POSTSCRIPT / July 15, 2003 / Tuesday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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Garcia programs can save P100B for gov’t

FUND SHORTAGE: Bataan Rep. Enrique T. Garcia Jr., an accountant, has a simple yet effective way (we think) for government to raise or save much-needed revenue — something like P100 billion a year! — without having to impose new taxes.

The budget deficit last year was P213 billion. This year, with a national budget that is likely to hit the trillion-peso mark, the budget deficit is projected at P230 million.

Everything in our system — livelihood, industry, education, public health, defense, etc. — depends on money, lots of it. However grandiose the government’s development plans are, they remain mere Powerpoint files if there are no enabling funds.

The chronic deficits and the growing requirements of a burgeoning population (82 million as of last census) continue to test the mettle of our economist-president.

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FUND HIJACKING: For the last 25 years, we have been losing about P50 billion each year from the hijacking of big payments to the customs and the internal revenue bureaus, the major earners of government that have been hustling to meet ever-rising targets.

To imagine the magnitude of the problem, consider that in one case alone, several checks amounting to P500 million deposited in a small bank in Binangonan, Rizal, were hijacked by a syndicate operating on the banking system’s electronic highway.

The diversion is so easy to carry out, as we’ll show you shortly. With 5,300 bank branches all over the country, you can imagine how many times this diversion takes place and how many billions are lost to syndicates conniving with bank and possibly government officials.

In a recent case, a P600-million Petron check payable to the customs bureau and deposited in Bataan was lost to a syndicate using the same modus operandi. In a bank in Quezon City, tax check payments worth P200-million were similarly waylaid.

Garcia places the yearly loot conservatively at P50 billion. That’s not petty cash, especially for a government hounded by ballooning deficits and deteriorating essential services.

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MODUS OPERANDI: We will show you first how the white-collar crime is carried out, then show you how Garcia proposes to prevent it. You then judge if his idea would work. The 1-2-3 operation goes this way:

  1. A syndicate intercepts a big (in the millions) check payment to the BIR or the customs bureau.
  2. The gang strikes a deal with a bank official(s), who helps open a fictitious account using a third-party check bearing an amount exactly like that one on the stolen check.
  3. The bank official replaces the third party check (which is discarded) with the stolen check. The stolen check is presented for clearing. The drawee bank (where the money will be drawn or taken) clears the check and the money goes to the fictitious account in the presenting bank.

The syndicate withdraws the money from the fictitious account before the crime is discovered. All those involved are given their shares of the loot.

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INADEQUATE S.O.P.: Check switching is easy to do, because in clearing checks, the drawee bank merely verifies the physical integrity of the check, the authenticity of the signature(s), and the sufficiency of funds.

The drawee bank does not take steps to ensure that the money is given only to the payee indicated on the check. That is a task for the presenting bank, but the presenting bank will not do that since a key personnel there is a party to the crime.

If the dastardly deed is found out much later, there could be a coverup, the extent of which depends on who else are involved. Note that some banks want to keep such a scandal hush-hush as it shows them up as vulnerable, if not negligent.

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3-DIGIT ADDITION: At the bottom of every check, there is a long line of printed numbers called the Magnetic Ink Character Recording (MICR) indicating among other things the bank branch, account number and check number.

At the end of that line of numbers, there are three unused places for three digits. Garcia suggests that the three places be devoted for number codes for the BIR and Customs — like 888 for BIR and 999 for Customs — that the presenting bank will be required to type or encode at the tailend of the MICR.

Checks payable to the BIR and Customs are thus marked and easily segregated. All parties are then able to make sure the payment is delivered to the national treasury for the intended beneficiary agencies.

The drawee bank is able to ascertain that the funds are already earmarked for the BIR or Customs and that such information has also been stamped at the back of the check by the PCHC. (This special handling is only for check payments to BIR and Customs.)

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OFFICIALS HESITANT?: As an added precaution, at the end of the day the PCHC can provide the main offices of presenting banks a list of all BIR/Customs checks collected by their branches. The entries can be cross-checked with the reports of the branches.

The addition of three digits to the MICR line is a simple and inexpensive clerical task, but will save the government an estimated P50 billion a year in prevented diversion of tax and duty payments.

We understand that this proposal was presented last year yet to the finance secretary and the Central Bank governor, among other officials having to do with finance/banking. The feedback we got was that, for some reasons, they have been hesitant to adopt the idea.

We understand private bankers’ being leery of too much state regulation, but we wonder why government officials would hesitate to adopt measures that could prevent check switching.

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M.I.S. INNOVATION: Coming up with solutions aimed at optimizing efficiency and preventing diversion of public funds is not something new to Garcia.

He has devised an inexpensive Management Information System (MIS) for the BIR and Customs that collects, organizes and analyzes data to enable these offices to maximize their collection of taxes and duties and to safeguard funds.

Earlier, the BIR spent over P5 billion, contracting a foreign group, to do something like that, but our information is that the project was a flop.

One innovation of the Garcia program is the automatic crediting to the national treasury, after an agreed float of some days, of taxes and duties collected through the banks. (The float enables the banks to make a little money from the service.)

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DEMAND DEPOSITS: Such collections used to be treated as payables, something like liabilities (utang) of the banks to the government. Delays in their remittance to the national treasury and actual losses (unremitted collections) were not uncommon.

Garcia’s system changed the nature of the funds from payables to demand deposits. As such, they are immediately credited to the account of the government, which can claim or collect them electronically anytime after the agreed float.

The government knows at any time how much is collected each day and is thus able to minimize the possibility of mishandling of funds.

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(First published in the Philippine STAR of July 15, 2003)

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