collection Daily Deposit Payment Daily List of Fees due to Stradcom List of Cancelled Official Receipts List of Deposited Collection

GOVERNING RULES AND REGULATIONS The LTOs NCOs are guided by the rules and regulations enumerated on the next page.


Agencies Circular/Memo

No./Date PARTICULARS

BOO Agreement between LTO/DOTC and STRADCOM

Prescribing the use of the Manual of Operation /Users Manual defining the guidelines and procedures on the application of the system.

DOTC Order No. 93-693 dated Nov. 11,1992

Revised Schedule of Fees and Charges of LTO.

RA No.8794 dated June, 2002

An act imposing a motor vehicle users charge on owners of all types of motor vehicles and for other purposes.

DOTC/ LTO

Congress

Codes to be used for government transactions pertaining to revenues/income and expenses under the revised chart of accounts

Circular No. 02-002 dated June 18, 2002

Manual for National Government Accounts (NGAS) Vol. 1 (Policies)

Bureau of the

Treasury (BTr)

Treasury Order (TC) No. 5-2003 dated Oct. 8, 2003

New procedures in reporting deposits of national collections

TC No. 04-2003 dated August 1, 2003

COA

Dept. Order No. 52-96 dated May 22, 1996

Dept. Order No. 20-99 dated Sept. 01, 1999

Prescribing the system of depositing national collection to the TOP account with the AGDB.

Requiring all NCOs to submit Monthly Report of Collections and Deposits to the Treasury Fiscal Examiners concerned.

Dept. of Finance

13


14

THE LTOs DEPOSITORY BANK The LTO entered into a Memorandum of Agreement (MOA) on April 23, 1997 with the LBP, for the latter to act as the formers AGDB for LTO-Main Office and all Regional and District Offices. Some of the salient features of the MOA follow:

LBP branches where LTO accounts are maintained shall pick up

from Monday to Friday during banking hours the collections from LTO for credit to the BTr account maintained at Intramuros Branch;

On the day of the deposit pick up, LTO shall give the check/cash, deposit slip (DS) and copies of the List of Deposited Collection (LDC) to LBPs authorized tellers or representatives who acknowledge receipt on the triplicate copy of the DS and LDC;

LBP shall validate the original and duplicate copies of the DS on

the same banking day, returns duplicate copy thereof together with the LDC to LTOs concerned office on the next banking day following the receipt of deposit; and

LBP shall submit, within ten (10) days after the end of each

month, to the head of the LTO collection office concerned, copy furnished the Regional Director for regional/district offices and the Assistant Secretary with respect to the LTO Sectorial Office, all communications and monthly consolidated reports relative to remittances made.

The collections of the LTO-Main Office is picked up daily by LBP-East Avenue Extension Branch for deposit to BTr account.

COLLECTIONS FOR CY 2002 For CY 2002, LTO reported consolidated total collections of P6, 668,476,169.73 from different sources:


CONSOLIDATED INCOME2002

Other Revenue Taken as Trust Legal Research Fund P 62,578,036.00 Others 211,577.20 Capital Revenue 25,393.75 Total P 62,815,006.95

Tax Revenue Registration Fee (MVUC) - P 4,582,454,741.32 Science Tax 10,542,370.20 Penalties 43,686,358.87 Total P 4,636,683,470.39

Non-Tax Revenue License Fee P 482,907,342.90 Misc. Income 757,565,988.31 Fines & Penalties Registration of MV 518,958,114.05 Law Enforcement 209,546,247.13 Total P1, 968,977,692.39

These collections are distributed as follows:

TYPE OF REVENUE DISTRIBUTION Tax Revenue MVUC DPWH 92.5% DOTC 7.5% Science Tax LTO Penalties LTO Non Tax Revenue LTO Other Tax Revenue LRF UP Research Fund Capital Revenue/Others LTO

THE SYSTEM OF REPORTING COLLECTIONS The NCOs nationwide are preparing the following reports for submission to the Accounting Division Main Office for recording and consolidation in the National Government Books:

15


Daily Abstract of Collections

Schedule of Collections by nature of services/income

List of Deposited Collections (supported by ORs and deposit slips)

Schedule of Deposited Collection with the corresponding distribution of income in accordance with RA 8794

Monthly Report of Collection

Schedule of summary of collections for the month

Monthly Report of Collections and Remittances

Schedule of summary/ list of depocollections

sited

Responsible Submitted Person Regulations Reports Contents to

Cash Journals-(Collections and Remittances)

Summary of Collections/ Remittances of all districts to support Journal Entry Vouchers (JEV)

DOF Circular 52-96 and 20-99

Manual of Operation or Users Manual for Revenue Collection

stem Sy

BTR

Accounting Division and COA

NCO

16


THE SYSTEM OF RECORDING COLLECTIONS The LTOs accounting system is decentralized. The LTO Main and Regional Offices maintain separate sets of books. For recording purposes, the NCO submits Monthly Report of Collections and Deposits (MRCD) supported with List of Deposited Collections, Deposit Slips, Report of Accountability for Accountable Forms and ORs to the Regional Office (RO). On a quarterly basis, the RO prepares Financial Statements and Statement of Income for submission to the LTO Main Office. Based on these documents, the LTO Main Office prepares a quarterly and year end consolidated Financial Statements and Statement of Income. The entries to record the deposits and collections in the books of the LTO and BTr are as follows:

Collections Collections Cash Collecting Officer xx none Due to NGAS (LRF) xx Due to National Treasury

xx

Cash Journal, Report of Collections and Deposits

Other Payables -

Stradcom xx Deposit/Remittance Deposit/Remittance Due to NGAS (LRF) xx Cash in Bank xx Due National Treasury Cash in Bank-Current-

xx xx

Gen. Income-Other Agencies xx

(computer fee) Cash Collecting Officer xx

Cash Journal, Report of Collections and Deposits

Credit Advice from the Bank

MANNER OF RECONCILIATION The LTOs collection records are reconciled with the BTr records through the validation of the Abstract of National Collections(ANCs) generated by the BTr and forwarded to the concerned agencies. This document represents agency

17

LTO

Basis of Recording

Journal Entries

Basis ofRecording

Journal Entries

BTr


collections deposited to the BTr account. The concerned agencies are required to verify the ANC data from their records and inform the BTr on any discrepancies noted for adjustment. The BTr furnished the LTO with copies of the ANCs covering LTO collections accounted at the BTr from January 2002 to June 2003. COLLECTION FLOW The flow from collection of fees and charges up to remittance to the BTr is presented in the following context diagram with the detailed flowchart attached as Annex A.

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N A T IO N A L C O L L E C T IO N T H R O U G H N A T IO N A L C O L L E C T IN GO F F IC E R - L T O

C O N T E X T D IA G R A M

L T O 's N C O

A G D B

Collec

tion a

nd

Depo

sit D a

ta

(2 .0)

Valid

ated

Collec

tion D

ata

(3 .0)

B T r

Collec tionData(4 .0)

B T r -J E V(7 .0 )

B R S D a ta(9 a .0 )

M BS Data(5 .0)

BRS Data(10b.0)

Co llections &

Deposits DataANC(6.0)

D O F

C o lle c tio n D a ta(1 0 .0 )

Guide

lines

(1a.0)

C O A

Colle

ctio

ns

Data

BTr-J

EV

(8.0)

Guide

lines

(1d.0)

G u id e lin e s(1 d .0 )

Guide

lines

(1c.0)

G u id e lin e s

(1 b .0 )

L E G E N D :

A G D B - A u th o r iz e d G o v e rn m e n t D e p o s ito ry B a n kA N C - A b s tra c t o f N a t io n a l C o lle c tio n sB R S - B a n k R e c o n c ilia t io n S ta te m e n tB T r - B u re a u o f th e T re a s u ryB T r-J E V - B T r- J o u rn a l E n try V o u c h e rC A - C re d it A d v ic eC O A - C o m m is s io n o n A u d it

D F A - D e p a rtm e n t o f F o re ig n A ffa irsD O F - D e p a rtm e n t o f F in a n c eM B S - M o n th ly B a n k S ta te m e n tN C O s - N a tio n a l C o lle c tin g O ff f ic e rs

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Part III

Audit Observations

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Chapter 1

Adequate, Clear and Well-Defined Policies and Procedures

ADEQUATE, CLEAR AND WELL-DEFINED POLICES AND PROCEDURES INTRODUCTION Money matters is one of the most important and vulnerable element in the management of ones operations. Thus, cash management has been the subject of a number of rules and regulations defining the policies and procedures that can help the agency manage/mitigate risks, detect and prevent irregularities and safeguard assets and records as it addresses the following benefits:

Improve accountability and program delivery; Promote ethical and professional business practices; Advance risks management; Enhance communications, decision-making and performance reporting;

and Contribute to quality outcome.

The effectiveness of control measures, however, depends on several factors, among which are as follows:

Agencys culture which is reflected in the managements leadership, philosophy and operating style;

Level of competence and qualifications of the staff performing the particular job;

Organizational structure ensuring adequate monitoring of actions and effective flow of information across the agency; and

Clear assignment of authority and responsibility. To address these concerns, the DOF along with other government agencies involved in the collection system issued rules and regulations to guide both NCOs and AABs in the deposit and remittance of their collections. As a general rule, NCOs are required to deposit their collections daily on the day of collection and submit reports on the 10th day of the following month. The LTO, however, issued guidelines requiring their NCOs to submit reports on the 3rd day of the following month. Any collection after the deposit had been made should be deposited the following day. The team noted that the guidelines governing deposits and recording of collections by NCOs could be considered adequate to provide proper guidance to the NCOs in the manner of depositing and reporting collections. However, some NCOs failed to strictly comply with the guidelines requiring the submission of reports on the 3rd day of the following month and depositing their collections on the day of collection. As a matter of practice, they are depositing their daily collections only on the following day or several days after collection. This put to risks substantial collections specially on Fridays and a day before holiday reaching as much as P1.26M kept in a vault for 2 to 17 days.

ADEQUATE, CLEAR AND WELL-DEFINED POLICES AND PROCEDURES

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OBSERVATION The existing policies and guidelines issued by the LTO and other governing agencies can be considered adequate in providing guidance to the NCOs in the manner of depositing and reporting their collections. The guidelines require the NCOs to submit reports on the 3rd day of the following month and to deposit their daily collections to the BTr account on the day of collection. Any collection after a deposit had been made should be deposited on the next banking day. However, these provisions were not strictly complied by the NCOs. They were submitting reports beyond the deadline and depositing their collections for the day only on the following banking day or several days after collection. This practice put to risks collections specially on Fridays and a day before holidays which sometime reached as much as P1.26M kept in a vault for 2 to 17 days. The LTOs collection and deposit activities are guided by DOTC Department Orders (DOs), the Users Manual on the IT project particularly on the Revenue Collection System (RCS), MOA with the LBP as AGDB, and DOF DO No. 52-96 as supplemented by DO No. 20-99. Under these regulations, the NCOs are required to deposit their collections daily on the day of collection and submit the Monthly Report of Collection and Deposit on the 10th of the following month. Any collection after a deposit had been made shall be deposited on the next banking day. The deadline for submission of reports was, however, moved from the 10th day to the 3rd day of the following month under the LTO Memorandum dated June 18, 2003. To ensure compliance with the requirements of depositing collection daily and to protect the interest of the government, the LTO availed of the LBP offer of deposit pick up services. Records of four NCOs assigned at the Main Office and three District Offices covering the months of November 2002 to February 2003 show that the LBP branches pick up daily the NCOs collections except for Novaliches District where collections were picked up every other day. The collections were supported with deposit slips and the List of Deposited Collections. The validated deposit slips were returned to the LTO the following banking day or the next pick up day of collections.


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The team, however, noted that NCOs do not turn over their days collection to the LBP for deposit as required under the regulation. Instead, they only deposit previous day collection and retain for deposit the following day any collection during the day. Interviews disclosed that the practice was adopted as the computerized system generates daily collection report only at the end of the day. The team was informed that the computerized system of the RCS cannot acknowledge multiple deposits in a day. This problem should therefore be considered in the enhancement of the system. The late generation of report should, however, not hinder the NCO from depositing any amount already collected at the time of pick up considering that the required List of Deposited Collection (LDC) could be manually prepared. At the most, the manual preparation of LDC should be undertaken on Fridays and a day before a declared holiday considering the risks of maintaining substantial amount of collections in a vault or safe for about two or more days. Evaluation of the Daily Report of Collections and Deposits of at least three District Offices of Novaliches, Aguinaldo and Caloocan revealed that their collection on Fridays and a day before the holiday ranges from P36,660 to P1,256,028.45. Despite substantial amount, collections before the pick up time were still not deposited during the day. These collections were turned over to LBP only on the next banking day or 3 to 17 days after the collection period in the case of Novaliches District Office as illustrated below:

Aguinaldo District Office

Caloocan Lic. Office

Novaliches Dist. Office

Month

Collection Date

Amount

Deposit Date

Amount

Deposit Date

Amount

Deposit Date

No. of days

After Collection

2002 Nov 8 259,616.30 11/11/02 41,065.00 11/12/02 118,188.00 11/15/02 7 15 253,188.65 11/18/02 45,760.00 11/18/02 122,138.25 11/20/02 5 22 260,356.25 11/25/02 36,660.00 11/25/02 115,386.75 11/29/02 7 29 174,154.55 12/02/02 ** 7 9,634..25 12/04/02 5 Dec. 13 139,854.05 12/16/02 49,735.00 12/18/02 113,920.75 12/27/02 14 20 86,374.60 12/23/02 47,080.00 12/26/02 ** - 27 ** ** 163,742.50 01/13/03 17 2003 Jan. 3 735,664.85 01/06/03 55,310.00 01/06/03 490,013.25 01/06/03 3 10 651,856.55 01/13/03 56,940.00 02/14/03 284,843.25 01/15/03 5 17 431,430.20 01/20/03 ** 451,829.25 01/22/03 5 24 416,140.60 01/27/03 52,705.00 01/28/03 423,119.50 01/29/03 5 31 1,256,028.45 02/03/03 48,320.00 02/04/03 861,625.00 02/05/03 5


24

Aguinaldo District

Office Caloocan Lic.

Office Novaliches Dist.

Office Month

Collection Date

Amount

Deposit Date

Amount

Deposit Date

Amount

Deposit Date

No. of days

After Collection

Feb. 7 856,705.30 02/10/03 57,745.00 02/11/03 647,881.75 02/14/03 7

14 492,727.20 02/17/03 31,925.00 02/18/03 552,384.80 02/17/03 3 21 576,392.65 02/24/03 53,130.00 02/26/03 489,575.50 02/28/03 7

** data not on file While collections under these District Offices are kept in a vault, the risk of maintaining large amount of collection for a number of days is high. It is therefore necessary that collections during the day, particularly on Fridays and a day before holidays, that are already available be turned over to the LBP upon pick up to reduce the amount that would be kept in the vault thereby reducing the risk involved. In the same manner, the guidelines requiring the District Offices to submit Monthly Reports to the Regional Office on the 3rd day of the following month per Memorandum dated June 18, 2003 was not also strictly complied with. As a matter of practice, monthly collections and deposits are recorded in the books of the LTO at the end of the month. There were, however, certain report which were recorded only one to eight months after the collection period, as illustrated below:

DISTRICT OFFICE

NCO

PERIOD COVERED

DATE RECORDED

AMOUNT

Taguig Ext. G. Mendoza 11/01-30/03 1/31/04 P 1,976,856.75 Taguig Ext. G. Mendoza 12/01-31/03 1/31/04 1,518,546.25 Mla. East N. Villanueva 1/01-31/04 2/29/04 12,291,599.00 Novaliches F. Cacho 6/01-30/03 2/29/04 10,993,401.70 Novaliches F. Cacho 7/02-04/03 2/29/04 2,525,686.70 Makati R. Sebastian 2/01-29/04 3/31/04 18,958,730.65 Navotas Ext. N. Adriano 2/01-29/04 3/31/04 3,126,623.40 Pilot Lic.Unit R. Legaspi 2/01-29/04 3/31/04 1,132,820.80 Taguig Ext. G. Mendoza 2/01-29/04 3/31/04 4,124,441.00 Total P54,671,849.50

This manifests that these reports were submitted only after the due date.

25

Chapter 2

Sound Monitoring and Control Mechanisms

ACCURATE AND RELIABLE ACCOUNTING AND REPORTING SYSTEM INTRODUCTION To measure the performance and the effectiveness of controls in place, agencies need to monitor and review operations, activities and the existing control mechanism in place. Monitoring and review is considered as the final component of an effective control framework and closely linked to information and communication. For this element to be effective, this should be undertaken regularly as an on going activity in the ordinary course of business. Realizing the importance of collection function and its contribution in nation building, the DOF, BTr and other primary revenue-generating agencies of the government including the LTO had established specific control measures to ensure that collections are duly accounted for and deposited to the national treasury. These control measures which are intended to mitigate/manage risks, prevent and detect irregularities, safeguard collected revenues and ensure completeness, accuracy and reliability of data, include the following, among others:

To ensure that collections reported by the NCOs are actually deposited to the

BTr account, NCOs are required to submit Monthly Report of Collection and Deposits (MRCD) duly supported with official receipts and deposit slips to their Accounting Division;

NCOs are required to provide a copy of validated deposit slips and List of

Collections to their respective Treasury Fiscal Examiners (TFE) for validation and encoding in their data base;

The BTr on the other hand, generates Abstract of National Collection (ANC)

by agency and by collecting officer. This serves as a subsidiary ledger of the NCOs where agencies could confirm and compare the NCOs reports. The ANC is being forwarded to the Collecting Agency Head/ Chief Accountant for reconciliation with their records;

The BTr, NCAD-Bank Reconciliation Section is mandated to prepare Bank

Reconciliation Statement (BRS) of accounts maintained by the BTr with various AGDBs; and

The LTO is required to reconcile the ANC with the MRCD and notifies BTr

on any discrepancy. The audit disclosed that apparently, these control measures were not properly put in place as manifested on unreconciled difference between the BTrs and LTOs records of P126,778,544.22.

SOUND MONITORING AND CONTROL MECHANISMS

27

OBSERVATION

The LTO and the BTr were unable to put in place the desired control measures as manifested in their unreconciled records with a difference of P126,778,544.22 for CY 2002 alone. This could be attributed to absence of regular reconciliation of records between the two agencies. The presence of discrepancies between the two records manifests unaccounted deposits and errors or inconsistencies in recording that should be properly addressed.

The LTO had designated and assigned 353 NCOs distributed in 268 Regional/District Offices to collect different types of fees authorized under the law. As required under DOF Order No. 52-96, NCOs shall deposit daily their collections for the day into the interest bearing Savings Account of the TOP with the AGDBs. In the case of LTO, the designated AGDB is LBP Main Office and its branches. At the end of the month, the NCOs are required to prepare the Monthly Report of Collections and Deposits (MRCD). This report is used for recording the monthly collections and deposits in the books of the LTO.

The LTOs accounting system is decentralized. The NCOs under the Regional Offices (ROs) submit reports to their respective RO which maintains separate books of accounts and prepares ROs financial statements. Interviews revealed that at the end of the year, the Main Office prepares a consolidated report (financial statements supported with a statement of income) based on the financial statements submitted by the ROs either thru fax or mail. As a general rule, since the depository account is being maintained by the BTr, the LTO does not have any direct relationship with the bank which reports directly to the BTr. Under this condition, the agency does not have an opportunity to confirm with the bank the deposits made by the NCOs. The actual deposits by NCOs could, however, be validated by the LTO from the BTr District Offices and BTr Central Office, particularly the National Cash Accounting Division (NCAD). Apparently under the system, the responsibility to ensure that all deposits are credited to the TOP accounts rests with the BTr. To facilitate validation activity of the BTr and reconciliation of BTr and agency records, NCOs are


28

required to submit to the BTr District Office, List of Deposited Collection (LDC) and duly validated deposit slips in hard copy and diskette form. These documents are submitted to the bank for turnover to the BTr District Office. With these documents, the respective TFEs and the BTr District Offices are required to validate the correctness of bank clearing account used, the agency fund and revenue account codes and the amount in the LDC. In case of discrepancy, the TFE is required to confirm the data with the NCO or the bank and effect corresponding corrections. The validated data is transmitted to the Regional Office and to the BTr Central Office. The Fund Validation Division (FVD) under the Asset Management Service of the BTr, reconciles the deposited collection reports submitted by the BTr-Regional Offices thru the National Collection System (NCS) with that of the credited amount of deposited collection reports submitted by the AGDBs.

Under the recently issued Treasury Order No. 5-2003 dated October 8, 2003, once the consolidated reports are validated against the deposit slips, DOs transmit the data to BTr ROs and to BTr Central Database. The NCAD shall print Daily/Monthly Abstract of Deposits for release to the concerned agencies. The agencies then shall reconcile the Abstract against their records and submit their findings to NCAD. Should the findings require adjustment, the NCAD draws the necessary JEV. In addition to the report generated by NCAD, the District Office can also generate a Summary of Deposited National Collections by NCO, by agency, and by month. This report could also be used by the agency to assess the accuracy of their records. While the BTr is primarily responsible in protecting collection, this does not relieve the LTO from the responsibility of monitoring the actual deposits of collections by NCOs. Thus, LTO entered into an agreement with the LBP on April 8, 1993 for the LBP to submit, within ten (10) days after the end of each month, to the head of the LTO collection office concerned, a consolidated report of remittances made by their respective NCOs. This is intended to facilitate the validation of the LTO records. The audit, however, disclosed that apparently the desired control measures were not in place as manifested in unreconciled records between the LTO and the BTr with a difference of P126, 778,544.22 as shown on the next page.


29

AGENCY AMOUNT

LTO BTr

P 2,023,443,392.41 2,150,221,936.63 *

Difference P 126,778,544.22 * Per Monthly National Collections (MNC), remittances for

Cordillera Administrative Region (CAR) not included

The team noted that the reconciliation process was affected by the failure of the LTO to:

Enforce the provision of the MOA requiring the LBP to submit a consolidated report of remittances; and

Secure Summary of Deposited Collections from the BTr District Office

and BTr-NCAD. These reports can be generated by the BTr upon request.

In view of the absence of such reports, the LTO was not able to validate the accuracy of its records. In the presence of unreconciled records, there was no assurance that all collections were indeed deposited to the account of the BTr. The absence of reconciliation can also be attributed to the failure of NCAD to generate Abstract of National Collections (ANC) on time. As required under the regulation, NCAD shall generate the report monthly for validation by the concerned agency. Records show that BTr forwarded to the LTO, ANC covering January to December 2002 only on April 2003. As the LTOs accounting system is decentralized, the ANCs were forwarded to the concerned Regional Offices for validation from their records. As of December 5, 2003, the LTO was able to reconcile only the accounts of the three NCOs based at the Main Office with a difference of P2, 610,932.95. Reconciliation revealed that the difference was due to the following:

PARTICULARS AMOUNT

Over recording of deposits by LTO Unrecorded deposits by BTr

P 5,158.72 2,605,774.23

Total P 2, 610,932.95 The validation at the Regional level including that on the National Capital Region (NCR) has yet to be completed. To determine the possible reasons for the discrepancies, the team analyzed the NCR accounts covering November to December 2002 and noted some errors which were discussed on the next pages.


30

Double/thrice posting of deposits by the BTr of the following

collections increasing the collection data per ANC by P317,823.44.

DISTRICT

OFFICE

NCO DATE AMOUNT

Valenzuela Florendo Hantoc 11/07/02 P 2,348.53 -do- 11/08/02 1,474.88

Paranaque Meredith Balboa 11/14/02 7,966.76 -do- 11/15/02 8,655.90

Paranaque Marilyn Salapare 11/14/02 8,152.16 -do- 11/15/02 3,595.13 -do- Cora Torres 11/06/02 7,045.50 -do- 11/14/02 8,798.44 -do- 11/15/02 3,298.96 -do- Cynthia Cadag 11/15/02 983.43 -do- 11/15/02 1,879.12

Kaloocan Linda Samarista 11/07/02 5,271.75 Malabon Luz dela Cruz 11/07/02 5,535.75

-do- 11/08/02 5,180.40 Manila East Nerissa Villanueva 11/07/02 17,460.26

-do- 11/15/02 10,623.19 Quezon City Ma. Luisa Eusebio 11/15/02 1,391.55

-do- Rosemarilou Geries 11/14/02 2,133.00 -do- Nenita Canda 11/05/02 17,058.15 -do- Bessy Dollison 11/07/02 6,615.60 -do- 11/14/02 9,390.57 -do- 11/15/02 25,943.65

Novaliches Francisca Cacho 11/06/02 * 15,643.87 -do- 11/15/02 4,286.40 -do- 11/15/02 3,850.68

Las Pinas Janete Baliling 11/14/02 14,042.62 -do- 11/15/02 4,612.72

Mandaluyong Lisa Cruz 11/07/02 6,070.12 -do- 11/14/02 4,480.97 -do- 11/04/02 30,340.50

San Juan Ma. Teresa Agcaoili 11/07/02 3,866.03 -do- 11/08/02 8,685.57

Makati Rosa Sebastian 11/14/02 4,578.00 -do- 11/15/02 3,636.00

Quezon City Alvaro Villanueva 11/05/02 16,943.53 -do- 11/14/02 15,338.83 -do- 11/15/02 11,724.92

Valenzuela Florenda Hantoc 12/2/02 8,920.00 Total P 317,823.44

* entered thrice per ANC

Remittances amounting to P17,939,883.77 of five NCOs of other agencies were included in the ANC of LTO-NCR as shown on the next page.


31

NCOs DATE AMOUNT

Pepito Marquez 12/12/02 P 16,683,496.98 Wilfredo Burgos 12/30/02 1,900.00 Danilo Corpuz Oct. & Nov./02 87,075.50 Romeo Liwanag 11/05/02 17,061.92 Jaime Sagario Oct. & Nov./02 1,150,349.37 Total P 17,939,883.77

While these errors were committed by the BTr, the accuracy of the LTOs records would be put to question for as long as the total differences between the two records were not reconciled.

32

Chapter 3

Accurate and Reliable Accounting and Reporting System

ACCURATE AND RELIABLE ACCOUNTING AND REPORTING SYSTEM INTRODUCTION

To ensure the accurate recording and reporting of transactions, the agencies should utilize an efficient and organized accounting system with the following elements, among others:

organized and efficient method of accumulating,

recording and reporting of transactions; effective assignment of authority and responsibility; and efficient method of detecting errors and irregularities.

This is intended to produce accounting records that should:

ensure that all transactions are properly and accurately recorded; provide sufficient evidence and justifications for all transactions; maintain accountability for agencies resources; permit preparation of accurate, informative and reliable reports

that conform to established criteria; and support management during internal reviews and external audits.

The presence of well organized and efficient accounting system will ensure the reliability of generated accounting records and facilitate validation by both management officials and external auditors. The audit disclosed that the accuracy and reliability of the systems generated reports were affected by the presence of systems deficiencies noted by COA-ICTC which remained uncorrected as of December, 2003.

OBSERVATIONS 1. The accuracy of the systems generated reports was not assured in

the presence of the systems deficiencies noted by COA-ICTC team which remained uncorrected as of December 2003.

The Financial and Administrative System of LTO-IT project which includes the RCS was evaluated in 2001, by a team from the COA Information Communication and Technology Center (ICTC) to assess whether the module developed by STRADCOM is free from systems deficiencies. The COA - ICTC then noted some systems deficiencies that

ACCURATE AND RELIABLE ACCOUNTING AND REPORTING SYSTEM

34

need to be addressed to ensure the accuracy and reliability of the newly developed system. Evaluation of the existing RCS by the team revealed that the COA- ICTCs recommendations to improve the application systems were not yet addressed as of December 5, 2003. Thus as of this date, there is no assurance that the systems generated reports were accurate and reliable. Upon inquiry, the LTO/STRADCOM offered the following:

COA-ICTC

ISSUES/ OBSERVATIONS

RECOMMENDATIONS

STRADCOMs REPLY

TEAMS COMMENT

RCS-09- Text file generated by RCS for the use of the General Ledger System does not include data on the issued Official Receipt (OR) series.

To eliminate too much manual processes and to facilitate audit trail, it is recommended that the OR series should also be included in the generated RCS text file for GLS use.

GL currently not implemented due to NGAS. Inclusion of OR series is a new requirement. LTO decided to avail of the free software to be provided by COA.

NGAS is a separate and distinct project and should not be used as a ground for failure to develop a system that would ensure the generation of complete, accurate and reliable reports. The RCS should be complete by itself.

RCS-10 The system accepts dates different from system date as valid posting date.

Valid posting date should only be the system date so that the module will generate accurate collection and deposit date.

Procedural data problem either the posting date or system date was incorrectly set. System date is being used for OR date in case we have weekend/special transactions to reflect the calendar date i.e. Saturday transactions posted for Fridays transaction date or posting date. This is to be used in case of auditing purposes like which transaction were transacted on Fridays date for the same transaction date.

The LTO should be able to detect and immediately correct any procedural problem such as incorrect setting of posting or systems date. This only manifests weak security control such that any date other than the systems date is accepted as valid posting date. This would affect the accuracy and reliability of the report. Besides, official working day is only Monday to Fridays, hence there should be no weekend/special transaction.

RCS-14 The system cannot handle multiple deposits within the same day.

Make proper modification so that the system can handle multiple deposit transactions.

Covered by Change Order. LTO to finalize requirements and sign of Change Order.


35

COA-ITC

ISSUES/ OBSERVATIONS RECOMMENDATIONS

STRADCOMS REPLY

TEAMS COMMENT

RCS-15 End of day process is optional, instead of being mandatory

Cut-off time should be set. In addition, there should be a routine added wherein the system will prompt the user that, when the payment queue is empty and the time is the same as or later than the cut-off time, the end of day should be performed. In cases when there is a need for extending collection processing, require a supervisory access to authorize such extension.

End of day is mandatory and the next transaction date will not begin if End-of-Day is not performed. There are cases when we defer end-of-day in case of weekend/special transactions. In any case, End-of-Day is still mandatory.

Cut-off time is still not set, hence, the option to have an end-of-day process still exists since they can still defer the process at a later date/time.

2. Contractors Development Personnel (STRADCOM) are given

access to production data and allowed to be involved in some operational processes in the registration of motor vehicles and issuance of driver/s license/s. This practice would put to risk integrity of production data. Best practice on Information and Communications Technology (ICT) dictates that personnel engaged in the development of application systems should have no hand in the production data. This should be strictly observed particularly in cases where the system was developed by a private contractor. In the case of LTO, the IT system was developed by STRADCOM under the Build, Operate and Own (BOO) scheme. The team observed on December 5, 2003, that in the processing of Drivers License at the LTO Main Office, STRADCOMs personnel were allowed to process transactions that should be under the exclusive authority of designated LTO personnel. Interviews with designated LTO personnel revealed that SRADCOM Site Support personnel were allowed to work into the system when the authorized LTO personnel were not available. The password of the authorized LTO personnel is given to STRADCOM Site Support personnel in order to access the system and perform the functions of the LTO personnel.


36

This practice would put to risk the integrity of production data since the personnel could not be held responsible for such actions as they are not authorized employees of the LTO.

37

Part IV

Recommendations

RECOMMENDATIONS RECOMMENDATIONS To correct the deficiencies noted and improve the existing system of collections, the team recommends the following alternative courses of actions: Adequate, clear and well defined policies and procedures

1. Require the NCOs to deposit their collections daily on the day of collection to eliminate or reduce the risks of maintaining substantial amount of collection in the vault for three to 17 days. Any amount collected before the pick up time should be deposited. The LTO could also negotiate with the LBP on the appropriate time of pick up to ensure that substantial collections are picked up by the LBP.

Sound monitoring and control mechanism

2. Reconcile the LTO records with the BTr records monthly to avoid accumulation of errors, ensure that all collections are deposited and be able to present an accurate data. The following measures would ensure monthly reconciliation:

Require the LBP to submit monthly reports within 10 days after

the end of each month as required in the MOA. Such reports can be used as tools in reconciling the records of both agencies.

Require the concerned LTO Regional/District Offices to request

from the BTr Provincial/District Offices, monthly Certificate of Deposited Collections to validate the accuracy of their records. Deficiencies noted should be properly acted upon.

Request from the BTr-NCAD copy of the Monthly Abstract of

Deposits and reconcile the consolidated collection records on a monthly basis. Deficiencies noted should be immediately addressed.

Meantime, facilitate the reconciliation of 2002 ANC and inform

the concerned parties on any deficiencies noted.

RECOMMENDATIONS

39

Accurate and reliable accounting and reporting system

3. Address the requirements/recommendations of the COA-ICTC to ensure and preserve the integrity and reliability of generated reports and enhance their usefulness..

4. Issue a policy on confidentiality of password and discontinue the

practice of password sharing. Re-evaluate the terms and conditions of the services and responsibilities of STRADCOM and ensure that developers are not allowed access into production databases.

40

Submitted in compliance with COA Office Order No. 2003-008 dated June 24, 2003. MARILYN H. BERNALDO ROSALINA R. VELASQUEZ

Team Member Team Member LEONA A. ANDRIANO NORMITA N. NARVAEZ Co-Team Leader Team Leader

EVELYN P. REYES Team Supervisor

Reviewed by:

SUSAN P. GARCIA Director III

Approved by:

ILUMINADA M.V. FABROA Director IV

AN

NEX

A

1 of

14

AN

NEX

A

2 of

14

AN

NEX

A

3 of

14

AN

NEX

A

4 of

14

AN

NEX

A

5 of

14

ANNEX A 6 of 14

Page 1 of 7

National Collection through National Collecting Officer (NCO/AGDB) Narrative Procedures Collecting Officer 1. Upon receipt of Order of Payment (OP) with Cash/Check from the clients, Special Collecting

Officer prepares OR in three copies. Keeps the cash/check in the vault for temporary safekeeping, issues original copy of OR to the client and files duplicate & triplicate copies of OR.

1.a. Posts partial entries to Cash Receipt Books the OR details. 2. At the end of the day, Collecting Officer prepares List of Collections in three copies, Deposit

Slip in five copies and the cash/checks collections. Then forwards the documents together with the cash/checks to Bank Branch.

Note: Collections before cut-off time are deposited during the day and collections after cut-off time are deposited on the next banking day. Deposits pertaining the current days collection are summarized in LC-A while deposits pertaining to the previous day collection are summarized in LC-B.

3. At the end of the month, retrieves ORs, Lists of Collections and Deposit Slips from file and

prepares Monthly Report of Collection & Deposit (MRCD)/Abstract of Collection & Deposit (ACD) & Monthly Report of Accountability for Accountable Forms (MRAA). Forwards all the documents to Revenue Accounting Division (for NG file), Disbursement Accounting Division (for RA file) and ion. Submits a copy of MRCD to BTr, MRCD/ACD & MRAA to Accountable Forms Division then files copy of LC A&B and DS.

Concerned Staff of Agency Revenue Accounting Division 4. Examines/verifies OR, LC-A&B, DS, & RCD (Report of Collections & Deposits)/ACD

(Abstract of Collections & Deposits) received from Collecting Officer. 5. Based on these documents prepares Journal Entry Voucher (JEV) 6. Retrieves Cash Journal (CJ)/Cash Receipts Journal (CRJ) and posts JEV details.

Note: Special Collecting Officer, Report of Collections & Deposits (RCD), and Cash Journal (CJ)

terminologies applies to Bureau of Internal Revenue while National Collecting Officer, Abstract of National Collections (ANC), and Cash Receipts Journal terminologies applies to other collecting agencies.

7. Posts CJ/CRJ details in the Subsidiary Ledger (SL) retrieved from file then forwards all the

documents to Commission on Audit (COA) for audit examination. Land Bank of the Philippines Concerned LBP Branch 8. Daily, the Bank Branch receives of List of Collections, Deposit slip & the

cash/checks from Collecting Officer. Validates Deposit Slip & List of Collections &

ANNEX A 7 of 14

Page 2 of 7

counts/checks amount to be deposited. Keeps the cash/checks in the vault and forwards the duplicate copy of Deposit slip and original copy of List of Collection to Agency/NCO. Files temporarily the duplicate copy of List of Collections and the original copy of deposit slip. Determines if bank branch is on-line.

For Non-on-Line Branches

9. a. If not on-line, prepares Inter Office Advice and credits directly TOP MOTHER

ACCOUNTS based on the triplicate copy of LC-A&B and DS. Note:

The following are the TOP Mother Accounts & BTr Clearing Accounts:

Nature of Collection Mother Account Clearing Account BIR 0011-2693-03 0012-2224-83 BOC 0011-2693-11 0012-2224-91 OTHER AGENCIES 0011-0001-77 NCR A 0012-2222-03 NCR B 0012-2222-11 NCR C 0012-2222-20 NCR D 0012-2222-38 NCR E 0012-2222-46 REG. 2 0012-2222-54 CAR 0012-2222-62 REG. 3A 0012-2222-70 REG. 1 0012-2222-89 REG. 3B 0012-2222-97 REG. 3C 0012-2223-00 REG. 4A 0012-2223-19 REG. 4C 0012-2223-27 REG. 4B 0012-2223-35 REG. 4D 0012-2223-43 REG. 5 0012-2223-51 REG. 6A 0012-2223-60 REG. 8 0012-2223-78 REG. 6B 0012-2223-86 REG. 7 0012-2223-94 REG. 9 0012-2224-08 REG. 10 0012-2224-16 ARMM 0012-2224-24 REG. 11 0012-2224-32 SOCSARGEN 0012-2224-40 CARAGA 0012-2224-59

ANNEX A 8 of 14

Page 3 of 7

10. a. Encodes IOA details in the Interbranch Transaction Reciprocal Account Reconciliation System (IBTRARS).

11. a. Posts IOA details in the Journal and sends Lists of Collections & Deposit Slips to

Districts/Treasury Operations Officer. Sends IOA thru fax to LBP Intramuros. 12. a. At the end of the day, retrieves Lists of Collections & DSs and based on these

documents prepares Notice of Deposited National Collections for Non-On-Line. After preparing NDNC-NOB files the Lists of Collections & DSs.

LBP Intramuros Branch 13. a. Prints the IOA sent by LBP Branch and files the same. For On-on-Line Branches Land Bank of the Philippines Concerned LBP Branch 9. If On-line, credits BTr Clearing Accounts (see Note on Activity No. 9a). 10. At the end of the day, on-line transactions will be automatically debited to BTr

Clearing Account (see Note on Activity No. 9a). 11. Generates Summary of Interbranch Branch Transactions (SIBT). 12. Based on SIBT prepares Notice of Deposited National Collections for On-Line

Branch transactions (NDNC-OLB). Forwards 1 copy of NDNC-OLB to TOOs and files SIBT & NDNC-OLB.

LBP-Head Office Technology & Management Group 13. The system automatically consolidates on-line transactions of Current

Account/Savings Account (CA/SA). 14. i. Generates Summary of On-line Collections (SOLC). 14. ii. Downloads Summary of Treasury Collections for On-Line Branches files (STC-

OLB) in a diskette and forwards the same to LBP Intramuros Branch. LBP Intramuros Branch 15. Generates a copy of Summary of Treasury Collections for On-line Branch

transactions (STC-OLB) thru Reports Management System (RMS).

ANNEX A 9 of 14

Page 4 of 7

16. Upon receipt of STC-OLB diskette, prepares in three copies the Credit Advice for

On-Line Branch transactions (CA-OLB) based on STC-OLB. 17. Retrieves from file the IOA & NDNC-NOB and based from these documents

prepares Credit Advice for Non-on-Line Branch transactions (CA-NOB). Distributes the following documents:

BTr-FVD - duplicate copy of CA-OLB

- duplicate copy of CA-NOB - hard copy STC-OLB - soft copy (diskette) of STC-OLB

BTr-NCAD - original copy of CA-OLB - Original copy of CA-NOB

File Copy - IOA - NDNC-NOB - CA-NOB - CA-OLB

Districts/TOOs

18. Checks if DSs, Lists of Collections & NDNCs have the same total amount.

19. If DSs, Lists of Collections & NDNCs bear the same total amount, encodes consolidated data on deposited collections. Note: If any discrepancy is noted, notifies concerned Bank Branch. Some districts prepares a draft of the Report of National Collections (RNC) based on the List of Collections, DS & NDNC which will then be the basis for encoding deposited collection data.

20. Downloads deposited collection data to Regional Office File Server.

Note: In case of provincial offices, deposited collection data are transmitted to Regional Offices thru diskettes.

21. Generates RNC by bank and files the same together with DS, LC-A&B, NDNC-

NOB, NDNC-OLB. NCR/MAIN 22. Consolidates data encoded by various Districts/TOOs.

ANNEX A 10 of 14

Page 5 of 7

23. Views consolidated data & checks total amount against monthly total amount transmitted by the Districts/TOOs before uploading to BTr NCAS File Server.

24. a. If total amounts are not reconciled, notifies concerned district of the discrepancy

noted. 24. If total amounts are reconciled, generates Consolidated Report of National

Collections (CRNC) and files the same. Database Administration Division 25. Uploads data of CRNC to BTr NCAS file server that will be made available to FVD

for reconciliation purposes. Fund Validation Division 26. Upon receipt of CA-OLB, CA-NOB, hard & soft copies of STC-OLB, prepares

Control Sheet. 27. Checks correctness of STC-OLB total amount against CA-OLB & checks

completeness of CA-NOB data. 28. Uploads data of STC-OLT in the BTr File Server thru Oracle uploading program. 29. Encodes treasury collections of non-on-line branches per CA-NOB. 30. NCAS generates batch totals and indicates said totals in the Control Sheet. 31. Checks total amount of on-line & non-on-line collections against the batch totals

generated by the system.

Note: If batch totals do not tally with the total of on-line collections and non-on-line collections, checks encoded data of non-on-line collections and effects necessary corrections.

32. Downloads deposited collection data from the regions and STC data from the banks. 33. Generates Reconciliation Statement and checks if total deposited collection by bank,

branch & value date received from the regions tallies with the totals of STC by bank, branch and value date.

Note:

If not tallied, prepares a letter informing concerned Regional Director of the unmatched national collections (Monitored National Collections). The concerned Regional Director responds to the letter by sending supplemental reports, if any, to update/correct previously submitted report. If the submitted report is confirmed/proved to be complete and correct by the region, FVD prepares a letter to the concerned AGDB. FVD prepares memo to NCAD for

ANNEX A 11 of 14

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national collections requiring adjustments/corrections. Reconciliation Statement is being generated by FVD every end of the month.

NCAD-Accounting & Bookkeeping Section 34. Upon receipt of CA-NOB & CA-OLB from LBP Intramuros, prepares JEV and

assigns control number to take up collections.

Note:

BTr prepares JEV for BIR (SA#0011-2693-03), JEV for BOC (SA#0011-2693-11) and JEV for collections of all Other Agencies (SA#0011-0001-77).

35. Encodes JEV details in the new Accounting System (NAS) and posts in the GL & SL.

Provides BOC or BIR and COA copy of JEV and retains 1 copy for file. NCAD-Accounting & Bookkeeping Section 36. Monthly generates Abstract of National Collections (ANC) and Monthly National

Collections (MNC) thru NCAS. 37. Based on ANC prepares Letter of Confirmation (LC) and based on MNC prepares

Summary of Daily Collections. Forwards MNC & SDC to NCAD-Accounting & Bookkeeping Section and LC & ANC to concerned agency.

Note: The concerned agency should reconcile the Abstract of National Collections (ANC) against their books of accounts and informs the BTr NCAD-Subsidiary Ledger Section (NCAD-SLS) of any discrepancy between the ANC and their records. If the records of NCAD-SLS are sufficient to warrant adjustment, NCAD-SLS prepares JEV and forwards to the Bookkeeping Section for assignment of control number and for recording in the NAS. If not, NCAD-SLS refers the Agencys letter to FVD or to the Regional Office concerned. FVD or the Regional Offices after verifying the discrepancies noted by the Agency will inform NCAD for the result of their findings. NCAD will prepare the necessary JEV for adjustment, if warranted.

38. Upon receipt of MNC & SDC prepares JEV-Classification to classify the collections from various Authorized Government Depository Banks (AGDBs).

39. Encodes JEV-Classification details in the New Accounting System and posts the

same in the GL & SL. NCAD- Bank Reconciliation Section 40. Monthly, generates Subsidiary Ledger (SL) thru NAS.

ANNEX A 12 of 14

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41. Reconciles amount of SL against Monthly Bank Statement (MBS) received from

banks. 42. Based on bank reconciliation conducted prepares Bank Reconciliation Statement

(BRS) in five copies. 43. Prepares JEV-Adjustment to take up any adjustment identified in the bank

reconciliation. Assigns control number to JEV-Adjustment & forwards the same to NCAD-Accounting & Bookkeeping Section for encoding in the NAS. Files the SL and forwards copy 1-5 of BRS to COA for audit examination and provides also the concerned AGDB a copy of BRS.

Note:

NCAD furnishes the concerned bank of the advance copy of the Bank Reconciliation Statement on a case-to-case basis, for them to attend on the adjustments requiring banks action.

Upon receipt of audited BRS from COA forwards the duplicate copy to COA of concerned AGDB and the triplicate copy to concerned AGDB. Retains the original copy for file.

NCAD-Accounting & Bookkeeping Section 44. Encodes JEV-Adjustments details in the NAS. 45. Generates Financial Statement (FS) and forwards the same together with JEV-

Adjustments & JEV-Classification to COA for audit examination. Retain a copy of the said documents for file.

Revenue Accounting Division of Concerned Agency 46. Upon receipt of ANC from BTr reconciles total amount with RCD/ACD retrieved

from file. 47. If total amounts are not reconciled, prepares JEV for the discrepancies noted and copy

furnish BTr-NCAD.

If total amounts are reconciled files the RCD/ACD and ACD.

ANNEX A 13 of 14

Page 1 of 2

National Collection through National Collecting Officer (NCO/AGDB) NOTES:

1. At the end of the day, NCO deposits his collections to Bank Branch. Collections before cut-off time are deposited during the day and collections after cut-off time are deposited on the next banking day. Prepares Deposit Slip (DS) and List of Collections (LC), labeled as A & B. Deposits pertaining the days collections are summarized in LC-A while deposits pertaining to the previous days collections are summarized in LC-B.

1.a. Special Collecting Officer, Report of Collections & Deposits (RCD), and Cash Journal

(CJ) terminologies applies to Bureau of Internal Revenue while National Collecting Officer, Abstract of National Collections (ANC), and Cash Receipts Journal terminologies applies to other collecting agencies.

2. The following are the TOP Mother Accounts & Clearing Accounts:

Nature of Collection Mother Account Clearing Account BIR 0011-2693-03 0012-2224-83 BOC 0011-2693-11 0012-2224-91 OTHER AGENCIES 0011-0001-77 NCR - A 0012-2222-03 NCR - B 0012-2222-11 NCR C 0012-2222-20 NCR D 0012-2222-38 NCR - E 0012-2222-46 REG. 2 0012-2222-54 CAR 0012-2222-62 REG. 3A 0012-2222-70 REG. 1 0012-2222-89 REG. 3B 0012-2222-97 REG. 3C 0012-2223-00 REG. 4A 0012-2223-19 REG. 4C 0012-2223-27 REG. 4B 0012-2223-35 REG. 4D 0012-2223-43 REG. 5 0012-2223-51 REG. 6A 0012-2223-60 REG. 8 0012-2223-78 REG. 6B 0012-2223-86 REG. 7 0012-2223-94 REG. 9 0012-2224-08 REG. 10 0012-2224-16 ARMM 0012-2224-24 REG. 11 0012-2224-32 SOCSARGEN 0012-2224-40 CARAGA 0012-2224-59

ANNEX A 14 of 14

Page 2 of 2

3. If any discrepancy is noted, notifies concerned Bank Branch. Some districts prepares a

draft of the RNC based on the List of Collections, Deposit Slips & NDNCs which will then be the basis for encoding deposited collection data.

4. In case of provinces, deposited collection data are transmitted to Regional Offices thru

diskettes.

5. If batch totals do not tally with the total of on-line collections and non-on-line collections, checks encoded data of non-on-line collections and effects necessary corrections.

6. If not tallied, prepares a letter informing concerned Regional Director of the unmatched

national collections (Monitored National Collections). The concerned Regional Director responds to the letter by sending supplemental reports, if any, to update/correct previously submitted report. If the submitted report is confirmed/proved to be complete and correct by the region, FVD prepares a letter to the concerned AGDB. FVD prepares memo to NCAD for national collections requiring adjustments/corrections. Reconciliation Statement is being generated by FVD every end of the month.

7. BTr prepares JEV for BIR (SA#0011-2693-03), JEV for BOC (SA#0011-2693-11) and

JEV for collections of all Other Agencies (SA#0011-0001-77).

8. The concerned agency should reconcile the Abstract of National Collections (ANC) against their books of accounts and informs the BTr NCAD-Subsidiary Ledger Section (NCAD-SLS) of any discrepancy between the ANC and their records. If the records of NCAD-SLS are sufficient to warrant adjustment, NCAD-SLS prepares JEV and forwards to the Bookkeeping Section for assignment of control number and for recording in the NAS. If not, NCAD-SLS refers the Agencys letter to FVD or to the Regional Office concerned. FVD or the Regional Offices after verifying the discrepancies noted by the Agency will inform NCAD for the result of their findings. NCAD will prepare the necessary JEV for adjustment, if warranted.

9. NCAD furnishes the concerned bank of the advance copy of the Bank Reconciliation

Statement on a case-to-case basis, for them to attend on the adjustments requiring banks action.

Sectoral Performance Audit Report No. 2003-04CTransmittal LetterReport CoverPart I - Executive SummaryIntroductionAudit ObjectiveAudit Scope and MethodologyAudit ConclusionManagement's Reactions to Audit Observations

Part II - The National Collection SystemIntroductionAgencies Responsible in the Collection FunctionThe LTOThe National Information Technology Plan 2000Governing Rules and RegulationsThe LTO's Depository BankCollections for CY 2002The System of Reporting CollectionsThe System of Recording CollectionsManner of ReconciliationCollection Flow

Part III - Audit ObservationsChapter 1 - Adequate, Clear and Well-Defined Policies and ProceduresIntroductionObservation

Chapter 2 - Sound Monitoring and Control MechanismsIntroductionObservation

Chapter 3 - Accurate and Reliable Accounting and Reporting SystemIntroductionObservations

Part IV - RecommendationsAnnex ANational Collection through National/Special Collecting OfficerExisting Procedural FlowchartNarrative ProceduresNotes

LTO-NCS2003-04C

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