The problem with cash: It leaks
A recent news story about Makati City’s cash payroll system caused an uproar on social media. To be honest, I'm not sure why anybody would be shocked. I suspect the practice is not all that uncommon among local government units (LGUs) and other government offices.
The Philippines is not as poor as people think, but the widespread use of cash contributes to its inability to operate effectively. Cash is impossible to track, expensive to handle, and very easy to steal. In simpler terms, cash leaks.
Government makes many payments in cash, often in large amounts. Supplies are purchased, bills are paid, and disbursements are made in envelopes, bags, and briefcases. There is simply no way to track that cash as it moves from one person to another. In some cases, it may not be possible to verify that it was even spent at all. The further down we go on the government ladder, the more common this becomes.
Government also accepts cash for a variety of purposes, including tax and customs payments, fees for services, and fines and penalties for violations.
Despite receipts and documentation, when a payment is made in cash, only two people know how much money actually changed hands – the citizen who made the payment and the government employee who received it. Even with an audit, it's difficult to verify that the amount declared on the receipt is the amount actually paid.
The use of cash invites corruption and defeats accountability measures. And because of that, a significant portion of taxpayer money "leaks" into the pockets of crooked government officials.
The easiest way to plug the cash leak is simply to prohibit the use of cash for any transaction, paid or received, by all government offices at all levels. This simple act would improve the country's fiscal health almost overnight, instantly making more money available for the important things like health services.
Let's look at how to do this step-by-step.
With a few exceptions in remote areas, there is no justifiable reason to pay a government employee in cash. Every bank in the country offers a payroll account service. It's standard practice in the private sector, and should be standard practice in government as well. The only downside is to those who want to steal government money.
Government employees in places not serviced by an easily accessible bank might be an exception, but this should be strictly managed.
Other government spending
All government agencies, down to the local level, are already required to maintain their funds in a government-owned bank. The next step is to prohibit cash withdrawals altogether.
Except for small petty cash purchases, every government disbursement should be made with an official government check, stamped "For Deposit Only." Making a government check "pay to cash" should be specifically prohibited. This adds another check-and-balance layer, making it possible to follow government funds all the way into a particular bank account.
The no-cash rule should be required all the way down to the barangay level in all parts of the country. Every LGU can easily open an official checking account.
There are already laws requiring the use of checks, but they are filled with loopholes and exceptions, which aren't really there to make disbursements more efficient. Loopholes exist to make it easier for someone to steal money. Why don't we just cut out the loopholes and make checks mandatory across the board?
A recent news report highlights just how easily cash can be diverted, and how cashless operations would help reduce that kind of corruption.
After supporting the January 2015 papal visit, several police officers reported that they didn't receive their full authorized food allowance. Instead of the P2400 they were expecting, they reportedly received two cash payments of P200 and P700.
It seems clear that funds were downloaded electronically to a certain level, with the intent that it be distributed as cash to the final recipients. This is where good fiscal practice breaks down.
If government has the ability to download money to one account, it can certainly send it the last mile to the intended recipients' accounts. Changing this procedure, and stopping the leak, requires nothing more than a decision.
Collecting payments and fees
As already mentioned, a large part of the cash collected by government never makes it into government coffers. The simple solution, again, is to just stop accepting cash altogether, or at least to stop accepting it directly. This is actually easier than it sounds, and can be done in a way that works for everyone, including customers who don't have checking accounts.
First, it's in government's interest to actively encourage payment by check, credit card, or debit card whenever possible. These payments go directly into an agency's official bank account and are almost impossible to divert.
And second, I have a recommendation that some might consider a bit radical – eliminate in-house cashiers in government agencies and replace them with bank tellers.
In any government office that collects enough money to justify a cashier counter, a regular government-owned bank would probably be willing to operate that counter. This idea has several benefits. First, the agency or office would immediately reduce its operating cost. Handling money costs money, which requires a taxpayer-funded budget. But a bank would do it for free. Unlike government agencies, banks actually make money by handling money.
And more importantly, making payments directly through a bank teller ensures that collections are deposited straight into the agency's official bank account, with no delay and no possibility of being diverted.
In terms of reducing operating costs and as an effective anti-corruption strategy, replacing in-house cashier operations with bank tellers would be a win-win situation for everyone – except, of course, for corrupt government employees.
Tax and customs payments
Paying taxes by bank deposit or check is already an option in the Philippines, so let's just take it one step further and make it mandatory. Take cash out of the equation altogether.
All customs payments should be made exclusively by check. Even bank transfers should be prohibited. Apparently, canceling a bank transfer after it has been reported to the Bureau of Customs is the latest way to swindle government.
And as with other government agencies, Bureau of Internal Revenue and Bureau of Customs cashier counters should be operated by government banks rather than in-house. Again, the only people inconvenienced would be the crooks.
Prohibiting the use of cash would guarantee a reduction in the theft of public money almost overnight. Corruption would certainly still exist, and connivance between citizens and crooked officials would still happen, but would be much harder to get away with, because cashless operations would make it much harder for corrupt officials to get their hands on the money.
Governments around the world do radical things all the time. They prohibit smoking, change currencies, and even switch from driving on one side of the road to driving on the other. Imposing a national no-cash policy would be much easier, and would benefit everyone in the country faster, than any of those. It's just good business. – Rappler.com
Michael Brown is a retired member of the US Air Force, and has lived over 16 years in the Philippines. He writes on English, traffic management, law enforcement, and government. Follow him on Twitter at @M_i_c_h_a_e_l