Giving Publicity to General Circular No. 110, Dated October 10, 1968, of the Honorable, the Auditor General, Quezon City

December 9, 1968 REVENUE MEMORANDUM CIRCULAR NO. 01-69 SUBJECT : Giving Publicity to General Circular No. 110, Dated October 10, 1968, of the Honorable, the Auditor General, Quezon City TO : Chief, Accounting Division, Chief, Prosecution Division, All Revenue Regional Directors, Revenue District Officers, Revenue Collection Agents, Cash Clerks and Others Concerned There are quoted hereunder the provisions of General Circular No. 110, dated October 10, 1968, of the Honorable, the Auditor General, Quezon City, to wit: "October 10, 1968 "GENERAL CIRCULAR NO. 110 "TO : All Heads of Departments and Government-owned or Controlled Corporations, Chiefs of Bureaus and Offices, Provincial and City Treasurers, Collecting Officers, Chief Accountants, Corporations, National, Provincial, and City Auditors, and Others Concerned. "SUBJECT : Dishonored Checks and Related Matters. "1. Purpose "The instructions contained in this circular are designed to eliminate or minimize losses or irregularities arising from the issuance and/or settlement of dishonored checks, as well as to forestall delay in the adoption of the necessary remedial measures required in the premises. Applicable provisions of law and pertinent regulations are incorporated herein for the information and guidance of all concerned. cdta "2. Collections in the form of checks "Checks may be accepted in payment of taxes and dues owing to the government in accordance with Section 612 of the Revised Administrative Code, which provides as follows: "Sec. 612. Checks receivable as money . An officer charged with the collection of revenue or the receiving of moneys payable to the Government for taxes or dues, may accept payment in the form of checks drawn on any bank established in the Philippines, and when so received, such checks may be deposited by the collecting officer as money. In case any check received as herein provided is not accepted by the bank for any reason, the person who issued it shall continue to be liable for the sum due and all penalties resulting from delayed payment. 'The receiving of checks as aforesaid shall cease as to any bank which shall refuse, upon, demand, to receive for deposit or to cash any such check, without exchange, discount, or commission of any kind, at any point in the Philippines where the bank may be established or may maintain an agency or branch.' "Checks presented for payment must be drawn by the payor himself and made payable to the agency or head or agency. In the latter case, only the official title or designation of the agency head concerned shall be stated as the payee. (Ex: General Auditing Office or Auditor General; local treasury; City Treasurer of Quezon City; government corporation: National Power Corporation). Under no circumstances shall the following checks be accepted: (a) checks drawn payable to the name of the agency head or any of its officers, (b) indorsed checks, (c) post dated checks, (d) state checks, (e) out-of-town checks, except those which are drawn by the Government or its instrumentalities. "Before issuing an official receipt, the collecting officer shall carefully scrutinize the check presented to him and make sure that it is complete and correct particularly as to date, signature or countersignature, and amount in words and figures appearing on the face of the check. "The collecting officer shall, in all cases, indicate on the official receipt the address of the payor to facilitate communication with him, if necessary. "3. Cross-referencing of checks with official receipts "Where payment has been received in check, the date, number and amount of the check should, among others, be indicated on the covering official receipt. For purposes of cross-reference, the number and date of the official receipt issued shall also be indicated on the back of the check. "In case no official receipt has been issued to cover a payment by check the auditor who discovers the omission shall require the collecting officer concerned to forthwith issue the required receipt in the manner herein prescribed. "4. Non-acceptance of private checks "Whenever a payor has a record of a previously dishonored private check drawn by him in payment of taxes and dues, even if such check has already been settled, any private check presented by him shall no longer be accepted. In such case, the payor shall be required to pay only in cash or by certified check. cdti "Each agency head, or provincial or city treasurer in the case of local governments, shall make a list of payors whose checks have been dishonored and shall circularize the list to all collecting officers under his jurisdiction. Subsequent additional lists shall likewise be promptly circularized. "5. Encashment of private checks "Private checks drawn for purposes other than payment of taxes or dues in favor of the Government shall not be accepted for encashment or exchange. (Section 537, Revised Manual of Instructions to Treasurers) The auditor who finds any such check in the possession of a collecting officer shall immediately disallow it and shall declare the collecting officer short to the extent of the amount of the check. "Government checks, however, may be cashed or received as cash under the terms and conditions prescribed in Section 613 of the Revised Administrative Code, quoted as follows: 'Sec. 613. Government warrants receivable as money . When the same can be done without embarrassment to the financial transactions of the office or officer concerned, checks and warrants issued in payment of Government obligations, shall, upon proper indorsement and identification of the payee, or indorsed be cashed or received as cash, at their face value by any provincial treasurer, postmaster, or other officer of the National Government outside of the City of Manila, who collect or have in their hands moneys belonging to the Treasurer of the Philippines. 'The cashing of checks or warrants as contemplated above shall not be obligatory in favor of persons not residing or stationed within the province where the officer to whom the check or warrant is presented is officially located; but the same may be done in the discretion of such officer.' " In no case, however, shall government checks be cashed out of cash advances . Any such check found in the possession of a disbursing officer shall be disallowed by the auditor who shall declare the disbursing officer short to the extent of the amount of the check. "6. Definition of a dishonored check "A check is said to be dishonored by nonpayment when, upon its being duly presented for payment, such payment is refused or cannot be obtained. (Source: Sec. 83, Negotiable Instruments Law, Act 2031). However, for purposes of this Circular, dishonored government checks received purely for accommodation/encashment shall not be governed by the rules prescribed herein. Such dishonored government checks shall be disallowed and the amount thereof shall be made good by the accountable officer who allowed their encashment. "7. Cancellation of official receipt "In case a check received as payment for taxes or dues is dishonored by the bank for any reason, the person who issued it to the Government shall continue to be liable for the sum due and for all penalties resulting from delayed payment. (Source: Sec. 612, Rev. Adm. Code) In such event, the official receipt covering the dishonored check shall immediately be cancelled by the collecting officer and the fact of cancellation noted by him on the duplicate (if no longer in his possession, by the accountant or auditor, as the case may be) and triplicate copies of the receipt, in the following manner: 'Cancelled, ( date of notice of dishonor ) Check paid dishonored per Treasury Debit Voucher No. _____ dated _________. The cancellation shall also be noted on all subsidiary records pertaining to the transaction. "The payor shall be immediately notified by the agency head or treasurer concerned of the cancellation and dishonor by means of a "Notice of Dishonor" as required in the succeeding paragraph. "8. Notice of dishonor "Section 89 of the Negotiable Instruments Law provides that '. . . when a negotiable instrument has been dishonored by non-acceptance or nonpayment, notice of dishonor must be given to the drawer and to each indorser, and any drawer of indorser to whom such notice is not given is discharged.' It is, therefore, indispensable that notice of dishonor be given to the drawer (or to the indorser-payor of the Government check) to protect the interest of the Government. "The collecting officer neglecting or failing to give the required notice of dishonor to the drawer (or to the indorser-payor of the government check) who, as a result thereof is discharged from liability, shall be personally answerable for the resulting loss suffered by the Government. "Ordinarily, a dishonored check is returned by the National Treasury to the collecting officer who has deposited it, together with the original Treasury debit voucher. Before returning the dishonored check, the National Treasury shall stamp on its face the phrase "DISHONORED DEBIT VOUCHER No. ____ dated _____." Upon receipt of the dishonored check and Treasury debit voucher, the collecting officer shall accomplish the "Notice of Dishonor" and sign it in behalf of the head of the Agency. (Sample form shown on Appendix A.) "The notice of dishonor shall be prepared in five copies and distributed as follows: "Original To drawer, delivered personally under receipt or sent by registered mail with return card on the same day. "Duplicate To agency head (or treasurer, as the case may be), to be sent by airmail or special delivery if coming from the province "Triplicate To be attached to Report of Collections submitted to accounting unit. "Quadruplicate To auditor having audit jurisdiction over collecting officer. "Quintuplicate To file of collecting officer "9. Prosecution of drawer of dishonored check "Should the drawer of a dishonored check fail to settle his account or deposit the amount sufficient to cover the same within three days from receipt of the notice of dishonor, the head of the bureau, office, government corporation, or local treasury that received the dishonored check shall immediately transmit the papers to the city or provincial fiscal for the institution of the necessary criminal action under the provisions of Art. 315 of the Revised Penal Code, as amended by Republic Act No. 4885, which pertinently reads as follows: 'Sec. 2. By means of any of the following False pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud: '(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act.' (Emphasis supplied.) "The preceding paragraph applies only to cases were the check has been dishonored for lack or insufficiency of funds. Where the check has been dishonored by reason of formal defects, such as lack of countersignature, the agency head shall nevertheless take immediate steps to collect the taxes or dues previously paid under the dishonored check, for which the officially receipt covering the check has been subsequently cancelled and, if necessary, initiate the prompt institution of the corresponding civil action for the collection of the amount involved. cdt "10. Recording and reporting of dishonored check "(a) Collecting officer's records "The collecting officer, upon receipt of the Treasury debit voucher and the dishonored check, shall record the dishonor by a negative debit and negative credit entry in his cashbook with the following explanation: "To take up Treasury Debit Voucher No. ____, dated _____, covering dishonored check No. _______ for P _____ acknowledged by O.R. No. _____________ dated _____________" "The dishonored check and corresponding cancelled official receipt shall also be recorded in the Report of Collections for the current month regardless of whether or not the dishonored check pertains to the previous month. A negative debit entry on the 70-4 column and a negative credit entry on the distribution column shall be made on the last sheet immediately below the totals with the following explanation: "Cancellation of O.R. No. _____ dated for P _____ on account of dishonor of Check No. __________, for Treasury Debit Voucher No. _______, dated ________." (On the basis of this entry, and the Treasury Debit Voucher and the Notice of Dishonor, the accounting unit shall make the corresponding entry in the Journal of Collections and Deposits.) "In the statement of Account-Current, the net amount, after deducting the dishonored check, shall be entered opposite 'Collection per this report.' However, a footnote shall be made at the bottom of the statement to the effect that so much representing dishonored checks has been deducted from the net amount shown. In the 'Credits' portion of the statement, the total deposits shall be shown and a separate negative entry shall be made for the dishonored check. "(b) Accounting records "Upon receiving the Report of Collections, the chief accountant should carefully examine the entries therein regarding dishonored checks listed in the duplicate Treasury debit voucher he has received earlier. He should check the debit voucher against his copies of the 'Notice of Dishonor' and ascertain that proper adjustments have been made in the Report of Collections, including the statement of Account-Current at the back thereof. The chief accountant shall call the attention of the collection officer to Treasury debit vouchers received by the former but not reported by the latter. "Based on the report of collections as confirmed by the Treasury Statement of Account-Current, the chief accountant shall make the necessary entries in the Journal of Collections and Deposits. After making the usual entry to record the total collections, the following entries shall be made to account for the dishonored check: -1 To adjust deposit for the dishonored check Dr. Treasury Account- Current (70-7) (Pxxx) Dr. Cash, Collecting Officer (70-4) (Pxxx) -2 To cancel the official receipt Dr. Cash, Collecting Officer (70-4) (Pxxx) Dr. Income (or -91 (Pxxx) other account) -3 To take up dishonored check as a receivable Dr. Accounts Receivable- Miscellaneous (Dishonored Checks) (71-9-100) Pxxx Dr. Miscellaneous Liabilities and Credits- Miscellaneous (Dishonored Checks) (85-9100) Pxxx "A sub-account code, 100, shall be used to distinguish receivables and credits arising from dishonored checks. This will facilitate reference. LexLib "(c) Report of collecting officer "At the end of each month, the collecting officer shall prepare a report of dishonored checks. The report shall show the unsettled dishonored checks at the beginning of the month, dishonored checks received during the month, those settled during the month, the unsettled, dishonored checks at the end of the month, and the action taken in each case. The monthly report shall be prepared in five copies to be distributed as follows: Original To the agency head (or treasurer, as the case may be) Duplicate To the bureau auditor Triplicate To the Chief Accountant (To be attached to the Report of Collections) Quadruplicate To the auditor having jurisdiction in cash examination in case or field collecting officers Quintuplicate To file the collecting officer A sample form of the report is shown in Appendix B. "The chief accountant shall see to it that the collecting officers' reports on dishonored checks agree with his entries to miscellaneous accounts receivable (71-9-100) and miscellaneous liabilities and credits (85-9-100). The usual subsidiary records shall be maintained for these accounts. "The agency head shall see to it that proper action is taken on the dishonored checks. If court action is necessary, he should initiate it without delay. "In case there are dishonored checks on hand prior to the issuance of this circular, a separate report thereon shall be rendered in accordance with Memorandum Circular No. 469 dated August 13, 1962. "11. Settlement of dishonored check "A dishonored check shall be settled by tendering payment in cash or by certified check to the collecting officer concerned. No other mode of payment shall be accepted. "Upon receipt of the cash or certificate check, the collecting officer shall issue an official receipt for the amount received by him. The nature of the payment to be indicated shall be the same as that in the previous official receipt cancelled, except that the following notation shall be placed on the receipt: 'Previous payment acknowledge by O.R. No. _____, dated ______, cancelled on ( date of notice of dishonor ). Accordingly the settlement of the dishonored check shall be recorded in the cashbook together with other collections. "If the payor is liable for the payment of fine or penalty arising from delayed payment, the amount corresponding to the fine or penalty shall also be imposed and collected in audit on the principal tax or dues paid by him. "The cash or certified check received shall be deposited together with the other collections without preparing a separate remittance advice. "Upon settlement of the dishonored check in the manner herein prescribed, the collecting officer shall not return the check to the payor concerned unless the latter first surrenders the previous official receipt therefor. If the previous receipt is no longer available, a sworn statement to the effect that it has been lost or misplaced should be submitted by the payor. The collecting officer shall forthwith cancel the surrendered official receipt and forward it (or the affidavit) to the accounting unit for file with the corresponding report of collections where the cancellation was recorded. "In the Report of Collections, an asterisk shall be placed opposite the line on which the official receipt is indicated and a corresponding footnote shall be placed on the last page of the report just below the totals as follows: 'Settlement of dishonored check previously acknowledged by O.R. No. ________ dated ______, which was cancelled on ( date of notice of dishonor ). This footnote, together with the new receipt and the cancelled original copy of the previous official receipt (or affidavit) shall be the basis of the accounting unit for making the reversing entry in the Journal of Collections and Deposits (sundry columns) as follows: Dr. Miscellaneous Liabilities and Credits Miscellaneous (Dishonored Checks) (85-9-100) Pxxx Cr. Accounts Receivable Miscellaneous (Dishonored Checks) (71-9-100) Pxxx "Pending their settlement, dishonored checks shall remain in the custody of the collecting officers, unless the agency heads or the court shall direct otherwise, in which case appropriate receipts should be secured from the officer authorized to take custody of the checks. The collecting officer shall immediately advise the auditor concerned of the transfer of custody of the checks. "12. Audit of dishonored checks "As regards dishonored checks, the auditor shall ascertain the following: "(a) That the requirements of this circular, such as the sending of the notice of dishonor, the institution of criminal or civil action against the drawer of the dishonored check, the submission by the collecting officer of the monthly reports, have been faithfully complied with; "(b) That entries to record the receipt or dishonored checks and their settlement are accurately made both in the cashbook of the collecting officer and in the accounting records; and "(c) That the unsettled dishonored checks are existing by taking a periodic physical inventory and comparing the total thereof with the balance shown in the accounting records. "In cash examination, the auditor shall totally exclude dishonored checks presented by the collecting officer which were received by him after this circular took effect. The reason is that an adjusting entry has been previously made removing the dishonored check from the cash on hand as well as from the deposit. (Dishonored checks received prior to the effectivity of this circular should be taken into account as they form part of the collecting officers' cash on hand.) The auditor, however, should verify the movements of dishonored checks is reported by the collecting officer and should see to it that the dishonored checks on hand agree with the monthly report of the collecting officer and the records of the accounting unit. "13. Dissemination to all collecting officers "Such agency shall reproduce sufficient copies of this circular to be distributed to all its collecting officers for their information and guidance. Newly-designated collecting officers shall likewise be furnished with a copy of it is circular before they assume office as such. "14. Dishonored checks on hand prior to this Circular "Dishonored checks on hand prior to the effectivity of this circular shall be governed by Memorandum Circular No. 469, dated August 13, 1962, under which dishonored checks form part of the cash on hand of the collecting officer. Vigorous efforts should, however, be exerted by collecting officers and agency heads in effecting settlement of these checks. Whenever warranted, agency heads shall initiate the prosecution of parties (payors) whose checks have been dishonored after June 17, 1967, the date of approval of Republic Act No. 4885. "15. Applicability to government corporations and local governments "This circular shall apply to all departments, bureaus and offices of the National Government, government-owned or controlled corporations and local governments. "While the procedure, records and accounts discussed in this circular pertain to the National Government, government corporations and local governments may, if necessary, modify them to suit their operating and accounting practices. Any such modification shall be submitted to the Auditor General for his information and/or action. "16. Repealing clause "This circular supersedes Memorandum Circular No. 469, dated August 13, 1962, of this Office. The provisions of the National Accounting and Auditing Manual and Manual of Instructions to Treasurers which are inconsistent herewith are hereby modified, amended or revoked, as the case may be. "17. Effectivity This circular shall take effect on November 1, 1968. (SGD.) ISMAEL MATHAY, SR. Auditor General" It is desired that all concerned shall take cognizance of and shall comply with the provisions of this circular. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue APPENDIX A (Agency's Letterhead) NOTICE OF DISHONOR ____________, 19__ M ______________________ ________________________ ________________________ Sir/Madam : You are hereby notified that your (name of bank) Check No. ________, dated _____________________, 19 __, in the amount of P_________ paid by you to this Office and acknowledge by our Official Receipt No. ____________ dated _________, 19___, has been presented for deposit but was dishonored and returned to us for the following reason (s): ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ In view thereof, the official receipt referred to above has been cancelled on this date and your liability still subsists in the same manner as if you had ever tendered any payment. Please settle this account in cash or by certified check to the undersigned within three days from receipt of this notice, otherwise this Office will be constrained to institute criminal action against you, under Section 2, Paragraph (d), Article 315 of the Revised Penal Code, as amended by Republic Act No. 4885. aisadc Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue By: _______________________ Collecting Officer NOTE: The last paragraph applies to cases where the cause of the dishonor of the check is lack or insufficiency of funds. Where the check is dishonored by reason of defect in form, such as incomplete signature or the like, the following paragraph should be substituted for the aforementioned last paragraph: "Please settle this account in cash or by certified check to the undersigned within three days from receipt of this notice, otherwise, this Office will be constrained to file appropriate action to enforce its claim." APPENDIX B