ACO Reports Baguio Placement of Project Funds in Term Deposit

Baguio City Treasurer Alex Cabarrubias said the city government has responded to the COA and will comply with all audit recommendations after the deposits are due.

BAGUIO CITY, Philippines – The Commission on Audit (COA) has flagged the Baguio City government for placing millions of trust funds in high-yield bank deposits, in violation of government financial procedures.

In its 2021 audit report released on April 4, state auditors questioned the city’s decision to deposit 717.55 million pesos in term deposits. The audit team said 97% of funds came from government agencies earmarked for specific projects.

The amount includes 438.75 million pesos from the Department of Information and Communications Technology (DICT), 204.84 million pesos from the Office of the President (OP), 50 million pesos from the Philippine Amusement and Gaming Corporation ( PAGCOR) and 6.28 pesos. million dollars from the National Assistance to LGUs (NALGU).

The city received the amount from DICT and Pagcor in December 2021 and deposited the funds into high yield savings accounts the same month.

Accounting and auditing guidelines, set out in COA Circular No. 92-382 issued July 1992, only allow LGUs to apply idle funds to investments in government securities or term deposits. The publication defined idle funds as those “that exceed normal operating needs.”

Meanwhile, Section 94 of the New Government Accounting System (NGAS) Manual for LGUs prohibits LGUs from changing the use of trust funds earmarked for a specific purpose.

In an April 6 interview, city treasurer Alex Cabarrubias said he was aware of the ban but “took the risk” of putting the funds in term deposits, seeing it as more advantageous.

“We took the risk of putting it on a term deposit because it will earn a higher interest compared to the [regular] savings. It would take time to implement the project and we don’t pay until it’s finished, so the fund will just ‘sleep’,” he explained in Filipino and English.

According to him, the process would take a maximum of three months between the opening of the bids and the awarding of the project.

“The amount has just been uploaded to the city and when we communicated with the implementers they said it will take time as they still have to auction the project and prepare the [terms of reference],” he said.

“Even if we wanted to, we can’t implement it yet,” Cabarrubias pointed out.

command center

The city treasurer, however, later clarified that only the DICT remained unenforced.

Pagcor’s 911 command center and informal settler housing project are ongoing, he added. The OP fund was for Phase I of the 911 Command Center to build the city’s disaster response capabilities.

The audit report did not identify the purpose of the DITC funds.

In September 2021, the department signed a memorandum of understanding with Baguio to establish the National Government Data Center and Digital Transformation Center-Innovation Hub in the city. However, it is not clear whether the funds included in the audit report were intended for this project.

The audit team stated that the amounts identified would mature within 65 to 183 days from the date of placement, with a current interest rate of 0.65% to 1.75%.

State auditors also reported the transfer of interest earned to its general fund.

“Because the interest income was generated by the investment of the trust fund in fixed-term investments, the interest income should always be part of the trust fund,” the COA report states.

In August 2012, under a different administration, the city also transferred the NALGU cash fund established in 2006 to a term deposit with the Development Bank of the Philippines.

“Archaic” rules?

Cabarrubias said it has already responded to the COA and that Baguio will comply with all audit recommendations after the filings are due.

He also asked the bureau to “review and modify the definition of lapsed funds” to give LGUs more options.

“I’m sorry to say this is outdated…but we suggested they review and change the definition of idle funds to include trust funds as there are instances that [the fund] will only sleep since the projects are not immediately payable,” he said.

In its report, the COA emphasized that implementing programs that will benefit Baguio City residents should be prioritized over generating additional revenue from interest earned on time deposits and high-yield accounts. .

“Although COA Circular No. 94-013 issued December 19, 1994 may be outdated, the rationale and definitions incorporated therein have not yet become obsolete,” COA said.

The agency added that the city government’s practice still violated existing financial policies “even though unused funds included trust funds.” –

Sherwin De Vera is a Luzon-based journalist and winner of the Aries Rufo Journalism Fellowship.

Previous Russia Sanctions Update - April 7, 2022 | Foley Hoag LLP
Next Opinion: Ottawa still gives financial criminals the treatment of children