COMMISSION ON AUDIT CIRCULAR NO.

88-293 December 12, 1988

TO : Secretaries of Departments; Heads of Constitutional Commissions, Chairmen,

Presidents or Managing Heads of Government-Owned or Controlled
Corporations; Chiefs of Bureaus, Offices and Agencies of the National
Government; Provincial Governors, City and Municipal Mayors and Heads of
Local Government Offices; COA Directors; Provincial, City, National and
Corporate Auditors; and All Others Concerned.

SUBJECT: Restatement with Amendments of COA Issuances on the Audit of Intelligence

and/or Confidential Funds.

I. PURPOSE

To achieve integrated effect, this Circular restates with amendments all existing rules and
regulations pertaining to the audit of intelligence and/or confidential funds.

II. RATIONALE

The audit of intelligence and/or confidential funds (hereinafter known as the Fund)
requires an approach allowing more flexibility in intelligence operation while at the same time
providing adequate controls and enhancing accountability therefor. Since, by its very nature,
the Fund is susceptible to misuse or abuse, it is important that the rules and regulations
governing the audit thereof must be clear, definitive and easy to implement. In this regard,
existing rules and regulations on the matter, some of which were formulated a decade ago, are
observed to be vague, irrelevant to the present thrusts of government, and susceptible of
varied interpretations. Owing to the significance of the use of intelligence and or confidential
funds in the pursuit and implementation of the various governmental programs, projects and
activities, the need for putting together in one handy issuance systematic and clear-cut
standards and guidelines towards a more effective audit of the Fund has of late been felt.
This Circular is the response to that necessity.

III. CONSTITUTIONAL & STATUTORY BASES

The following constitutional and statutory provisions afford sufficient legal bases for the
issuance of this Circular, viz:

"The Commission (on Audit) shall have exclusive authority to x x x promulgate

accounting and auditing rules and regulations, including those for the prevention
and disallowance of irregular, unnecessary, excessive, extravagant, of
unconscionable expenditures, or uses of government funds and properties" (Sec.
2(2), Article IX-D, 1987 Constitution).

"Section 19. Release of Intelligence and Confidential funds provided for in the
budgets of departments, bureaus, offices or other agencies of the national
government, including amounts from savings authorized by the Special Provisions
to be used for intelligence and counter-intelligence activities, shall be released only
upon approval of the President of the Philippines". (RA 6642-GAA for CY 1988)

"Effectivity immediately, all requests for the allocation or release of intelligence

 funds shall indicate in full detail the specific purposes for which said funds shall be
spent and shall explain the circumstances giving rise to the particular aims to be
accomplished" (Letter of Instruction No. 1282 dated January 12, 1983).

"Any disbursement of intelligence funds should not be allowed in audit, unless

it is in strict compliance with the provisions of Letters of Instruction No. x x x and
1282.

Any officer or employee who violates the provisions of the aforementioned Letter of
Instruction shall be dealt with Administratively, without prejudice to any criminal action that may
be warranted." (Memorandum Circular No. 1290 of the Office of the President dated August
19, 1985).

IV. DEFINITION AND SCOPE

As envisioned in this Circular, intelligence and/or confidential funds shall include funds
allotted for national defense, national security, peace and order, internal security or counter
insurgency, usually involving covert or classified operations, psychological warfare and
surveillance operation and other specified intelligence and confidential operations of the
national government as well as government-owned or controlled corporations and local
governments units.

A. This funds shall be utilized for the following purposes.

1. National Defense, peace and order, intelligence, counter-intelligence programs

of the Department of National Defense and related agencies;

2. For specific intelligence and/or confidential operations of the National

Government agencies and government-owned or controlled corporations with
appropriations for intelligence and/or confidential funds;

3. For peace and order programs of local government units, including Civil
Security Units of local government agencies in Metro Manila;

4. In the case of the National Security Fund, for undertaking national security
missions; and

5. For police investigation and detection activities, police intelligence and arson
investigation activities.

B. The following expenses are chargeable to intelligence, confidential and national

security funds:

1. Purchase of information.

1.a relevant to the national security and peace and order;

1.b necessary for the formulation and implementation of policies, plans,

programs and projects.

2. Payments of rewards.
 3. Rentals and other incidental expenses related to the maintenance of
safehouses.

4. Purchase of supplies, materials and equipment necessary for operations

and/or projects.

5. Other incidental expenses related to operation and/or projects which may

include:

5.a incentive pay

5.b transportation expenses
5.c meals/snacks
5.d billeting
5.e representation and other incidental expenses

6. Special projects as approved by the program director involving covert or semi-

covert psychological, counter-insurgency, and peace and order activities.

V. GENERAL GUIDELINES

1. All transaction chargeable against the intelligence and/or confidential funds of all
departments, bureaus and office of the National government, government-owned or
controlled corporations, including their subsidiaries, self-governing boards or
commissions, and the local government units within Metro Manila shall be submitted
for audit in a sealed (taped) envelope direct to the Chairman, Commission on Audit
(COA) or his duly authorized representative.

2. Except for the Metro Manila area, all COA regional Directors are authorized to audit
transaction involving the intelligence and/or confidential funds of all agencies
whether national, local or corporate within the region when such funds are allotted
to the regional offices concerned.

3. Disbursement vouchers (General Form No. 3 [A]) should be properly accomplished

and adequately supported by receipts, bills or commercial invoices of creditors, A
summary of the nature of the expenses incurred may also be submitted as
supporting paper to the voucher.

4. Reimbursement receipts (General Form No. 3 [A]) should be properly accomplished

in every detail, giving the name of creditor, address and residence certificates, if
possible.

5. Purchases of supplies, materials and equipment should be supported by purchase

or letter orders, report of canvass, evidence of delivery, waste material report, etc.

6. Equipment purchased, aside from being taken up in the accounts as fixed assets,
should be covered by memorandum receipts signed by the users of the property.

7. The only item of expenditure which should be treated as strictly confidential

because it falls under the category of classified information is that relating to
purchase of information and payment of rewards. However, reasonable records
 should be maintained and kept for inspection of the Chairman, Commission on
Audit or his duly authorized representative. All other expenditures are to be
considered unclassified supported by invoices, receipts and other documents, and,
therefore subject to reasonable inquiry by the Chairman or his duly authorized
representative.

8. Credits to the accounts of the accountable officers are to be recorded in the books
of accounts only on the basis of a credit advice issued by the Chairman,
Commission on Audit or his authorized representative.

9. In the case of government-owned or controlled corporations, whenever their

budgets do not provide for confidential/intelligence funds, no discretionary funds
may be utilized for confidential or intelligence expenses indicated in their approved
budgets.

10. Allotments for maintenance and other operating expenses (MOE) of National
Government agencies shall be utilized for confidential expenses only when there is
specific provision for such expenses indicated in their approved budgets.

11. When the budget of the respective agencies does not provide for a confidential
fund, MOE may be used for that purpose if approved by the President.

VI. SPECIFIC DOCUMENTATION AND OTHER REQUIREMENTS

Every office or agency, whether in the national, corporate or local sector, whose budget
provides for confidential and intelligence funds shall submit to the Chairman, COA or his
authorized representative with respect to those in the Metro Manila area, and to the COA
Regional Directors under whose audit jurisdiction they fall, the following documents as well as
comply with the requirements enumerated hereunder:

A. On or before the end of January of each year or in the case of Nos. 2, 3 and 4,
whenever a new Disbursing Officer is appointed:

1. Approval of the Office of the President of the Work and Financial Plan
indicating the purpose for which the confidential/intelligence fund shall be
spent and the circumstances giving rise to the necessity for the expenditure
and the specific objectives to be accomplished as well as the request for
allocation or budget release of the intelligence and confidential funds.

2. Certified xerox copy of the designation of Special Disbursing Officers.

3. Certified xerox copy of the fidelity bond.

4. Specimen signature of officials authorized to sign cash advances and

liquidation vouchers.

B. Upon submission of liquidation vouchers:

1. Certified xerox copy of pre-audited cash advance vouchers.

 2. Certified xerox copy of Request for Obligation of Allotment (ROA)

3. Certified xerox copy of allotment advice

4. Undertaking on the summary of expenses. (See attached Form No. 1)

5. Certified xerox copy of:

a. Face of paid check

b. Reverse side of paid check indicating endorsement made.

6. Itemized list of Disbursements.

C. These additional documents are required to support ordinary disbursements as

indicated:

a) For incidental expenses incurred in connection with intelligence and

confidential operations, such as transportation and entertainment of assets,
vouchers shall be supported by receipts, invoices, bill for board and lodging,
itinerary of travel, travel order, certificate of travel completed, and certificate of
appearance.

b) For purchase of supplies, materials and equipment, vouchers shall be

supported by purchase/letter orders report of canvass, delivery receipt, waste
material report and other pertinent documents.

c) For purchase of information or payment of rewards, vouchers shall be

supported by documents evidencing receipt payment.

D. Every June 30 and December 31 of each year, an inventory of equipment

purchased out of confidential and intelligence fund shall be submitted to the
Chairman, COA or his authorized representative. A copy of this inventory shall be
furnished the Auditor (national, local and corporate) for purposes of recording the
equipment in the books of account and the issuance of the corresponding
memorandum receipt.

E. For national defense and related agencies engaged in highly confidential

operations or missions the details of which cannot be divulged without posing a
threat to national security, a certification by the head of agency bearing on the
nature of such highly confidential operations may instead be submitted using Form
# 2 (see attached sample). However, the agency concerned shall maintain a
complete file of all supporting documents for such transactions to ensure the
undertaking of a more extensive audit and examination by this Commission at
anytime it deems desirable or when the operations are completed and declassified.
Such file shall include, among others, the following data: name of asset or informer;
nature and purpose or type of information; date and amount give; signature of
payee and such other relevant information.

F. The agency or office shall submit a schedule of the rates of representation

allowance for intelligence or confidential officers as determined by the head of
agency or office concerned but in no case to exceed the amount as may be
 provided by law for each officer.

G. Government-owned and/or controlled corporations shall submit their respective

charters as well as resolutions pertinent to intelligence and confidential operations
provided that those government-owned or controlled corporations whose budgets
do not provide for confidential and intelligence funds shall not be allowed to utilize
discretionary funds for this purpose unless upon prior approval by the President of
the Philippines.

H. Every June 30 and December 31 of each year, all COA Regional Directors
concerned shall submit a report to the Chairman, COA or his authorized
representative, summarizing the disbursements of intelligence and confidential
funds by all agencies or offices of government (whether local, national or corporate)
indicating the nature of confidential expenses incurred, the period covered,
amounts and other pertinent data.

I. All documents required for submission under this Circular shall be accompanied by
transmittal letters to be signed by the head of the agency or office which shall
enumerate therein the type or nature of document being submitted.

J. All COA Regional Directors and Auditors concerned shall strictly adhere to the audit
procedures prescribed herein.

K. The COA Chairman or his authorized representative shall at any time have access
to books of accounts of government agencies, entities or instrumentalities, including
government-owned and/or controlled corporations and their subsidiaries, and the
local government units whose budget provide for intelligence and confidential funds
or national security funds for the purpose of reviewing the transaction of these
agency pertaining to such funds, and to ensure compliance with the requirements of
this Circular. He or his authorized representative may likewise direct the conduct of
field examination or inspection of the said agencies or offices.

VII. AUDIT PROCEDURES

A. All cash advances from the Fund shall be subject to pre-audit by the auditors
concerned and unless otherwise herein provided shall be governed by the rules and
regulations prescribed under COA Circular No. 86-257 dated March 31, 1986.

B. Cash advances chargeable against the confidential or intelligence fund may be

granted on a per project basis provided that the Commission on Audit is furnished
with copies of approved annual programs with the corresponding budgetary
requirements on or before the end January.

C. All cash advances shall be liquidated within one (1) month from the date of the
cash advance is received by the accountable officers concerned.

D. Subsequent cash advances shall be granted only after submission of liquidation

vouchers for the previous cash advance to the COA Chairman or Regional Director
as provided herein.

E. Cash advances from the National Security Fund and their liquidation shall be
 submitted directly to the COA Chairman, for audit. These cash advances shall be
supported by the following documents:

a) Clearance from the Treasurer of the Philippines that there is sufficient cash
available in the National Treasury to cover such amount.

b) Copy of written directive by the President of the Philippines allotting funds for
National Security purposes.

F. To preserve their confidentiality, liquidation or replenishment vouchers, together with

all necessary supporting papers, shall be submitted in a sealed envelope directly to
the Chairman, COA, for transactions in Metro Manila. For transactions outside
Metro Manila, such vouchers shall be submitted to the Regional Directors in their
respective jurisdiction.

G. If the liquidation vouchers and supporting papers are in order, the COA Chairman or
authorized representative or Regional Director, as the case may be, shall issue a
credit advice addressed to Head of the Agency, attention the Chief Accountant, thru
the Auditor of the government agency/office concerned on the basis of which credits
to the cash advance account of the accountable officer concerned shall be
recorded in the books of accounts of the agency/office. On the other hand, where
the vouchers lack the necessary supporting papers, a notice of suspension shall be
issued to the accountable officer who shall respond thereto within 90 days from
receipt thereof. If the requirements are not complied with during this period, the
claim shall be disallowed and the accountable officer shall be duly notified of said
disallowance.

H. All liquidation vouchers and supporting papers shall be retained by the COA
Chairman or Regional Director for safekeeping in his confidential file. However
duplicate copies of all these records and documents must be retained and filed by
the accountable officer of the agency concerned.

I. The auditor of the agency or office concerned shall submit to the COA
Chairman/Regional Director, as the case may be, all paid checks relative to the
disbursement of intelligence/confidential funds on a monthly basis.

VIII. AUDIT OR CREDIT ADVICE

It must be emphasized that in the case of liquidation vouchers supported by mere

certification, the credit advice contemplated herein is issued by the Chairman,
Commission on Audit or his authorized representative only for the purpose of allowing
subsequent cash advances.

IX. INTERNAL CONTROL MEASURE

A. The agencies Chief Accountants and Auditors shall verify periodically the books of
accounts to the end that the quarterly allotments, funding warrants and the fund
releases for the above-mentioned purposes are not exceeded.

B. It shall be the responsibility of the department/ agency/office head to institute

internal control measures to discourage and prevent irregular, unnecessary,
 excessive, extravagant and unconscionable expenditure in intelligence and
confidential operations by their personnel involved.

Any and all issuances inconsistent herewith are hereby amended or revoked accordingly.

This Circular shall take effect January 2, 1989.

Quezon City, November 29, 1988.

(SGD.) ALBERTO P. CRUZ, Commissioner

(SGD.) BARTOLOME C. FERNANDEZ, JR., Commissioner
(SGD.) EUFEMIO C. DOMINGO, Chairman