Defensor ‘ignored’ COA’s counsel

THE administration of Gov. Arthur Defensor Sr. promised reform and change when he returned to the Capitol in 2010.

That promise of reform and change was anchored on transparent and efficient use of government resources, particularly funds meant for basic social services.

But Commission on Audit (COA) reports from 2015 to 2017 paint a different impression of the Defensor administration.

In fact, the audit agency repeatedly advised the current Capitol administration to use public funds wisely only to be rebuffed.

The refusal of the Capitol to heed the counsel of COA is palpable in the case of the P300-million loan from the Land Bank of the Philippines that was spent on Hospital Enhancement Program (HEP) of 12 provincial and district hospitals.

To recall, these hospitals were converted into economic enterprises during the first term of Defensor in 2010.

The initiative to turn the hospitals into economic enterprises was actually a brainchild of the late Gov. Niel Tupas Sr. but Defensor opposed the move and even used it as a campaign issue against the Tupases.

When he assumed office eight years ago, Defensor had a change of heart and pushed through with the Tupas initiative.

Claiming that the Capitol lacked funds to improve and rehabilitated the 12 Capitol-run hospitals, Defensor in 2013 availed a P300-million Omnibus Term Loan Facility (OTLF) from Land Bank.

The loan, which can be likened to a credit line from banks, was payable in 10 years at an interest of 5.5 percent per annum.

LEGAL BUT…

Initially, COA said in its 2013 and 2014 annual audit reports on the Capitol that the OTLF followed legal procedures, particularly the passage of Provincial Ordinance No. 2013-098 Series of 2013 and Sangguniang Panlalawigan Resolution No. 2013-071 which authorized the loan.

Based on the 2013 COA report, the Capitol’s domestic loans totaled P77,197,565.66 (New Provincial Capitol Building loan balance – P60,659,065.66 and Hospital Enhancement Program via the OTLF – P16,538,500)

By 2014, the Capitol’s debts ballooned by P74,737,411.26 from P77,197,565.66 in December 2013 to P151,934,976.92.

At that time, the loan balance for the new Capitol project was reduced to P49,630,144.64 while the HEP swelled to P102,304,832.28 after the Capitol made nine “drawdowns” from the OTLF.

In the 2015 audit report, COA called out the Defensor capitol for incurring almost P10 million in Documentary Stamp Tax and Interest Expenses due to the OTLF drawdown which has ballooned to P154,513,906.20 as of December 31, 2015.

COA said the Capitol could have avoided such expenses if the Iloilo Provincial Government (IPG) “re-appropriated/re-aligned the available and idle cash, instead of availing the 300 million OTLF from the Land Bank of the Philippines.”

The 2015 report also indicated that the Capitol was awash with cash when it started borrowing from Land Bank, which belies Defensor’s claim that Capitol coffers were empty when he assumed office.

Based on the summary of available cash by COA, the Capitol was in possession of P1.338 billion in cash in bank and time deposit between November 22, 2013 and December 28, 2015. At that time, the IPG already borrowed P154,513,906.20 from Land Bank.

Given its cash position, COA said that the Capitol “is financially capable of providing the amount of the loan drawdown, and still maintain sufficient cash to cover liabilities and other obligations for its operations.”

The 2015 audit report also said that “comparison of the available cash versus total liabilities and other continuing appropriations, disclosed that there was still sufficient cash to finance the hospital enhancement project.”

COA also pointed out that Capitol’s cash was not missing but instead sleeping in time deposit which had a balance of P1,199,958,040.86.

The deposit even “earned an average of 1% interest on a 30-day term (balances are rolled-over upon maturity) and subject to 20% percentage tax,” according to the 2015 audit report.

It is also worth noting that a major portion of these time deposits “remained idle and unutilized since 2010,” which happened to be the year that Defensor was elected governor.

COA said that if only the Defensor conducted financial analysis and re-aligned the available cash instead of incurring the loan, “documentary stamp tax and interest expense could have been avoided.”

“Though, the interest expense incurred of 5.5% per annum is lower as opposed to the interest income of 1% on a 30-day term, from the time deposit, the same may not be a valid excuse, for the primary mandate of the local government unit LGU is to implement Programs/Activities/Projects (PAPs) for the general welfare of its constituents and not to invest funds in time deposits. Further, the funds could not be considered idle in view of non-implementation of Development Projects,” the audit report added.

The COA report also noted that Defensor could have pre-terminated the loan since it is provided in the loan agreement subject to certain fees.

“It is also worth mentioning that Section 4, Fees and Other Charges of the Omnibus Term Loan Agreement with the LBP provides that a 3% prepayment fee shall be charged in case of loan take-out by other banks. With this clause, pre-payment of the loan using the available cash in the time deposit account would not entail additional financial charges on the part of the IPG instead, pecuniary savings could be attained.”

In view of the available cash and minimal expenses in prepaying its loans, COA recommended that the Defensor capitol “evaluate and consider pre-terminating its outstanding OTLF with the LBP totaling to P154,513,906.20 as of December 31, 2015, since the IPG’s Cash in Bank – Time Deposit in the General Fund is more than enough to settle the loan balance.”

The audit agency also recommended that “a thorough feasibility study should be conducted by the Local Finance Committee to determine the available cash that could be utilized for the intended projects to avoid incurring expenses which are avoidable by making wise management decision.”

ON DEAF EARS

COA continued to raise the issue of the Defensor capitol’s loan in the next two years, but the latter did not budge.

By 2016, COA again called out the IPG for incurring “avoidable expenses” totaling P12,217,111.77 in the form of Documentary Stamp Tax and Interest Expenses for the Land Bank loan.

The more interesting part is that the Defensor administration kept on borrowing from the P300-million OTLF when it was able to place P500 million in time deposit.

By this time, the Capitol’s loans swelled to P223,098,005.80 (Capitol Building loan balance – P27,572,302.60; Hospital Enhancement Program – P195,525,703.20).

Despite the ballooning debt, COA said the Defensor administration can afford to settle its loan and at the same time finance the hospital enhancement project without running out of cash.

As of December 31, 2016, the Capitol was swimming in P1.907 billion in cash. If the Capitol settles its loans and pursues its budgetary obligations, it will still have 462,518,067.72 left in its coffers.

COA also raised the following observations on the Defensor administration’s peculiar financial management:

• Analysis of cash and cash equivalent account of the IPG showed that P1,711,468,937.30 out of P1,907,588,056.36 or 89.72% is in a time deposit.

• Further review of the transactions revealed that in CY 2016, P500 million was placed, from the General Fund (GF)-Cash in Bank-Local Currency Current Account (LCCA), to Time Deposit.

• Post audit of the voucher evidencing such money placement revealed that there was no provincial board resolution authorizing such transfer of funds to time deposit.

• Request for a copy of the authority from the SP (Sangguniang Panlalawigan) Secretariat was made but they replied through a certification that “per record of their office, no Sangguniang Panlalawigan Resolution has been passed authorizing transfer of funds from Cash in Bank-Current Account to Cash in Bank-Time Deposit Account of the IPG exist.”

• COA deemed the time deposit as irregular since there was no authority from the SP, the transfer is contrary to Section 21 of COA Circular No. 92-382 which provides that “Provinces x xxxx may deposit with duly authorized depository banks idle funds in the GF under time deposit accounts, upon prior authority of the sanggunian and the approval of the chief executive.”

Just like in the 2015 audit report, COA again urged the Defensor administration to use the available cash to settle its loans to avoid interest expense and other incidental costs and at the same time fund the hospital rehabilitation project instead of placing huge amounts of public funds in time deposits.

“Lastly, the IPG should evaluate and monitor the efficiency of each Department in the implementation of its PAPs (Program/Activities/Projects). Possessing a large amount of idle funds is an indication that material amount of PAPs were not timely implemented. Likewise, Management should review the feasibility of the PAPs implementation at present, if the same is still responsive to the needs of its constituents, otherwise reprogramming of funds should be considered.”

By 2017, COA again noted that the Capitol incurred interest expense totaling P15,147,762.16 because of the Land Bank loan for the hospital improvement project.

As of December 2017, the Capitol’s loans for the Hospital Enhancement Program totaled P254,545,990.77.

COA again pointed out that Defensor can afford to settle and stop the loan while funding the hospital project because the Capitol’s available cash was already at P2,329,263,802.87. If we subtract the current liabilities and loans (excluding the Land Bank loan) and other financial obligations of the IPG, the Capitol would still have P489,482,150.83 in free cash, which is more than enough to settle the P300-million loan.

“However, instead of using this free cash to pay off the obligation, the IPG continuously placed large amount of their cash to Time Deposit. As of December 31, 2017, the IPG has a balance of P1,726,245,857.16 in Cash in Bank-Time Deposits,” the 2017 audit report noted.

The report added: “Had the IPG adhered the audit recommendation to settle and pre-terminate the OTLF from the LBP on the initial batches of loan drawdown by utilizing the available cash placed in its Time Deposit Account, it could have saved a total of P36,735,299.01 from interest payments since CY 2015 to CY 2017.”

COA also emphasized that “holding large amount of idle cash does not mean that the IPG is performing well in terms of upholding its mandate.

“In fact, the presence of huge amount of idle cash could be an indication of poor financial management and inefficient and untimely implementation of Programs/Projects/Activities (PPAs). In this regard, Management should review and assess the availability of cash, other sources before availing of credit, loans or financing. Likewise, Management should evaluate the feasibility of the PPAs implementation at present, if the same are still responsive to the needs of its constituents, otherwise reprogramming of funds may be considered.”

SOURCE: The Daily Guardian

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