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COMMISSION ON AUDIT MEMORANDUM NO.

96-005 January 24, 1996


TO

SUBJECT:

Directors, Local Government Audit Office and COA Regional Offices; Auditor,
Metro Manila Development Authority; Provincial/City/Municipal Auditors and All
Others Concerned.
DILG Memorandum Circular No. 95-216, Re: Policies and Guidelines on the
Utilization of the Twenty Percent (20%) Development Fund and Related Matters.

For the information and guidance of all concerned, DILG Memorandum Circular No. 95216, dated December 14, 1995, is quoted in full hereunder:
Republic of the Philippines
DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT
EDSA Corner Reliance St., Mandaluyong City
Metro Manila
MEMORANDUM CIRCULAR
No. 95-216
TO

SUBJECT:

December 14, 1995

ALL PROVINCIAL GOVERNORS, CITY MAYORS, MUNICIPAL MAYORS,


PUNONG BARANGAYS, PRESIDING OFFICERS AND MEMBERS OF
SANGGUNIANG PANLALAWIGAN/ PANLUNGSOD/BAYAN/BARANGAY, DILG
REGIONAL DIRECTORS AND OTHERS CONCERNED
POLICIES AND GUIDELINES ON THE UTILIZATION OF THE TWENTY
PERCENT (20%) DEVELOPMENT FUND AND RELATED MATTERS
II. PREFATORY STATEMENT

Section 287 of Republic Act 7160, otherwise known as the Local Government Code of
1991, requires each local government unit (LGU) to appropriate in the annual budget at least
20% of the Internal Revenue Allotment for development projects. In 1994 alone, an amount of
P9.351 B, representing 20% of the P46.753 B total Internal Revenue Allotment, was supposed
to have been spent by LGUs for various development efforts.
However, the Commission on Audit, in its Report on the Audit of Receipts and Utilization
of Internal Revenue Allotments for CY 1993 and 1994, revealed that a substantial amount of
the 20% Development fund of several LGUs were not actually utilized for development projects
as mandated by law, but were used for unauthorized allowances of local officials and
employees or for other expenses appropriately chargeable against Maintenance and other
Operating Expenses.
While the Local Government Code empowers local authorities to manage their own
internal affairs pursuant to the mandate of local autonomy, LGUs must be equally held
responsible and accountable for their acts of deviating from the expressed provision of law. It
cannot be overemphasized that one of the primary concerns of the national government is to

ensure that public funds, like the 20% Development Fund, shall be spent judiciously and only
for the very purpose or purposes for which such funds are intended.
II. GENERAL POLICIES AND GUIDELINES
In view thereof, and pursuant to Presidential Administrative Order No. 267, series of
1992, the Department of the Interior and Local Government do hereby enjoin all Provinces,
Cities, Municipalities and Barangays to adhere to the following policies and guidelines on the
utilization of the 20% Development Fund.
General Policies
1.

The utilization of the 20% Development Fund shall be limited to viable and
sustainable programs and projects or activities that directly generate jobs and
livelihood opportunities.

2.

The Annual investment Plan (AIP) of each LGU shall clearly specify the programs,
projects or activities that are funded out of the 20% Development Fund.

3.

Any reverted unexpended balance of the 20% Development Fund during the year
shall be reappropriated to finance only those development programs, projects or
activities identified to be funded under the 20% Development Fund for the ensuing
year.

4.

A copy of the AIP shall be furnished the Field Offices of this Department, for
monitoring and other general supervision-related efforts.

5.

Each LGU shall likewise provide a copy of the AIP to the Commission on Audit's
Field Office concerned.

Program, Project and Activity Coverage


Expenditures from out of the 20% Development Fund shall be limited to the following
sectoral programs, projects or activities.
1.

2.

Social Development

Human and Ecological Security Initiatives (1/5 of the 20% DevelopmentFund)

Social Reform Agenda

Kabuhayan 2000

Tourism Development and Promotion

Other Social Development undertakings highly supportive of Job generation


and livelihood opportunities

Economic Development

Seedling nurseries, demonstration farms and animal breeding stations,

including the purchase or rent of implements

3.

Cooperatives development

Livestock dispersal

Fishery development and fish culture farming

Forestry development and conservation

Local investment promotion

Infrastructure Development

Construction, repair or maintenance of post-harvest and similar facilities

Construction, repair or maintenance of irrigation systems and facilities,


including the purchase or rent of equipment

Construction, repair or maintenance of provincial, city, municipal or barangay


roads and bridges

Construction, repair or maintenance of water and sanitation, as well as power


and communication system facilities

Construction, repair and maintenance of public buildings, such as, but not
limited to the following:

Hospitals, health centers, day care centers and similar facilities;

Provincial capitol, city hall, municipal hall and barangay hall;

Public schools; and

Market and slaughterhouse

Development of industrial areas


III. TECHNICAL ASSISTANCE

All Department field officers (PLGOOs, CLGOOs, and MLGOOs) are hereby directed to
provide the necessary technical assistance in the preparation of the AIP as a gesture of
Department's full support to overall efforts aimed at enhancing local capabilities in job
generation and livelihood promotion, among other significant development concerns.
IV. MONITORING AND REPORTING SYSTEM
For the purpose of monitoring effectively the utilization of the 20% Development Fund,
the following guidelines and procedures are herein prescribed:

MLGOOs and CLGOOs of component cities shall monitor the compliance of


municipalities and component cities, respectively, including barangays, call attention
to non-compliance for remedial action(s), and shall submit a report highlighting noncomplying LGUs to the LGOOs concerned not later than the 15th day of the
ensuing month following the end of the semester;

CLGOOs of highly urbanized cities shall monitor the compliance of highly urbanized
cities, including component barangays, call attention to non-compliance for remedial
action(s), and shall submit a report highlighting non-complying LGUs to the
Regional Directors concerned not later than the 15th day of the ensuing month
following the end of the semester;

PLGOOs shall monitor the compliance of provinces, call attention to noncompliance, and shall submit a non-compliance report to include the compilation of
reports from MLGOOs and CLGOOs of component cities, to the Regional Directors
concerned not later than the 30th day of the ensuing month following the end of the
semester;

Regional Directors shall submit a compilation of reports from Department field


offices to OSEC, through the BLGS, not later than the 15th day of the second
month immediately following the end of the semester, copy furnished concerned
Regional Offices of the Commission on Audit; and

The Bureau of Local Government Supervision, this Department, shall compile all
reports from the Regional Offices, and shall submit a final report to the Office of the
Secretary not later than the 15th day of the third month immediately following the
end of the semester, copy furnished the Local Government Audit Office of the
Commission on Audit.
V. SANCTIONS

Any local official who willfully or through negligence violates any of the provisions of this
Memorandum Circular, shall be subject to the sanctions provided under the Local Government
Code of 1991 and under such other applicable laws.
VI. REPEALING CLAUSE
All existing Department policies which are deemed inconsistent herewith are hereby
modified or repealed accordingly.
VII. EFFECTIVITY
This Memorandum Circular shall take effect immediately.
(SGD.) RAFAEL M. ALUNAN III, Secretary"
All concerned are hereby advised accordingly.

(SGD.) CELSO D. GAGAN, Chairman

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