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Clear definition of expenses

When a company’s bottom line fails to meet management’s expectations, the first item in the corporate books that is usually looked into is expenses.

Are the company’s resources being used properly to meet its objectives? What controls are in place to make sure corporate funds are wisely spent? Are those rules consistently and firmly applied within the company?

Businesses that cannot seem to put a handle on their expenses, or find difficulty figuring out what expenses should be allowed, trimmed or disallowed to improve their financial position, can learn something from the latest issuance of the Commission on Audit.

The COA, the agency with whom most government offices and government-owned and -controlled corporations have a love-hate relationship, recently issued Circular No. 2012-003, or the Updated Guidelines for the Prevention and Disallowance of Irregular, Unnecessary, Excessive, Extravagant and Unconscionable Expenditures.

The circular applies earlier decisions of the Supreme Court and Sandiganbayan on the evaluation of expenses incurred by government offices and, where justified, disallowed.

Although applicable only to the government bureaucracy, the circular contains information that private corporations can use to guide them in managing their expenses.


To minimize possible (and expected) questions in the appreciation of the kinds of expenditures mentioned, the circular enumerates, by way of annexes, the specific acts covered by their definition.

For purposes of this article, since the listing in the annexes is lengthy and mostly peculiar to government offices, only those acts that private businesses can relate to or has a familiar ring will be cited by way of example.

An expenditure is irregular if it is “incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in laws.”

The distinguishing feature of this expense is its failure to comply with procedural requirements or established modes of conduct that govern the activity or items subject of the expenditure.

Examples of irregular expenditures are giving loyalty service awards to employees who have not yet rendered the minimum 10 years of service and payment of attorney’s fees to regular employees.

If the failure to comply with existing procedures also constitutes a violation of law, it is considered an illegal expenditure.

This kind of expenditure, to which private business is no stranger, includes delivery of equipment that do not conform to the agreed specifications and the use of government funds and resources for personal purposes.


An expenditure is unnecessary if it cannot “pass the test of prudence or the diligence of a good father of a family, thereby denoting non-responsiveness to the exigencies of the service.”

In simple terms, it is an expense that could have been avoided or dispensed with without adversely affecting the ability of the government office to accomplish its duties and responsibilities.

This kind of expenditure includes the purchase of high end or expensive models of electronic gadgets, such as laptops and cellular telephones, unless justified by the circumstances; and the grant of overtime pay for work that is not urgent.

Sounds familiar. Thanks to aggressive advertising, for some white collar employees, it is not enough that smart phones and computer devices can perform the task for which they were purchased, they have to be state-of-the-art (and expensive) even if their add-ons are merely cosmetic.

Excessive expenditures, on the other hand, are “unreasonable expense or expenses incurred at an immodest quantity and exorbitant price. It also includes expenses which exceed what is usual or proper, as well as expenses which are unreasonably high and beyond just measure or amount.”

Illustrative of this kind of expenditure are the grant of cash advance in excess of the estimated expense budget and procurement of materials beyond actual requirements which eventually expire in quality, such as, vaccines, medicine and seeds.


In terms of length of definition, extravagant expenditures beat them all. It’s defined as those incurred without restraint, judiciousness and economy; exceed the bounds of propriety; and are immoderate, prodigal, lavish, luxurious, grossly excessive and injudicious.

Whew! The only word left out in the description was Imeldific.

In this category belongs the purchase of expensive decorative lamp posts or figurines, and the acquisition of expensive furnishings unless for showcase purposes or promotion of arts and culture.

Finally, unconscionable expenditures refer to “expenditures which are unreasonable and immoderate, and which no man in his right sense would make, nor a fair and honest man would accept as reasonable, and those incurred in violation of ethical and moral standards.”

The following expenditures fall within this definition: extension of loans in significant and unreasonable amounts to borrowers who do not have the capacity to repay them, and overpricing of materials that exceed 100 percent of their current market value. In street language, the latter act goes by the name tongpats.

The COA circular is exhaustive, realistic and borne out of experience. But the proof of the pudding is in its enforcement. Hopefully, it will not just form part of the reams of rules and regulations that are routinely issued by government offices but are hardly, if at all, implemented.

For comments, please send your e-mail to rpalabrica@inquirer.com.ph.

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Tags: Business , column , corporate expenses , raul j. palabrica jr.

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