Diversion of Funds

Blank officials receipts that are stolen, lost or faked are potential sources of funds for the embezzler.

Modus Operandi

Many private and public companies lose a substantial amount of money by not safeguarding their unused official receipt booklets. Potential embezzlers like blank official receipts to be carelessly laid around where they can be stolen and used fraudulently.

A car company had been defrauded of P17 million when its tax payment to the Bureau of Internal Revenue through a commercial bank, authorized to receive payment of taxes, was deposited in another account (not that of the BIR) with the use of genuine but stolen official receipt. The original check of the car company payable to the BIR Commissioner was exchanged with another check of the same amount but in the name of a certain bank official for deposit to his account. The fake check was subsequently retrieved from the batch and replaced with the genuine check before it was sent to the clearing house. As soon as the car company's check was cleared, the bank official withdrew the deposit and shared it with his conspirators. The car company was confident that its payment was in order not knowing that its copy of the receipt would not be honored by the BIR since it was stolen and the money was not received by the BIR. Accessories to the crime were a trucking president, a former BIR official and certain employees of the taxpaying company and the bank. The bank official, however escaped to the United States to avoid prosecution.

Another banker fled to the United States after diverting P37 million tax payments in favor of the BIR to his personal account. The amount was covered by eighteen checks issued by an oil company for a period of one year in payment of specific taxes on its oil products. All the checks were not deposited in the account of the BIR but were channeled into certain bank accounts and subsequently withdrawn after the checks had been cleared. The oil company did get a receipt of the payment but it was fake. A top-level officer of the bank was a close relative of the erring banker and this of course emboldened his wrongdoing.

Detection and Prevention

The irregularities were discovered when the BIR regional offices noticed the non-payment of the taxes by the companies concerned. The taxpayers had actually paid their taxes but they could not prove so because their copies of the BIR official receipts were either stolen or faked and the money was not received by the BIR.

Diversion of funds through the use of spurious receipts can be prevented by strictly safeguarding blank or unused official receipt booklets from theft or duplication. They should be kept in a fire-proof safe and inventoried periodically by internal auditor. The accounting office should account for and control continuously the consecutive numbers of the un-issued and issued official receipts so that any receipts that has been stolen or faked can be easily detected. Checks payable to the BIR should be cross-checks for deposit only to the account of the payee. The internal auditor of the payer should scrutinize carefully the endorsement at the back of each check that has been cleared and paid by the drawee bank. Any unauthorized endorsement should be investigated promptly. And for security, substantial payment of taxes amounting to P1 million or more should be made directly at the main office of the BIR.

Another preventive measure is by requiring the bank authorized to receive tax payments to issue a debit memo against the current account of the taxpayer and the corresponding credit memo in favor of the BIR when the tax payment is P20 thousand or more. his method eliminates the use of a taxpayer's check and fake or stolen BIR receipts.

Commercial banks are good collection agents BIR. But there are weaknesses in the procedures. For instance, the collection report of the bank goes first to the Central Bank, then to the National Treasury, before it is transmitted to the BIR. It takes a long time before the BIR finds out how much its collection is. To correct this, the collecting bank should furnish the BIR a copy of the collection report at the same time the original copy is sent to the Central Bank so that the BIR can monitor promptly its fund in the hands of the bank. Also, the BIR can have a better control of the bank's tax collections if the bank issues provisional receipts and the BIR issues its official receipt only upon receipt of the money. Frequent surprise audits of the BIR accounts are highly desirable to forestall any diversion of funds.

To preclude cover-ups, employment of close relatives especially in financial in financial institutions should be strictly banned. Extradition treaties with other countries particularly the United States will likewise prove effective deterents to embezzlers who think of taking refuge abroad after absconding somebody's money.

An important internal control requirement that should be strictly complied with is the periodic rotation of bank managers and officials to prevent fraternization and possible collusion with taxpayers and BIR personnel. For the protection of the taxpayers, any stolen or lost unused official receipts should be invalidated and announced to the public through the newspapers.