Legal basis and constitutional framework
- The circular implements Article II, Section 23 of the Philippine Constitution, which directs the State to encourage non-governmental, community-based, or sectoral organizations that promote the welfare of the nation.
- The circular is also anchored on Section 34 of Republic Act No. 7160 (Local Government Code), which institutionalizes partnership between LGUs and these organizations.
- The circular revises earlier COA rules, replacing COA Circular Nos. 95-003 and 96-003 dated February 15, 1995 and February 27, 1996, respectively.
Policy and objectives
- Government funds granted to NGOs/POs are treated as public funds retained in character as such.
- The circular provides control and guidance in the granting, utilization, management, and recording of these funds.
- The circular aims to conform grants and related transactions to the New Government Accounting System (NGAS) adopted in 2002 and to strengthen controls, transparency, and accountability.
- The circular requires monitoring of project implementation funded out of government funds.
Defined terms for implementation
- A “Beneficiary” is the community or any of its sectors that receives the results of the development efforts of the GO and the NGO/PO.
- “Funds” are government funds entrusted to the NGO/PO to cover implementation of a project included in the Work and Financial Plan (WFP) and the Budget of the GO.
- A “Fund Utilization Report (Annex A)” is the document showing the summary of expenses incurred in implementing the project for a given period.
- A “Government Organization (GO)” covers national government agencies (NGAs), LGUs, and government-owned or controlled corporations (GOCCs) and their subsidiaries providing funds to the NGO/PO.
- A “Non-Governmental Organization (NGO)” is a non-profit voluntary organization committed to socio-economic development, established primarily for services such as assisting citizens or people’s organizations by educating, training, or giving funds; it includes foundations created for the same purpose.
- A “People’s Organization (PO)” is an independent community and/or class-based association established to protect and advance the interest of specific causes or sectors (e.g., labor, farmer, fisherman, women, children, civic organizations).
Scope and types of covered projects
- The guidelines apply to all funds granted to NGOs/POs for implementation of projects enumerated under paragraph 4.1 in relation to the project types under paragraph 4.3.
- Projects eligible for government funding must be beyond the capability of the GO, and this incapability must be clearly defined in the Memorandum of Agreement (MOA).
- Eligible project types include:
- Livelihood development
- Manpower development
- Sports development
- Cooperative development
- Delivery of basic services
- Environmental protection
- Agricultural and fisheries diversity
- Rural industrialization
- Development of local enterprises
- Social services in areas not ordinarily undertaken by the private sector
- Construction, maintenance, operations and management of infrastructure projects, including:
- Housing projects for the poorest of the poor
- School buildings for schools with inadequate classrooms
- Government funds granted under these guidelines retain their character as public funds.
Requirements and entitlement for NGOs/POs
- An NGO/PO must submit a proposal or application for funding accompanied by required documents.
- The NGO/PO must submit Certificate of registration with the Securities and Exchange Commission (SEC), and/or either the Cooperative Development Authority (CDA) or the Department of Labor and Employment (DOLE) depending on the nature of the service required.
- The registration requirement is intended to ensure that the NGO/PO:
- Has legal personality
- Has officers responsible and accountable for operations
- Is based in the community where the project will be implemented.
- The registration requirement exempts intentional organizations and specialized agencies doing business in this country as a result of bilateral agreements.
- The NGO/PO must submit an authenticated copy of the latest Articles of Incorporation (or Articles of Cooperation), showing original incorporators/organizers and the Secretary’s certificate of incumbent officers, together with the Certificate of Filing with the SEC or Certificate of Approval by the CDA.
- The NGO/PO must submit financial reports audited by an independent Certified Public Accountant for the past three (3) years preceding the date of project implementation.
- For NGOs/POs in operation for less than three (3) years, the NGO/PO must submit:
- A report of accomplishment or equivalent proof certified by its President and Secretary that it implemented similar projects previously, in addition to financial reports for the years it has been in operation.
- The NGO/PO must disclose other related business, if any, and the extent of ownership therein.
- The NGO/PO must submit the Work and Financial Plan (WFP) and Sources and Details of Proponents Equity Participation in the Project.
- The NGO/PO must submit a complete project proposal approved/signed by its officers, including objectives, target beneficiaries, feasibility studies, risk assessment, designs, plans, blueprints, charts, and similar documents.
- The NGO/PO must submit a list and/or photographs of similar projects previously completed, indicating the source of funds for their implementation, if any.
- The NGO/PO must submit a sworn affidavit of the Secretary that none of its incorporators, organizers, directors or officials is an agent of or related by consanguinity or affinity up to the fourth civil degree to GO officials authorized to process and/or approve the proposal, the MOA, and release of funds.
- Relationships covered by the affidavit requirement automatically disqualify the NGO/PO from being granted the fund.
Procedures for funding, MOA terms, equity, and releases
- The GO must identify priority projects under its WFP that may be implemented by the NGO/PO, stating purpose/specifications/beneficiaries and the time frame for undertaking.
- To ensure transparency, the GO must publicize the priority project information at least three months prior to the target commencement date through newspapers, agency websites, bulletin boards, and the like.
- For each project proposal, the GO must accredit NGO/PO project partners through the Bids and Awards Committee (BAC) or a committee created for the purpose, which must formulate selection criteria.
- The committee must perform selection by screening qualification documents, conducting ocular inspection of the NGO/PO business site, and evaluating technical and financial capability.
- The GO must award the project to the NGO/PO that meets minimum qualification requirements and project specifications and can satisfactorily undertake the project at terms most advantageous to beneficiaries, considering cost effectiveness.
- The project must be covered by a MOA that must embody specific terms, including at least:
- Project name, intended beneficiaries, benefits to be delivered, project cost estimates, brief project description, and site/location
- Implementation systems and procedures, including procurement of goods and services by the NGO/PO and distribution documented and coordinated through GO authorized officials and respective barangays
- Time schedules for releases of funds, periodic inspection/evaluation, reporting, monitoring requirements, and date of commencement and date of completion
- Submission of required periodic financial and physical status reports
- The specific period to liquidate funds granted to the NGO/PO with the GO
- For construction and infrastructure and acquisition of assets (vehicles/equipment): stipulation on ownership or turnover of ownership of infrastructure or fixed asset
- In procurement using government funds: requirement that the NGO/PO conduct simple bidding or canvass to ensure best terms and quality of purchase
- If an asset is owned by a specified beneficiary: stipulation that a Deed of Donation will be executed by the GO
- Monitoring/inspection of implementation and verification of financial records/reports by the GO
- Visitorial audit by COA officials and personnel authorized under an approved office order
- Legal action by the GO against defaulting NGOs/POs that fail to complete, or commit a material violation of MOA or the circular, including subsequent disqualification from applying for another project in any other GO
- In dissolution of a recipient NGO/PO: the granting GO’s lien on assets in accordance with existing laws to the extent of the unexpended or unutilized portion of the fund
- Maintenance by the NGO/PO of a separate savings account for each fund received from the GO
- Return to the granting GO of any amount not utilized to complete the project, including interest, if any
- The NGO/PO must have equity equivalent to 20% of the total project cost, usable in the project in forms such as labor, land for the project site, facilities, equipment, and similar.
- For staggered releases or new releases covered by another MOA, the NGO/PO cannot receive additional releases unless it first complies with an interim Fund Utilization Report of the previous release, certified by its Accountant and approved by its President/Chairman, showing:
- Summary of expenses
- Status report of accomplishment evidenced by pictures.
- Validity verification of the interim documents must be done by the NGO/PO’s GO internal auditor or equivalent official.
- No NGO/PO may receive funds where noncompliance with any provision of the circular or MOA has occurred in any previous undertaking with funds allocated from the GO.
Security for infrastructure; income-generating arrangements
- For infrastructure projects, the NGO/PO must post a performance security upon signing of the MOA in the form of a surety bond callable on demand issued by the Government Service Insurance System (GSIS) or an insurance company accredited by the Insurance Commission.
- The performance security must be equivalent to 30% of the total funds to be granted.
- If the project is not completed within 90 days after the prescribed completion date due to the NGO/PO’s fault, the bond is forfeited in favor of the GO by filing a claim with GSIS or the bonding company.
- Supplemental MOA for extended prosecution may be executed, but its terms must not be contrary to provisions of the original MOA.
- For income-generating projects undertaken by the NGO/PO (e.g., foundation/charter anniversaries/festival celebrations) where participating traders pay rents/fees directly to the NGO/PO and sponsoring companies remit solicitations directly to the NGO/PO, the MOA must stipulate:
- Sharing of income and expenses between the NGO/PO and GO, and
- Reporting procedures.
Accounting, records, reporting, and documentation
- The recipient NGO/PO must keep and maintain financial and accounting records of granted funds in accordance with Philippine Accounting Standards.
- The NGO/PO must submit required financial reports to the GO as agreed in the MOA and must make available all records and documents, including disbursement vouchers, to COA Auditors.
- The GO must keep and maintain financial and accounting records of funds granted to the NGO/PO in accordance with Philippine Financial Reporting Standards (PFRS).
- The GO’s accounting entries are prescribed in a separate circular to be issued by the GAFMIS Sector of COA in accordance with Government Accounting Standards (GAS).
- The GO’s signing officials for the MOA must cause close monitoring and inspection of project implementation and verification of financial records/reports and must ensure compliance with the MOA and circular.
- Within sixty (60) days after project completion, the NGO/PO must submit the final Fund Utilization Report certified by its Accountant and approved by its President/Chairman to the GO, together with:
- An inspection report and certificate of project completion issued by the GO authorized representative
- A list of beneficiaries with their acceptance/acknowledgement of the project/funds/goods/services rendered.
- Validity of these documents must be verified by the GO’s internal auditor or equivalent official and these documents serve as the basis of the GO in recording the fund utilization in its books of accounts.
- The final documents must support the liquidation of funds granted to the NGO/PO.
Funding limitations and permitted uses
- No portion of the funds shall be released before the signing of the MOA.
- Checks issued by the GO covering release of funds to the NGO/PO must be crossed for deposit to the NGO/PO’s savings or current accounts.
- No portion of the funds granted to the NGO/PO may be used for:
- Money market placement, time deposit, or other forms of investments
- Cash advances of any NGO/PO official unless related to implementation of the project
- Payment of salaries, honoraria, or any form of allowances of personnel of the GO or NGO/PO not connected with the project
- Purchase of supplies, materials, equipment, and motor vehicles of the GO
- Acquisition of NGO/PO assets unless necessary for prosecution of the project and specifically stipulated in the MOA.
COA audit role and audit consequences
- COA shall audit the grant and utilization of the funds.
- The Supervising Auditor/Audit Team Leader (SA/ATL) of the GO that released funds, or a team authorized under an approved office order, shall undertake the audit.
- The audit must include:
- Ascertaining the GO’s compliance with accreditation, awarding, and monitoring procedures
- Ascertaining GO compliance with provisions of the circular
- Ascertaining compliance by both GO and NGO/PO with the MOA
- Ascertaining economy, efficiency, and effectiveness of fund utilization
- Validating receipt of benefits (services, goods, or funds) by intended beneficiaries
- When funds are released from one GO to another GO to the NGO/PO, the SA/ATL of the original-source GO must confirm receipt through the SA/ATL of the recipient GO.
- Based on audit results, the SA/ATL/audit team must issue an Audit Observation Memorandum and a Notice of Suspension/Disallowance/Charge to concerned parties.
- Audit results for financial, VFM, or compliance audit must be included in the appropriate report (Annual Audit Report, VFM) if warranted.
Sanctions, repeal, and implementation effect
- Enforcement of remedies for violations of any provision of the guidelines may be imposed/charged through existing laws, rules and regulations applicable for violation by any party.
- The entities that impose/charge remedies include the GO, COA, or any aggrieved/interested party.
- The circular supersedes COA Circular No. 96-003 dated February 27, 1996.
- All other issuances inconsistent with the circular are repealed or modified accordingly.