Cashless Operations: An Anti-Corruption Strategy

Government collects money for a variety of purposes, including tax and customs payments, fees for services, and fines and penalties for various violations. In reality though, a very large part of that money never makes it to the National Treasury. Sometimes the amount received is intentionally misdeclared, while in other cases money collected by a government official is not reported at all. In addition, money that is not part of the official payment is often given to expedite the service, bypass red tape, or to reduce the total amount owed. This "under the table" payment, of course, goes straight into the collector's pocket.

Many of these payments to government are made in cash. But despite official receipts and documentation, only two people really know how much was actually collected -- the citizen who made the payment and the government employee who received it. Even with an audit, it is difficult to verify that the amount declared on the receipt is the amount which actually changed hands. If a citizen pays the tax-collector a 30,000 peso bribe to reduce his overall income tax by 70,000, it will most likely not be discovered. If a traffic violator pays 200 pesos to a policeman to avoid a 2,000 peso fine, it will definitely not be discovered. This situation exists because payments are made in cash, and because that cash is given directly to individual government employees.

Government also makes many payments in cash, often in very large amounts. Supplies are purchased, bills are paid, and disbursements are made with cash in envelopes, bags, and briefcases. There is simply no way to track that cash as it moves from one person to another, and 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. The widespread use of cash for government transactions openly invites corruption, and effectively defeats any accountability measures that government could impose. It is therefore critical that we take government offices out of the business of handling cash. The best way to do that is simply to prohibit the use of cash for any government transaction, paid or received.

As an example, take a look at the visa offices at some foreign embassies in Manila. Before their appointment, visa applicants are advised to visit any local bank and pay a fixed amount to a specified account. The bank doesn't need any special forms or equipment to do this. It just takes a straight forward deposit. The applicant then brings the deposit slip to the Embassy and presents it as proof that payment was made. There is no question about how much was paid, and it is not possible for anyone at the embassy to divert the funds. It is still possible for bribery or extortion to occur, but it is now much easier to detect and control. Most payments to government could easily be handled the same way.

Along with direct bank deposits, checks are another form of cashless transaction that can prevent corruption, if they are properly controlled. Checks have a built-in tracking system that can almost guarantee accountability. Every check must be made payable to an official government office, at the highest level possible. For example, a check to pay for a fire safety seminar should be written to the Bureau of Fire Protection rather than to the local Fire Marshal. Payment for a building permit should be made out to the "City of..." rather than to the City Engineer. Documentation prepared by the office that performed the service will record the fact that the fee was paid for a service it provided. Funds can then flow back down from the Treasury, if necessary, to the responsible office. The idea is to send each payment straight to the National Treasury before anyone has a chance to divert it. Absolutely no checks paid to government may be made out in the name or title of an individual. All checks issued to government must be "For Deposit Only" even if they are not marked as such. Encashing a check written to any government office must become a criminal offense, for which both the check-holder and the bank can be held liable. Banks can easily enforce these procedures.

Even the more complicated fees, which require computation and adjustment, can be calculated by the appropriate office and then paid at the bank or by check (again made out to the government rather than to an individual). The important thing is to separate the one who computes the fee from the one who collects it.

Paying taxes by bank deposit or by check is already an option in the Philippines, so let's just take it one step further and make it mandatory. Just compute the tax owed, the same way you do now, and then march off to any local bank to make the deposit. Then attach a copy of the deposit slip to your Income Tax Return. The only people inconvenienced will be the cheaters. And every citizen can be guaranteed that not one peso of his payment will ever find its way into a tax collector's pocket.

This will not prevent connivance between the tax collector and the taxpayer to reduce the amount owed, but it will guarantee that all official payments are deposited entirely into the Treasury. Other measures, which I will discuss later, will address the connivance issue.

Now let's look at payments made by government offices. Except for small petty-cash purchases, every one of those payments must also be issued in the form of a check. Government checks must always be made payable to a person or company by name, never "Pay to Cash". Payment to a company must always be endorsed to the name of the company, never to an individual. All government-issued checks must also be "For Deposit Only". This adds one more check-and-balance layer to the process, making it possible to trace the disbursement of government funds all the way into a registered bank account. The No Cash rule must be required all the way down to the Barangay level. And it must apply in all parts of the country. Every Barangay can open an official checking account. The banks will be more than happy to assist.

The Armed Forces must also implement the No Cash policy across the board, with the possible exception of units in the field. In this case, "in the field" means in areas where no banking facilities exist, and there are actually very few of those areas in the country. Every military post has access to a bank through which it can conduct its financial business. And except in the remote jungle, everyone that the military does business with can deposit a government check with very little difficulty. For salary payments, mandatory direct-deposit payroll accounts must be set up when a soldier enlists, eliminating the need for risky payroll shipments. Soldiers can get their money easily through any Automated Teller Machine in the country. There is no justifiable reason why the AFP cannot conduct almost all of its business by check and bank deposit.

Adopting these measures will not only slash corruption and theft, they will also greatly improve the public's confidence in government, and soon after, the confidence of foreign investors. That value alone will make it worth the effort.

Imposing the No Cash rule on government operations is a simple thing. Much more complicated, but just as necessary, will be to encourage the private sector to adopt the same policy. Compliance would have to be voluntary, but it should not be difficult to convince private companies once they have seen the benefits as demonstrated by government's example.

Corruption-proofing

Prohibiting the use of cash, and requiring all government transactions to be made by bank deposit or check will guarantee a dramatic reduction in the theft of government money almost overnight. Corruption will certainly still exist, but it will be much, much harder to get away with it, because it will be much harder for corrupt officials to physically get their hands on the money.

With cashless operations, there is simply no opportunity for money to be diverted. At the very least, there will be a traceable record of every check and every bank deposit. Transactions that are documented in bank records are transactions that can be taxed.

In addition to the direct benefits, cashless transactions will keep more hard currency in the banks, strengthening the nations banking system. It is a win-win situation. This is a perfect example of the way that a solution to one problem can contribute to the solution to another.