MANILA, Philippines — All you have are hazy shots of fin and tail taken from a wobbly banca, some from your last trip to Donsol and some this year.  You’re not even 100% sure it’s the same fish.  And you’re supposed to estimate how the butanding has grown?

Our lawmaker-judges now hearing impeachment charges are similarly challenged.  They are in  the process of weighing alleged hidden wealth accumulation based on SALN (Statement of Assets, Liabilities and Net Worth) and ITR (Income Tax Return).

Accountants routinely do the same thing, but with complete information.  From a company’s (or individual’s) Balance Sheets as of two dates and Income Statement for the period in between, they explain where the money came from during the period, how it was used and how much is left at the end.

Identical territories are covered by SALN/Balance Sheet (assets, liabilities and net worth) and ITR/Income Statement (income and expenses).  However, hidden wealth obviously won’t appear in a SALN.  Assets could be in someone else’s name—relative, trusted friend, local or overseas corporation.  They could be reported at some ridiculously low cost, thereby easing explanations or maybe inadvertently hinting at some sweetheart deal with the seller.  Diamonds, Rolex watches, Hermès bags, Amorsolos probably won’t be listed.  Liabilities could be blown up.

An ITR does not disclose all receipts and payments.  Special rates and procedures apply on stock market investments, real estate sales, bank deposits, government bonds, interest income, so they don’t appear in ITRs.  Inheritance and gifts received are taxed separately.  Some contributions are not fully tax-deductible.  As long as tax take is unaffected, the BIR does not care how much you spend on household expenses, Concordia cruises, Greenbelt 5 shopping sprees, African safaris, number twos and threes, and substances or services wholesome or sinful.

Since he is tracing cash flows, a hidden wealth sleuth has to remove non-cash transactions like depreciation and market value appreciation/decline.  The figures have to be consistent—he can’t use the husband’s SALN and a husband-and-wife joint ITR.  A corporation, even if entirely owned by the subject, is a separate entity and our investigator has to limit himself to dealings between the individual and his corporation (advances, new investment, dividends).  He could decide, though, to consider personal and corporate finances as one and do a proper consolidation.

The tough part is getting the additional information and evidence to supplement SALN and ITR figures for items properly and improperly excluded.

The rest is easy.  The analyst simply organizes the data as cash flows arising from:  (a) current activities—receipts and payments connected with work and personal life, (b) investing activities—purchases and sales of “non-cash assets,” and (c) financing activities—new borrowings and debt principal payments.  These should equal the increase in cash balance over the period under study.

Since unexplained poverty is unheard-of nowadays, chances are (a - b + c) would be bigger than increase in cash balance.  The discrepancy would be (voila!) what else but hidden wealth.

Eyeballing butanding is more fun in the Philippines.

Comments are cordially invited, addressed to walalang@mb.com.ph.