REPUBLIC OF THE PHILIPPINES COMMISSION ON AUDIT Commonwealth Avenue, Quezon City, Philippines CIRCULAR Nos 2021-014 Date: DEC 22 WT To All Heads of Departments, Agencies, Bureaus, Offices, and Instrumentalities of the National Government; Local Chief Executives; Managing Heads of Government Corporations; Head of Finance, Accounting and Treasury Units; Commission on Audit (COA) Assistant Commissioners, Directors and Auditors; and All Others Concerned Subject : Guidelines on the use of Electronic Collection (e-Collection) and Electronic Payment (e-Payment) for Government Transactions 1.0 RATIONALE On June 14, 2000, Republic Act (RA) No. 8792, the Electronic Commerce Act of 2000, ‘was enacted pursuant to state policy that recognizes the vital role of information and communications technology (ICT) in nation-building and the need to marshal, organize and deploy national information infrastructures, comprising in both communications network and strategic information services, including their interconnection to the global information networks, with the necessary and appropriate legal, financial, diplomatic and technical framework, systems and facilities." The objective of this Act is to facilitate domestic and international dealings, transactions, arrangements, agreements, contracts, and exchanges and storage of information through the utilization of electronic, optical, and similar medium, mode, instrumentality and technology to recognize the authenticity and reliability of electronic data messages or electronic documents related to such activities and to promote the universal use of electronic transactions in the government and by the general public.” Pursuant to this Act, the Department of Finance (DOF) and the Department of Trade and Industry (DTI) issued Joint Department Administrative Order (JDAO) No. 02 s.2006 and JDAO No. 10-01 s.2010 to prescribe policies and guidelines in the adoption of Electronic Payment and Collection System (EPCS) in government transactions and bring about more efficient and effective payment and collection services for the transacting clients and government offices. With the advancement of technology, various payment and collection schemes are now available, such as: electronic fund transfers (EFT), online or mobile banking, credit or debit cards, electronic wallets (e-Wallets), and prepaid or stored value cards. In line with the e-Commerce Act and providing public convenience and ease of doing business, or Le20 many government entities have resorted to these methods for various types of collection and payment involving government transactions. These technologies have changed the methods and dynamics of the standard and usual way of doing business in goverment. They increase efficiency in government operations without or less personal interactions with collecting and disbursing officers and other public officials involved in processing government transactions and provide ‘comfort and convenience to the transacting public and other stakeholders. COA issues these guidelines to provide clear audit policies and guidance on the use of eCollections and e-Payments for government transactions, thereby removing the common pitfalls in adopting e-Governance in public service. The issuance is consistent with the mission and mandate of this Commission to promote transparency, help improve government operations, and be an enabling partner of government. COVERAGE This Circular shall apply to all government entities, including foreign-based government agencies (FBGAs), having e-Collections or e-Payment transactions as described herein, without or less physical interaction with the collecting or disbursing officers and other public officials involved in these transactions, This shall also apply to other private entities authorized to perform governmental functions, DEFINITION OF TERMS For purposes of this Circular, the following terms shall be understood as follows: Advice to Debit Account (ADA) refers to an authorization issued by the government entity that serves as an instruction to Government Servicing Banks to debit a specified amount from its available account balance for payment of creditors/payees. Authorized Government Depository Bank (AGDB) refers to banks where NGAs/ Government-Owned or Controlled Corporations! Government Financial Institutions/ Government Instrumentalities with Corporate Powers/ Government Corporate Entities/ and Local Government Units are allowed by law to deposit government funds and maintain depository accounts, or by way of exception, a bank allowed by the DOF and the Monetary Board to hold goverment deposits subject to prescribed rules and regulations? Collect-Aggregate-Remit (CAR) refers to an e-Collection scheme where the daily collections are done by the intermediary on behalf of its principal government entity and aggregated in the intermediaries’ possession or control for a period of time before being remitted to the government entity’s AGDB accounts or that of National Treasurer. Direct Electronic Payment (DEP) refers to an e-Payment scheme where the payments are made by the government entity itself, using the intermediary's technology or infrastructure. This includes the use of ADA. 2 Department of Finance Circular No. 01-2017 dated May 11, 2017 2 LcElectronic Collection (e-Collection) refers to a method or manner wherein revenue, fees, assessments, or obligations due to the government entity is being collected using a mechanical device, electronic device, or computer-based system. The term refers to an alternative way of collection where no actual money, check, or any physical note is handed through the hands of the government entity’s collecting officer. For the purpose of this Circular, this includes the use of an intermediary in performing the collection function. Electronic Money Issuers (EMIs) refers to (a) banks; (b) non-bank financial institutions supervised by the Bangko Sentral ng Pilipinas (BSP); and (c) non-bank institutions registered with the BSP as a monetary transfer agent under Sec. 4511N of the Manual of Regulations for Non-Bank Financial Institutions. Electronic Payment (e-Payment) refers to the disbursement of money or equivalent electronic representations of legal tender, for purposes of paying government expenditures, solely through electronic means as opposed to the use of cash, check, or physical notes to accomplish the same. This includes the manner by which an obligation is extinguished by means of sending instruction for the debit of the government entity’s account and the corresponding credit to the payee’s account. For the purpose of this Circular, this includes the transfer of funds to the intermediary for the purpose of distribution. Electronic Payment Gateway Provider (EPGP) refers to a bank or non-bank entity, which operates or maintains an e-Collection and/or e-Payment Systems. Front-end System refers to the primary interface between the system’s customers, which may be citizens’ transactions on their own behalf, or the interface to other systems that connect to the EPCS. This may be a mobile application or web-based online system. Intermediaries refer to AGDBs, EMIs, EPGPs, banks, or any other BSP-regulated private entity facilitating government entity’s collection or payment transactions. Intermediary’s bond refers to a bond undertaking to guarantee the faithful remittance or return by the intermediary of, its daily collection to the appropriate AGDB account or unliquidated fund, within the prescribed period. For this nature of obligation, that is, remittance of collections or retum of unliquidated funds, the intermediary has the option whether to post a cash bond or surety bond from a reputable provider, equivalent to the full amount of fund exposed to risk of loss, or such other sum as may be prescribed by the government entity for its full protection, The bond shall answer for the non- remittance or any shortfall in the remittance of collections or unliquidated funds. Net Disbursing Capacity refers to the capacity of an intermediary to distribute funds for a given period, considering its resources, minus the needed resources for all outstanding or existing commitments under ongoing contracts, including awarded contracts yet to be started coinciding with the specific fund distribution engagement. LL4.0 5.0 Self-Collect and Credit (SCC) refers to an e-Collection scheme where the collections are done by the government entity itself utilizing the intermediary's technology or infrastructure, and collections will not pass through the hands of the collecting officer but are directly credited to the government entity’s AGDB accounts or that of National Treasurer. Transfer-Distribute-Liquidate (TDL) refers to an e-Payment scheme where the government entity's funds are first transferred to the intermediary’s possession and control, which the latter thereafter uses to distribute payments to the intended payces of the principal government entity GENERAL PRINCIPLES Use of electronic data messages, electronic documents, and technology in performing government functions such as, but not limited to, collection and payment are generally allowed. Thus, the use of e-Collection or e-Payment System is encouraged, pursuant to e-Commerce Act of 2000; and Ease of Doing Business and Efficient Government Service Delivery Act of 2018, subject to regulations. Public office is a public trust Public officials and employees must, at all times, be accountable to the people. Such accountability over public funds cannot be transferred toa private entity whatsoever. In utilizing machineries of private entities to perform all or portion of their functions, public officials cannot validly deny liability over unaccounted funds. Engaging technology partners to improve public service delivery does not remove the accountability over public funds entrusted to public officials from the audit jurisdiction of this Commission. All revenues and receipts of the government should be accounted for, and all expenditures or uses of funds should be authorized only within the permission of the law. The same accountability principles apply when government transactions shift into the digital realm with the use of ICT. Collection and payment schemes that prevent transparency and accountability over public funds, as well as arrangements disadvantageous to the government, shall be discontinued. GUIDELINES 5.1 General Guidelines 5.1.1 Government entities that employ the services of intermediaries for the performance of their collection or disbursement function shall execute a contract with the latter. After signing the contract, the government entity shall furnish the Audit Team concerned with a copy of the completed contract within five (5) working days from approval thereto, pursuant to COA Circular No. 2009-001 dated February 12, 2009, The scope of the collection or disbursement function between the government entity and “Section 1, Article XI, 1987 Constitution, aS14 the intermediary shall be made clear in the terms and conditions of the contract. The scope may cover a particular government program, project, or activity for a specific period, office, recipient/payee group. The contract shall contain, at the minimum, the responsibilities of the parties on reporting facility and security standards to be observed. Intermediaries, other than AGDBs, engaged under a Collect-Aggregate- Remit or Transfer-Distribute-Liquidate scheme shall be contracted in compliance with RA No, 9184 (Government Procurement Reform Act) and its Implementing Rules and Regulations (IRR) or with RA No. 69575 (BOT Law), as amended by RA No. 7718°. For the purpose of acquiring the services mentioned above, the government entities shall engage only with BSP-regulated/supervised intermediaries. The contract shall contain, among others, the Auditability Clause as required under COA Circular No. 2020-010 dated December 2, 2020. Government entities are required to design, implement, and continuously review appropriate intemal controls and procedures, including prevention and detection controls over the use of e-Collection and e-Payment Systems to safeguard the interest of the government. Government entities shall submit to their respective COA Audit Teams, within 60 days from the effectivity of this Circular and every March 31 thereafter, a Management Representation letter, Annex A hereof, to attest their compliance with the immediately preceding requirement. The non- submission of the Management Representation letter shall be considered as a high-risk indicator for the purpose of conducting information systems (IS) audit. The COA, through the IT Audit Office (TAO), Systems and Technical Services Sector may, motu proprio or upon request of Audit Team concemed, conduct IS audit if risk assessment suggests that the conduct of such IS audit is warranted. Government entities shall provide for or require intermediaries to allow COA access to view, generate, download, and print any data/reports necessary to attain the audit objectives. This provision on access and the audit of government funds shall be expressly stated in the contract between the government entity and such intermediary, pursuant to Section 4.3 of COA Circular No. 2020-010 dated December 2, 2020. 5 An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for the Other Purposes © An Act Amending Certain Sections of Republic Act No. 6957, Entitled “An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Project by the Private Sector, and forthe Other LeFailure to provide for the Auditability Clause in the contract does not preclude COA from conducting the audit. 5.1.7. The COA Audit Teams shall review compliance of government entities using e-Collection or e-Payment System with the provisions of the DTI- DOF JDAO No. 02 s.2006 on the “Guidelines Implementing R.A. No. 87927 on Electronic Payment and Collection System (EPCS) in Government” or any subsequent JDAO of DTI and DOF on the subject of EPCS. For the purpose of this Circular, the provisions of the said IDAOs shall have an analogous application to all government entities covered herein. The Audit Teams concerned may seek assistance from ITAO in conducting the technical aspect of the compliance audit, 5.1.8 For the purpose of this Circuar, government entities shall designate a focal person for their implementation of e-Collection and/or e-Payment Systems. 5.1.9 Officer/Office, designated by the head of government entity for the purpose, shall keep the electronic copy of all e-Collection and ¢- Payment documents (i.e., report of daily collection, electronic official receipts (COR), acknowledgment receipts, digital purchase receipts, invoices, etc.) in the active file of the government entity for a period of one year from the end of transaction year, available for access of the Audit Team, and forward such electronic copies to COA pursuant to existing regulations in the submission of reports. Notwithstanding, all records of e-Collection and e-Payment shall be kept in Electronic Archives for a minimum period of ten years, or as may be prescribed by law, with a facility to restore data from backup facility whenever necessary. 5.1.10 In the case of FBGAS, these guidelines shall be applied in conjunction with the local laws of the host country. In a few cases wherein a portion of this Circular cannot be implemented due to the laws, regulations, and industry practices in the host country, such portion will give way to the latter. In such a case, the FBGA concemed shall notify this Commission for the review of controls, which are needed to compensate for such deviation from these guidelines. 5.2 Electronic Collection (e-Collection) 5.2.1 In addition to the existing practice of collection, different revenues, fees, taxes, assessments, or other obligations due to the government may be collected with the participation of intermediaries under the CAR or SCC scheme. 7 Electronic Commerce Act of 2000 6 fe5.2.2 The following guidelines shall apply to collections under the Collect- Aggregate-Remit (CAR) scheme: a. ‘The government entity shall require the intermediary to generate an electronic Acknowledgement Receipt (AR) to be immediately issued to the payor, via online, mobile, or printed copy, for every collection made, Annex B hereof. The AR issued by the intermediary to the payor shall have the following minimum data content: Letterhead of the intermediary AR Number (unique number generated by intermediary, consecutively numbered and chronologically issued) Date and Time Agency Name v. Name of payor vi. Particulars (nature of collection. e.g. payment for passport fees) vii, Amount received for the transaction, value-added tax, and service charge, if any, indicated separately viii, Reference Number (unique reference number of the output generated/service rendered/document issued by the government entity. e.g., account number, order of payment slip number, assessment number or equivalent, passport application number, ete.) b. The electronic AR mentioned above issued pursuant to a contract with the government entity shall be accepted to the same extent as OR supposedly issued by the government entity itself. As far as the public is concerned, every AR issued by such intermediary is binding to the government entity, and for all intents and purposes, is considered collection by the latter. Such AR should have a security protocol to ensure the authenticity, completeness, and traceability of the collection. For auditing purposes, the government entity is not required to issue a separate OR to individually acknowledge each collection made through such intermediary. However, from the point of collection, such amount forms part of public funds. It remains the duty of the government entity to prepare and submit the required duly accomplished reports of collection and deposit mentioned in paragraph 5.2.2. hereof, either with the assistance of such intermediary or by its own efforts. 1‘The intermediaries shall remit or deposit intact the full amount of collections due to the government to the appropriate account in the AGDB within the next banking day from the collection date or within the time period as may be prescribed by DOF. They shall submit to the government entity a Certification of Deposit, Annex C hereof, and proof (e.g., EFT receipt, validated deposit slip, bank confirmation) that the total amount collected from the previous day is actually deposited to the appropriate AGDB account. Government entities shall require the intermediaries to submit an electronic copy of the List of Daily Collections (LDC), Annex D hereof, containing the details provided in paragraph 5.2.2.a, within the next banking day from the date of collection. The same shall be supported with an electronic copy of all corresponding ARs issued and the Certification of Deposit mentioned above. All electronic ARs and corresponding electronic LDCs with Certificates of Deposit supporting the LDCs shall be made available to the Audit Team for reference and confirmation. The filename to be used for each electronic AR shall follow the format + "_" + AR number + "_” + Reference number (e-g., SANTOS_0012345_000999), The designated officer of government entity, based on the submitted LDC and the Certification of Deposit by the intermediary, shall classify the collection based on their respective income classification, revenue code, and fund cluster to prepare the required Report of e-Collections and Deposit via intermediary, Annex E hereof. The designated officer shall, using the Certification portion of Annex E, certify that he/she reviewed and found the details of collections and deposits in order. .. The intermediary shall be required to post intermediary's bond in favor of the government entity as the beneficiary, a copy of which shall be provided to the Audit Team conceed. The bond shall cover any amount collected by the former in the event that it fails to deposit the collections to the appropriate AGDB account within the prescribed period. The government entity shall, through the head of agency, make it the duty of such intermediary to adjust the bond coverage as needed depending on the risk exposure, by contractual objection. The government entity shall require the submission of the bond before such intermediary be allowed to start collecting on its behalf. In case of loss of public funds resulting from the intermediary's failure to deposit the collections due to the government entity appropriately, the latter may claim the equivalent of the amount lost from the bond. In such case, the government oe 1entity shall send a notice to the Government Procurement Policy Board (GPPB) for blacklisting of the intermediary. Any deficiency between the amount lost and the amount claimed shall be for the account of the negligent government officials. The deficiency shall be recorded as receivable pending the receipt of proceeds from the bond. 5.2.3 The following guidelines shall apply to collections under the Self- 5.2.4 Collect and Credit (SCC) scheme: The government entity, using its own front-end system for online collection, shall immediately issue eOR to acknowledge every transaction consistent with COA Circular No. 2013-007 dated September 18, 2013, DTI-DOF JDAO No. 02 s.2006, and DTI-DOF IDAO No. 10-01, s. 2010. For face-to-face collection, where no cash, check, or physical note was used, through the government entity’s collecting officer, the government entity shall issue an eOR. The eOR issued to acknowledge the amount collected should clearly indicate the mode of collection (e.g. manual deposit, online/mobile banking, e- Wallets, ctc.). The collecting officer shall require proof to satisfaction that the amount is already credited to the government entity’s account (e.g., validated bank deposit slip, fund transfer receipt, online/mobile banking confirmation, etc.).. For all collections wherein the funds are not yet in the appropriate AGDB account, the agency shall prepare the Report of e-Collections and Deposits (Annex F). The details of deposit in this report shall be filled in once the money is deposited or transferred to the appropriate AGDB account. The Cash/Treasury Unit shall monitor such deposits or fund transfers. The deposit slip or transaction confirmation receipt shall be attached to the report. For collections directly credited to the appropriate AGBD account, the authorized cashvtreasury personnel shall confirm the deposit, which shall be the basis for preparing the Report of Daily Collection Directly Deposited to the Agency’s Bank Account, Annex G hereof. . The specific portion of Government Accounting Manual for National Government Entities pertaining to AGDB collections shall be suppletory in application by all government entities covered by this Circular, The government entity shall establish a system to update its own transaction records or ledger cards, if any (¢.g., billing records, member contribution, assessment, taxes, etc.). ie5.2.5 Reconciliation of e-Collection and remittance or deposit shall be conducted daily, and any discrepancies shall be resolved. Proof of this activity (e.g,, Activity Log or Bank Reconciliation Statement) shall be submitted to the Audit Team concerned. 5.3. Electronic Payment (e-Payment) 53.1 5.3.2 5.3.3 5.3.4 5.3.5 For public sector accounting and auditing purposes, in addition to cash and traditional check payments, the use of electronic modes of payment shall be generally allowed. The modes of the disbursements can be executed under the Direct Electronic Payment (DEP) or Transfer- Distribute-Liquidate (TDL) scheme. All e-Payments shall follow the existing procedures on disbursement with duly approved Disbursement Vouchers (DV) or Payroll with complete supporting documents subject to the usual accounting and auditing rules and regulations OR or AR received by the government entity, if the payee is another government entity implementing their electronic collection system, shall be accepted as proof of payment for the transaction. ‘The government entity should ensure that taxes are withheld from their suppliers or contractors, and other authorized deductions are deducted from, and reflected in the DV or Payroll. The following guidelines shall apply to payments under the DEP scheme: a. For payment of obligation using the ADA facility: i, The rules and procedures for ADA, and any amendments thereto shall be followed. ii, This facility removes the personal appearance of the payee, to whose account the government funds are directly credited. As compensating control mechanism, the AGDB shall be required by the government entity to submit a certified list of successful fund transfers to each payee’s account, The electronic list shall contain the payee’s name, the amount, date of transaction, and bank account number to which the government fund was credited. The electronic list from the AGDB shall have security protocol to ensure its integrity and protection from alteration. io |i, For unsuccessful fund transfers, an electronic list containing the name, amount, and date of attempt shall be submitted to the government entity, b. For payment of obligation using the mobile or online banking facility of the AGDB such as payment of bills online, EFT to payee from the government entity’s account, or other similar modes of e- Payments, the disbursing officer shall prepare daily the Daily Report of e-Payments from Agency Account, Annex H hereof. The report shall be submitted to the Audit Team concerned together with all the digital payment receipts supporting the report. The following guidelines apply for the use of credit cards: i, No government entity may be allowed to use credit card to pay for government transaction unless they can reasonably protect such use against misuse and misappropriation. Documentation of internal control for this purpose shall be submitted to the Audit Team concerned for evaluation and approval. ii, ‘The head of the government entity may designate the authorized Cash/Treasury personnel to be the credit card user, after the approval mentioned in the preceding section. The head of the government entity may designate primary or altemate users (officials), as may be necessary, provided they are bonded officials iii, Use of this credit card shall only be resorted to if no other modes of payment are more expeditious and inexpensive, In such cases, a certification from the head of agency or representative shall be executed attesting to the circumstance. iv. _ Every transaction to be paid using credit card shall follow the existing rules on Accounts Payable. The approval confirmation or the transaction receipt, and the certification mentioned in the preceding section shall be a mandatory supporting document for the transactions. v. The Statement of Account from the credit card issuer showing each transaction supported with receipts shall be a mandatory supporting document to the DV to be prepared for the purpose of paying the credit card issuer. vi. The primary user shall ensure that the billed amount shall be paid in full and on time to avoid the incurrence of interest and surcharges. Any interest or surcharges incurred due to "Lh i53.6 Vii. viii negligence or oversight shall be for the personal account of the negligent designated Cash/Treasury personnel. ‘The credit card shall be used only for official transactions of the government entity and not for any personal transactions, . Credit card users shall ensure that the card balance will not exceed the authorized credit card limit. Incurrence of delay in the payment or nonpayment of official transactions by reason of exceeding the credit limit shall constitute negligence or oversight on the part of the designated Cash/Treasury personnel. If the government entity avails of the services of intermediaries under a TDL scheme, and uses those services in the implementation of government programs, such as but not limited to, distribution of cash assistance to beneficiaries, it shall: a. execute a contract with intermediaries with the following provisions, as a minimum: Obligations of both parties Manner of remittance of funds from the agency to the intermediary iii, Liquidation of funds iv. Return of undistributed funds v. Service fee vi, Confidentiality and security of information vii. Reporting requirements viii, Penalty for breach of contract ix. Auditability clause related to government funds b. authorize the transfer of a sum of money to intermediaries, consistent with the fiscal responsibility of the heads of the government entity, only based on the program of di the government entity or net disbursing capacity of the intermediary to release funds within 30 days, whichever is lesser, subject to replenishment upon submission of liquidation report; c. transfer the funds, as determined in the preceding section, to the intermediary only after the latter has submitted the appropriate intermediary's bond in favor of the government entity as the beneficiary, a copy of which shall be provided to the Audit ‘Team concemed. The bond shall cover any amount transferred by the former, which the latter failed to liquidate within the prescribed period. The government entity shall, through cae 126.0 70 8.0 9.0 head of agency, make it the duty of such intermediary to adjust the bond coverage as needed depending on the risk exposure. In case of loss of public funds resulting from such intermediary's failure to retum the unliquidated funds appropriately, the government entity may claim the equivalent of the amount lost from the bond. In such as case, the government entity shall send a notice to the GPPB for blacklisting of the intermediary. Any deficiency between the amount lost and the amount claimed shall be for the account of the negligent government officials.; 4. require intermediaries to submit liquidation reports containing the payment information within the agreed time period provided in the contract between the government entity and the intermediary, but not exceeding 30 days. A unique transaction ID or reference number shall be generated for each payment. The liquidation report shall have security protocol to ensure its integrity and protection from alteration; and e. conduct a monthly reconciliation of the funds transferred to intermediaries and the amount disbursed therefrom. Any unclaimed/undisbursed funds should be returned to the account of the government entity within 30 days from the date of transfer of funds to the intermediaries. SAVING CLAUSE This Circular is issued to facilitate online transactions in government. Cases not covered in this Circular may be referred to this Commission, through the Systems and Technical Services Sector, for resolution, TRANSITORY CLAUSE Government entities with an existing contract with intermediaries prior to the effectivity of this Circular are given one year therefrom to make amendments, remedies, and other activities to comply with this Circular, REPEALING CLAUSE All COA issuances inconsistent herewith are hereby revoked, amended, or modified accordingly. SEPARABILITY CLAUSE In the event that any of the provisions of this Circular is declared invalid or unconstitutional, all the provisions not affected thereby shall remain valid and subsisting. / 1310.0 EFFECTIVITY This Circular shall take effect 15 days after its publication in a newspaper of general circulation. AGUINALDO, ROLAND C. PONDOC Commissioner 14