‘POOR FISCAL MANAGEMENT’

Defensor admin spent P36.735 M in loan interest payments in 3 years despite available cash

THE Iloilo provincial government finally terminated its P300-million loan with the Land Bank of the Philippines (LBP) this year after the Commission on Audit (COA) repeatedly called out the administration of Gov. Arthur Defensor Sr. for “poor fiscal management.”

In fact, the provincial government squandered P36,735,299.01 for interest payments from 2015 to 2017, despite floating in cash amounting to hundreds of thousands of pesos that were left idle in time deposits.

As a background, the loan was authorized by Provincial Ordinance No. 2013-098 Series of 2013 through Sangguniang Panlalawigan Resolution No. 2013-071 in the implementation of the Hospital Enhancement Program. It is a sub-loan under the Omnibus Term Loan Agreement (OTLA) between the provincial government and LBP.

The OTLA was meant for financing the preparation of feasibility studies and detailed engineering design and infrastructure projects (hospitals buildings, school buildings, public markets, farm to market roads, bridges, irrigation system, etc.).

The provincial government reasoned that the loan was necessary because it has insufficient funds for the improvement of 12 provincial and district hospitals which were converted in economic enterprises by the Defensor administration.

But in its 2015 Annual Audit Report on the Capitol, COA pointed out that the provincial government was already floating in enough cash in a period of three years – P238,156,704.85 in 2013; 373,950,511.41 in 2014; and 689,490,889.58 in 2015.

The 2015 audit report also pointed out that the Capitol incurred P9,959,872.81 in Documentary Stamp Tax and Interest Expenses as a result of the loan drawdown amounting to P154,513,906.20 as of December 31, 2015.

COA said the Defensor administration could have avoided the expenses had it re-appropriated/re-aligned the available and idle cash, instead of availing the P300-million loan from LBP.

The audit agency also noted that a huge amount of the capitol’s idle cash was placed on time deposit.

“As of December 2015, Cash in Time Deposit has a balance of P1,199,958,040.86, earning an average of 1% interest on a 30-day term (balances are rolled-over upon maturity) and subject to 20% percentage tax. Major portion of these time deposits remained idle and unutilized since 2010, thus, if only financial analysis was made, and re-appropriation/re-alignment of cash was availed of instead of incurring the loan, documentary stamp tax and interest expense could have been avoided,” the audit report indicated.

As early as 2015, COA recommended the pre-termination of the LBP loan considering that the Capitol’s available cash “is more than enough to settle the loan balance.”

“Also, 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,” the report added.

JUSTIFICATION     

The Capitol justified that while it is true that the cash positions of the Provincial Government had improved in 2013 to 2015, “the contract of loan had already been validly perfected and the obligations arising therefrom have the force of law between the contracting parties and should be complied in good faith.”

“Moreover, the obligation is for a period of ten years, and presumed to have been established for the benefit of both the creditor and debtor. The Provincial Government cannot prematurely pay the entire loan and neither can the creditor demand full payment thereof before the expiration of the period,” the Capitol said as indicated in the 2015 audit report.

But COA said the Capitol’s claim that it cannot prematurely pay the entire loan nor can the creditor demand full payment thereof before the expiration of the period is unfounded.

“Nothing in the Omnibus Term Loan Agreement, provides that pre-termination of the loan and the fixing of its term cannot be made. What is provided in the agreement is the maximum term of loan payment and the prepayment fees of 3% in case of loan take-out by other banks. Thus, the IPG can pre-terminate the loan agreement and pay the total amount of loan drawdown to avoid further incurrence of Documentary Stamp and Interest Expense.

Likewise, the 3% prepayment fees cannot be charged to the IPG for it will be the one to take-out the loan and not the other banks.”

2016 REPORT

COA again raised the issue in its 2016 and 2017 annual audit reports.

According to the 2016 report, the capitol kept on drawing on money from the LBP loan incurring a total interest expense of P12,217,111.77.

Again, the audit agency said such expense could have been avoided had the Defensor administration heeded its recommendation to terminate and settled the loan given that it was awash with cash already.

COA’s comparison of the available cash versus total liabilities and other continuing appropriations, disclosed that there is sufficient cash amounting to P462,518,067.72 to settle the existing Loans Payable and to finance the hospital enhancement project.

The analysis of cash and cash equivalent account of Capitol also 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, P500,000,000.00 was placed, from the General Fund (GF)-Cash in Bank-Local Currency Current Account (LCCA), to Time Deposit.

But COA found out that there was no SP resolution authorizing such transfer of funds to time deposit.

“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,’ hence deemed irregular.”

Even if the Capitol argues that it is earning much from the interest on its time deposit (1% on a 30-day term ) against loan interest payment (5.5% per annum), COA said such is not a valid excuse.

“For the primary mandate of the LGU is to implement Program/Activities/Projects (PPAs) for the general welfare of its constituents and not to invest funds in a money market,” the 2016 COA audit report said.

2017 REPORT

COA’s recommendation that the Capitol must terminate its loan and put its idle cash to good use was unheeded in 2017.

In fact, last year’s audit report indicated that the Defensor administration paid another P15,147,762.16 in interest payment for the P300-million loan.

COA again cited that the Capitol was floating in “P489,482,150.83 free cash as of December 31, 2017,” which is more than enough to cover the P300-million loan.

However, instead of using this free cash to pay off the obligation, the IPG (Iloilo Provincial Government) 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. Had the IPG adhered the audit recommendation to settle and pre-terminate the OTLF (Omnibus Term Loan Facility ) 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 reminded the Capitol 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 PPAs (Program/Activities/Projects),” the COA report added.

SOURCE: The Daily Guardian