In the Philippine public sector, a Revolving Fund is a self-sustaining financial mechanism where receipts derived from specific operations are retained and used for the same purpose, without the need for annual congressional appropriations. Because these funds bypass the standard "one-fund" policy (where all income goes to the National Treasury), they are subject to stringent regulations by the Commission on Audit (COA) and the Department of Budget and Management (DBM).

Strict adherence to Presidential Decree No. 1445 (Government Auditing Code of the Philippines) and the 2023 Revised General Appropriations Act (GAA) is mandatory to prevent the misuse of public funds.

1. Statutory Basis and General Principles

Under Section 65 of P.D. 1445, all income accruing to the agencies of the Government shall be deposited in the National Treasury unless a specific law allows for the creation of a revolving fund.

Authorization: A revolving fund must be expressly authorized by law (e.g., the annual GAA or a specific Republic Act).
Purpose-Driven: Funds must be used exclusively for the operational expenses of the activity that generated the income.
Self-Sufficiency: The fund must be managed such that it covers its own costs. If it ceases to be efficient or its purpose is served, the balance must be reverted to the General Fund.

2. Liquidation Requirements

Liquidation is the process of accounting for the use of funds and proving that the money was spent for its intended legal purpose. Failure to liquidate is a violation of COA Circular No. 97-002 and can lead to administrative or criminal charges.

A. Documentary Evidence

For a liquidation report to be valid, it must be supported by:

Disbursement Vouchers (DV): Duly signed by the head of the agency or authorized representative.
Official Receipts (OR): Or equivalent documents such as Sales Invoices or Reimbursement Expense Receipts (RER) for small amounts.
Summary of Expenses: A categorized list of all expenditures.
Certificate of Inspection and Acceptance: For goods or services procured using the fund.

B. Timelines for Liquidation

The COA establishes strict deadlines for the settlement of cash advances or revolving fund replenishments:

Petty Operating Expenses: Must be liquidated within twenty (20) days after the end of the month.
Official Travel: Within thirty (30) days upon return to the permanent station (local) or sixty (60) days (foreign).
Replenishment: The fund should be replenished as soon as the disbursements reach at least 75% of the total fund amount to ensure continuity of operations.

3. Incident Reports and Accountability

In the context of revolving funds, an Incident Report is a formal document required when there are irregularities, losses, or unforeseen disruptions in fund management.

A. When an Incident Report is Required

Loss of Cash or Property: Per Section 105 of P.D. 1445, any officer accountable for government funds must notify the COA within 30 days of a loss due to fire, theft, or "force majeure."
Discrepancies in Audit: If the physical cash count does not match the ledger, an incident report must explain the variance.
Unauthorized Use: Reporting any instance where funds were diverted to purposes not covered by the fund’s mandate.

B. Legal Effects of Non-Reporting

If an accountable officer fails to file a timely report or cannot justify a loss:

Prima Facie Evidence: Under the Revised Penal Code (Art. 217), the failure of a public officer to have duly forthcoming any public funds or property with which he is chargeable, upon demand by any duly authorized officer, shall be prima facie evidence that he has put such missing funds or property to personal use (Malversation).
Salary Suspension: The COA may order the withholding of the officer's salary until the amount is settled.

4. Internal Control and Audit

Every agency is required to maintain a Report of Disbursements and a Report of Accountability for Accountable Forms.

Key Control Measures:

Separation of Duties: The person handling the cash (Disbursing Officer) must not be the same person recording the transactions (Bookkeeper).
Fidelity Bonding: Any officer whose duties require the possession or custody of government funds must be properly bonded with the Bureau of the Treasury (BTr).
Regular Cash Counts: Unannounced audits by the Resident Auditor to ensure the integrity of the revolving fund.

5. Penalties for Non-Compliance

Violations of the rules governing revolving funds fall under several Philippine laws:

Law	Violation	Penalty
P.D. 1445	Failure to render accounts	Fine, imprisonment, or both
R.A. 3019	Anti-Graft and Corrupt Practices	Dismissal from service, perpetual disqualification from public office
Revised Penal Code	Malversation of Public Funds	Reclusion Temporal to Reclusion Perpetua (depending on the amount)