EXPLAINER: The joint circular on confidential funds: Rules, Responsibilities, Penalties

The joint circular on confidential funds is repeatedly being cited during Vice President Sara Duterte’s impeachment trial, with a former state auditor testifying that the Office of the Vice President’s (OVP) liquidation reports covering P125 million in confidential funds did not comply with the document.

What is it exactly?

Joint Circular No. 2015-01 provides the guidelines on the entitlement, release, use, reporting, and audit of confidential funds and intelligence funds.

It was signed in January 2015 by the Commission on Audit, the Department of Budget and Management, the Department of the Interior and Local Government, the Governance Commission for GOCCs, and the Department of National Defense.

The circular states that as the utilization of such funds is confidential and classified by nature, it requires “strong internal controls” and “strict accounting and auditing rules to prevent mishandling or improper applications of the funds.”

The circular describes confidential funds as the lump-sum amount provided for confidential expenses, which are expenses pertaining or related to surveillance activities in civilian government agencies that are intended to support the mandate or operations of the agency.

According to the circular, all allocations of confidential funds and intelligence funds shall be supported with a physical and financial plan approved by the head of agency (HoA), indicating the proposed amount allocated for each program, activity, and project, where disbursements pertaining to confidential expenses and intelligence expenses shall be based.

Confidential funds

Under Section 4.8 of the circular, the confidential funds shall only be used for the following expenses:

• Purchase of information necessary for the formulation and implementation of program, activities, and projects relevant to the national security and peace and order
• Rental of transport vehicle related to confidential activities
• Rentals and incidental expenses related to the maintenance of safe houses
• Purchase of rental of supplies, materials, and equipment for confidential operations that cannot be done through regular procedures without compromising the information gathering activity
• Payment of rewards to informers (non-employee of concerned agencies (The payment of reward is subject to approval, must be supported with documents evidencing the success of the information gathering and or surveillance activities, and directly related to the conduct of the specific confidential activities
• Uncover or prevent illegal activities that pose a clear and present danger to agency personnel property, or other facilities and resources under the agency’s protection, in coordination with the appropriate law enforcement agencies
• Others that may be authorized by the GAA or other special laws

Meanwhile Section 4.11 states that confidential or intelligence funds must never be used for the following:

• Salaries, wages, overtime, additional compensation, allowance or other fringe benefits of officials and employees who are employed by the government, except when authorized by law
• Representation, consultancy fees or entertainment expenses
• Construction or acquisition of buildings or housing structures

The circular further mandates that disbursements from confidential funds shall be supported with documentary evidence of payment, which shall be submitted to the Commission on Audit’s Intelligence and Confidential Funds Office (COA-ICFAO).

In case of misuse and depending on the participation in the transaction, the circular states that the budget officer, the chief accountant, the treasurer, and the project officer may be held accountable with the special disbursing officer (SDO).

Responsibilities of the agency head, others

The circular states that the Head of Agency is the highest official of the government agency or the local government unit.

Meanwhile, the SDO refers to the HoA or a regular employees designated by the HoA to be in charge of making disbursements of confidential and/or intelligence funds.

Based on the circular, the HoA has the authority and responsibility to the following:

• In his or her discretion, assume the responsibility as SDO of the confidential fund of his or her agency, or designate a regular or permanent employee for that purpose
• Approve the cash advances for the confidential funds and oversee its agency-wide use and disposition
• Institute and maintain sound and effective internal control measures to discourage and prevent irregular, unnecessary, excessive, extravagant, and unconscionable expenditures as well as promote prudence in the use of government resources by those involved
• Approve the liquidation liquidation report of the cash advances
• Approve and transmit a quarterly accomplishment report on the use of the funds to the President, the Senate President, the Speaker of the House, or the Secretary of the Interior and the Local Government
• Ensure the submission by the agency accountant of all disbursement vouchers for confidential funds cash advance, with complete required supporting documents to COA
• Ensure compliance with the circular

Meanwhile, the SDO is mandated to disburse the confidential funds, maintain separate records of transactions, prepare and submit to the HoA the liquidation report and progress reports of the cash advances for approval, prepare and submit to COA-Intelligence and Confidential Fund Audit Unit (ICFAU) the liquidation report of cash advances with documentary requirements.

The agency accountant shall ensure that the expenses will not exceed the funds, ensure that the funds handled by the HoA and SDO will not exceed the maximum cash accountability, record the cash advance in the books of accounts and maintain a separate subsidiary record of cash advances, among others.

Admin provisions and Penal sanctions

The circular states that refusal or failure to comply with the requirements without justifiable cause shall constitute a ground for administrative disciplinary action as well as disallowing the cash advance granted.

It said that this is without prejudice to the filing of appropriate criminal charges.

Meanwhile, failure of the accountable officer to liquidate any public funds for which he is accountable, upon demand by any duly authorized officer, shall be prima facie evidence that he has put such missing funds or property to personal use and benefit.

An accountable officer refers to “every officer of the government whose duties permit or require the possession or custody of government funds and property.”

During the trial, witness and former ICFAO auditor Roderick Wamil said that accountable officers may be the disbursing officer, the accountant, treasurer, project officer and the head of the agency under the Government Accounting Code.

Reporting requirements

Meanwhile, NGAs and others are required to submit quarterly accomplishment reports on the use of confidential and intelligence funds. The NGAs must submit their report to the President of the Philippines.

It said that agencies shall report the specific detail of the corresponding expenditures by object in the accomplishment report as indicated in the physical and financial plan.

Guidelines on grant, liquidation

According to the joint circular, cash advances shall be used for a specific legal purpose related to confidential or intelligence funds.

The circular also stated that cash advances for confidential funds shall be drawn by duly designated and bonded SDOs and HoA for the implementation of a program, activity, and project chargeable to the corresponding confidential fund of the agency, upon approval of the agency’s head.

Meanwhile, the liquidation of cash advance for confidential funds shall be audited by ICFAU.

All cash advances shall be liquidated within 30 days after every quarter or from the approved target date of completion of the project/activity, or after the cash advance had been fully utilized whichever comes first.

The liquidation report must be duly signed by the agency head or the SDO approved by the agency head, together with supporting documents.

According to the circular, the liquidation must be supported by the following:

• Liquidation report
• Certified copy of the check and paid disbursement voucher of the cash advance being liquidated, signed and/or approved by the agency head with certification by the agency accountant
• Documentary evidence of payments and Certification by the agency head
• Copy of the physical and financial plan
• Copy of the accomplishment report and its proof of submission to the concerned agencies
• Copy of the transmittal letter of the disbursement voucher and supporting documents
• Other supporting documents the ICFAU deems necessary

— RSJ, GMA News