COA questions AFP transfer of P7.6B from treasury

MANILA, Philippines – The Commission on Audit (COA) has asked the Armed Forces of the Philippines (AFP) to explain the improper transfer of funds totaling P7.6 billion from the national treasury to its account, according to a March 17, 2014 COA Audit Observation Memorandum obtained by Rappler.

The money was intended for the purchase of equipment, aircraft, and vehicles as part of the military capabilities upgrade. 

Funding for these projects was supposed to expire on December 31, 2013. At that point however the military had yet to sign any contract with suppliers for these projects.

Yet, 4 days before the funding’s expiration – on December 27, 2013 – the military transferred a total of P7.6 billion from the treasury’s AFP Modernization Act Trust Fund (AFPMATF) to an AFPMATF Combo Account. Twelve separate checks were issued on the same day to transfer the funds.  

COA said this is not allowed.

“Since the disbursements totaling P7,652,671,686.00 were not covered by valid obligation as required under the above sections, their propriety [has] become doubtful. The transfer of deposit from MDS to the current account when the funds are not yet to be used by the AFP Modernization affected the programming of funds by the national government,” the COA memo said.

COA noted that the transfer was made “purposely to avoid the lapsing of the NCAs (Notice of Cash Allocation)” issued by the Department of Budget and Management (DBM). But it stressed that this is not allowed under the basic requirements applicable to all types of disbursements by the national government. 

The COA memo reads: “Since no contract has as yet been approved as of December 31, 2013, which would call for payment of sum of money, no basis exist yet for the incurrence of obligation. These were transferred by AFP Modernization to its Combo Account by preparing DVs and issuing checks in favor of the AFPMATF Combo Account No. XXXX-XXXX-XX, purposely to avoid the lapsing of the NCAs.”

The AFP may only draw the money from the treasury once the contracts are completed, based on procurement laws.

Delays, mismanagement

The military, a laggard in the region in terms of military equipment, has been hard-pressed to modernize. But delays have hampered the modernization program. (READ: Controversies, delays in multi-billion AFP modernization)

Corruption and mismanagement in the last few decades have also stunted the military’s organizational growth.  

After President Benigno Aquino III was elected in 2010, military whistleblowers exposed systemic corruption in the armed forces, prompting simultaneous investigations that led to a revamp of the finance units in the military.

A key finding then was that military processes were not subjected to public and civilian agencies’ scrutiny thus the abuse. The military vowed to be more transparent.

But recent COA findings now show that the reform process has not been easy.

Malampaya funds, too

In a separate memorandum, COA said it discovered that the military also improperly transferred P61.19 million of Malampaya funds to its account a month after the Supreme Court ruled that the funds should be strictly used for energy-related projects. (READ: COA to military: Return P61M in Malampaya funds)

COA said the military should return the Malampaya money to the national treasury.

In the case of the P7.6B, however, COA did not order the AFP to return the funding. It is assumed that the DBM will renew its order allocating this for the purchase of new equipment.

The memorandum merely served to chide the AFP for delays in its procurement processes. 

One of COA’s recommendations is for the AFP to “revisit its procurement process with the end view of ensuring a streamlined procedure to accelerate every procurement activity and guaranteed that funds are utilized within the given validity period.”

DBM’s assurance

Defense officials in charge of the procurement process said they are aware that the risks involved in delayed procurement include possibly losing the fund. But they said DBM supposedly gave them a commitment that it will release new orders for items whose funding had expired. 

Defense Assistant Secretary Patrick Velez previously blamed the DBM for the problem with expiring funds.

DBM has been issuing funds that expire within a year. Velez said the AFP modernization law supposedly instructs DBM to issue funds that do not expire.

Velez previously attributed delays to the “peculiar nature” of the equipment to be purchased. He said the military has very specific requirements and at the same time the sources of military equipment and supplies are very limited. – Rappler.com