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COMMISSION ON AUDIT
MINISTRY OF FINANCE
TO
: Heads of Ministries, Bureaus, Offices and Local Government Units; the Governor of
Central Bank, Managing Heads of Government Owned and/or Controlled
Corporations, Boards and Commissions; Project Steering Committees and Central
Project Offices; Provincial/City/Municipal Treasurers; Chief Accountants/Heads of
Accounting Units; Budget Officers; COA Unit Auditors; and Others Concerned.
SUBJECT : Guidelines Implementing Presidential Decree No. 1914 Entitled Creating a Special
Revolving Fund for Purposes of Foreign-Assisted Projects Applicable to Local
Government.
1.0
Rationale
The Municipal Development Fund (MDF), established under P.D. 1914, shall be
capitalized and funded by proceeds of foreign loans, assistance or grants which are to be
made available to the Local Government in the form of project loans, technical/commodity
assistance and grants, performance payments and other incentives as set forth in
international agreements, entered or to be entered into by the Government of the
Philippines with foreign governments and international institutions (IBRD, ADB, USAID,
etc.). It shall be the principal mechanism for long- term financing available for urban/rural
services to all eligible local governments. To make the Fund self- sustaining, loan
repayments shall accrue to the Fund for reinvestment/relending to finance similar approved
projects of local governments.
Pursuant to Section 4 of P.D. No. 1914, "The Ministry of Finance shall administer
the MDF provided that the Land Bank, Development Bank of the Philippines or the Bureau
of Treasury may be designated by the Minister of Finance as the Depository, disbursing
and collecting agent of the MDF subject to the terms, conditions and guidelines as the
Minister of Finance may prescribe and in accordance with the provisions of international
and other implementing agreements."
2.0
Purposes
This Circular is issued principally to:
2.1
Operationalize the provisions of Presidential Decree No. 1914 and other issuances
as well as agreements that may fail within the scope and coverage of the Municipal
Development Fund.
3.0
2.2
2.3
Definition of Terms
The following terms as used in this Circular, shall be construed to mean as follows:
4.0
3.1
3.2
3.3
Lead Agency - refers to the agency primarily responsible for the over-all planning,
management and coordination of project components and activities, and the
organization and administration of the CPO, as well as project-related operations of
implementing agencies.
3.4
Central Project Office - refers to the executive and management arm of a Lead
Agency responsible for project preparation, execution. completion and evaluation
rendering both line and staff functions whenever necessary.
3.5
Project Steering Committee - refers to the inter- agency policy and advisory body of
any foreign- assisted project primarily responsible for the proper execution and
implementation of international loan/project agreements, and other International
commitments in line with existing laws and national policies.
Scope/Coverage
4.1
4.2
This Circular shall apply to all projects funded by the Municipal Development Fund
which may be herein categorized as follows:
4.1.1
4.1.2
4.3
5.0
Projects shall include physical and social infrastructure, economic enterprises, land
acquisition, training programs, commodity support, performance payments for
poverty-focused and beneficiary initiated activities or project components and such
other expenditure items that the Project Steering Committees may authorize in
accordance with the corresponding Loan and Project Agreement.
5.2
6.0
Statement of Responsibilities
6.1
The MOF, thru the Office of Local Government Finance (OLGF), shall
administer the MDF.
6.1.2
6.1.3
6.1.4
The OLGF shall be responsible for the review and evaluation of local
government financial operations related to the implementation/execution of
project components and activities.
6.1.5
In coordination with or upon due consultations with the proper CPO, the
OLGF shall call for periodic financial and physical reports from implementing
Agencies/Project Cities/LGUs to determine if project commitments are met
and accomplishments are matched by funds released.
6.1.6
6.2
For the purpose of administering the MDF, there shall be created within the
OLGF a Central Fund Management Unit (CFMU).
6.3
6.2.1
6.2.2
prepare cash flow requirements for the MDF and monitor flow of funds
including availments and utilization;
6.2.3
6.2.4
have its on support services and keep the accounts of the CFMU and
Municipal Development Fund (MDF) as separate accounting entities distinct
from the accounts of the MOF-proper;
6.2.5
request for separate agency and fund codes for the MOF/OLGF-CFMU and
MDF from the OBM;
6.2.6
6.2.7
6.3.2
provide policy direction and guidance to the CPO Director and assistance on
matters requiring high level intervention;
6.3.3
review and approve the selection of projects proposed for inclusion in the
program;
6.3.4
6.4
6.3.5
6.3.6
approve and transmit accordingly final Project Evaluation, and other terminal
reports.
6.5
6.4.1
6.4.2
6.4.3
6.4.4
6.4.5
6.4.6
6.4.7
6.6
The BTR shall be responsible for recording the proceeds of foreign loans as
well as repayments thereof. It shall notify the Office of Budget and
Management and the MOF/OLGF-CFMU of the availability of funds from
loan proceeds.
6.6.2
6.7
It shall act as the principal depository of the MDF without prejudice to the
designation of other depositories by the Minister of Finance in accordance
with P.D. 1914.
6.8
6.9
6.10
Project Cities/LGUs
The Project Cities/LGUs shall carry out programs and activities covered by
Project/On-Lending Agreements with due diligence and efficiency and in conformity
with appropriate administrative, financial and engineering practices, and shall
provide promptly as needed, the funds facilities, services and other resources
required for the purpose. The Project Cities/LGUs shall prepare and submit the
physical, financial and other reports required by proper authorities in accordance
with international and project agreements.
6.11
7.0
General Guidelines
7.1
The key financial policies which will guide the operations of the MDF and the
evaluation and control of local government transactions with the Fund shall be as
follows:
7.1.1
7.1.2
Loan repayments shall be in conformity with the terms and conditions of the
corresponding Loan and Project Agreements.
7.1.3
Local governments shall limit their borrowings from all sources during the
project period so that total net yearly revenues from all sources after
operating costs will be at least 1.2 times the yearly debt service liabilities to
all creditors, unless otherwise provided in a mutual agreement among all
parties concerned.
7.1.4
Repayments to the MDF shall take precedence over all borrowings incurred
subsequent to signing the loan agreement with the MOF.
7.1.5
7.1.6
In case of default or arrearages for more than three (3) months, the MOF
may withhold internal revenue/specific tax allotments in such amounts and
duration necessary to repay in full the outstanding loan amortizations,
unless in conflict with Loan/Project Agreements.
7.2
Project Cities/LGUs shall include in their annual and supplemental budgets both the
necessary allocations for proceeds of the loan from the MDF and for the required
local counterpart fund contributions, the utilization thereof as well as amortizations
(interest and principal) therefor.
7.3
The peso counterpart and the proceeds of foreign loan/borrowings accruing to the
Municipal Development Fund shall be appropriated in the General Appropriations
Act (GAA) with separate P/P/A/ and KBI the MOF.
7.4
All appropriations programmed under the MDF for foreign- assisted projects as
specified under project components of the loan agreements shall be released to the
MOF/OLGF-CFMU by the OBM, thru the issuance of comprehensive advice of
Allotment (AA), Notice of Cash Disbursement Ceiling (NCDC) and Non- Cash
Availment Authority (NCAA) based on the Work and Financial Plan submitted by
the Central Project Offices to CFMU. Such AA, NCDC, and NCAA shall be issued
immediately upon receipt of the certification of the BTR that the proceeds of the
loan/grant have been deposited with the Central Bank/BTR
7.5
The funds authorized in the GAA for the project implementation shall be released
directly by the OBM to the MOF/OLGF-CFMU. Such funds shall in turn be suballotted to project implementing agencies and other entities based on budgets and
work programs approved by the Project Steering Committee concerned. Suballotments may be made through funding checks/warrants or Journal Vouchers.
7.6
The MOF shall use separate agency and fund codes for OLGF-CFMU and MDF
assigned by the National Accounting Office (NAO) - OBM.
7.7
7.8
Funds released for projects shall be accounted for as trust liability in separate sets
of books to be maintained by the Availing/Implementing Agencies/Project Cities.
7.9
Under the MDF separate ledger accounts shall be maintained for the trust liability
account for each project category, i.e., LRM, CVRP, etc.
7.10
PNB shall open separate deposit/checking accounts for each participating Project
City/LGU based on the deposit made by the BTR.
7.11
All liquidation reports for capital outlay expenditures shall be certified by the
Provincial/City/Municipal Treasurers; approved by the Provincial Governor,
City/Municipal Mayor; and verified by the Provincial/City Auditor concerned. The
vouchers and supporting papers shall be retained by the Provincial/City Auditor for
post-audit and final custody.
7.12
7.13
Funds earmarked for specific projects or activities shall not be utilized by the
implementing agencies and Project Cities/LGUs for other purposes unless
approved by the appropriate Project Steering Committee and the Minister of
Finance in his capacity as Borrower, subject to further approval by the Minister of
the Budget as may be required under existing OBM circulars and regulations.
7.14
7.15
The CFMU (MOF-OLGF) shall be responsible for the review and verification of such
changes and adjustments in project cost estimates as well as the proposals to use
contingency reserves and unallocated portions of approved foreign loans before
submittal to the Minister of Finance for approval and for this purpose it may initiate,
whenever necessary, the preparation of the aforesaid changes/adjustments in
project costings and utilization of contingency and unallocated funds by the CPOs.
8.0
7.16
The heads of implementing agencies shall see that all required reports (financial
and physical) are submitted in accordance with existing accounting and auditing
rules and administrative regulations. The Chief Accountants/heads of accounting
units of the agencies concerned shall reconcile all accounts related to the projects.
7.17
7.18
The MOF, particularly the OLGF, which has direct supervision over
Provincial/City/Municipal Treasurers shall take the necessary steps to ensure
prompt submission of the required reports by the treasurers, thru the Regional
Directors for Local Government Finance, MOF.
7.19
Allotments for subsequent yeas and the estimated unobligated allotments for the
current year shall be incorporated by the MOF in its program for the immediate
ensuing calendar year that will be submitted to NEDA/OBM for consideration and
integration in the program for the year.
Procedural Guidelines
8.1
Procedural Guidelines for MDF Projects where the National Government is the
Borrower; the beneficiary/grantees are Project Cities/LGUs (Case I- Annex B).
8.1.1
Fund Release
a)
b)
c)
Based on the approved Work and Financial Plan, the OBM shall
release the AA and the corresponding CDC to the MOF/OLGFCFMU, copy furnished the BTR.
d)
BTR-NCAD
BTR-TMAD
Copy
MOF-OLGF-CFMU file
f)
The BTR shall issue a treasury warrant covering such fund releases
payable to PNB Main Office for the accounts of the LGUs/Project
Cities concerned.
g)
h)
Upon receipt of the credit advice from the bank, the local treasurer
shall record the cash credited by the PNB branch in separate books
of accounts.
In case of money deposited for the account of a municipality, the
Provincial Treasurer shall advise the Municipal Treasurer that
amounts have been deposited to his account. The Municipal
Treasurer shall record the amounts accordingly.
8.1.2
Fund Utilization/Disbursement
a)
8.1.3
Fund Reporting
a)
The local government unit shall prepare and submit thru the CPO to
the MOF/OLGF- CFMU Chief Accountant a monthly report of
payments "Certificate of Status of Funds" (Annex F) certified correct
by the local treasurer, approved by the local chief executive and
verified by the local chief executive and verified by the provincial/city
auditor concerned, copy furnished BTR-TMAD.
b)
Copy
Copy
Copy
Copy
Copy
8.2
Procedural Guidelines for MDF Projects where the Project Cities/LGUs are the
borrowers thru On-Lending Agreements with the MOF (Case I-Annex C).
8.2.1
Fund Release
a)
b)
c)
d)
e)
f)
Duplicate
BTR-NCAD
Copy
BTR-TMAD
h)
i)
j)
k)
l)
m)
8.2.2
8.2.3
Original
Duplicate
Copy
Copy
Copy
Provincial/City Auditor
Provincial/City Treasurer
Municipal Treasurer
MOF/OLGF-CFMU Chief
Accountant
MOF Auditor
Fund Utilization/Disbursement
a)
b)
Fund Reporting
a)
The Project City/LGU shall submit thru the CPO to the MOF/OLGFCFMU a monthly report of payments "Certificate of Status of Funds"
(Annex F) certified correct by the local treasurer, approved by the
local chief executive and verified by the COA Unit Auditor
concerned. The report shall be prepared in five (5) copies to be
distributed as follows:
Original
Duplicate
Copy
Copy
Copy
b)
8.2.4
8.3
Loan Repayment
a)
b)
c)
Duplicate
Copy
Copy
Copy
d)
e)
8.3.2
The CFMU shall submit the budget and Work and Financial Plan approved
by the Project Steering Committee to the OBM for approval.
8.3.3
8.3.4
8.4
8.3.5
8.3.6
Upon completion of the project, any unexpended balance of the trust fund
shall be refunded by the Implementing Agency Central Office to the
MOF/OLGF-CFMU by drawing a JV.
8.4.2
2.
3.
4.
5.
8.4.3
9.0
Upon completion of the project, any unexpended balance of the trust fund
shall be refunded by the Government Corporation to the MOF/OLGF- CFMU
by issuing a check for the purpose.
The MOF/OLGF-CFMU shall submit to the NAO of the OBM, two (2) legible copies
of BF 301, Financial Report of Operations (Breakdown of Obligation of Activity) and
BF 302, Physical Report of Operation and all other accountability reports as
required under existing Budget/Joint Circulars.
9.2
A monthly trial balance for all projects funded by the MDF shall be submitted by the
MOF/OLGF-CFMU to the Accountancy Office, COA, copy furnished the NOA-OBM
ten days after the end of the month, showing separate 0-90-000 accounts for each
release of loan proceeds and the GOP counterpart. It shall be distributed as
follows:
Original
Duplicate
Triplicate
9.3
9.4
Accountancy Office-COA
NAO, OBM
MOF/OLGF-CFMU
FAPS and Other Foreign Borrowing Monitoring Forms prescribed under Budget
Circular No. 278 dated June 30, 1978 shall be submitted by MOF/OLGF-CFMU to
the Budget Technical Service (BTS) of the OBM, COA and the BTR.
9.3.1
Base Data Forms 400 and 401, upon approval of the loan/agreement
thereafter BDF 401 at the start of every calendar year.
9.3.2
Copy
Copy
MOF/OLGF-CFMU
Implementing Agency
Chief Accountant
Provincial/City Auditor
Provincial/City/Municipal
Treasurer
10.0
11.0
10.2
For this purpose, a Supervision, Monitoring and Evaluation Unit (SMEU) shall be
created and organized in each CPO to monitor the progress of all program/project
components related to MDF policies, management, performance and the project
support components.
Accounting Treatment
Illustrative accounting entries to record the above-mentioned transactions are
prescribed in Annexes A to D of this Joint Circular.
12.0
Repealing Clause
All circulars/issuance inconsistent with the above instruction/guidelines are hereby
repealed/modified/amended accordingly.
13.0
Effectivity
This Joint Circular shall take effect July 1, 1984.