LGUs in the Philippines

COA flags Baguio’s placement of project funds in time deposit

Sherwin de Vera
COA flags Baguio’s placement of project funds in time deposit
Baguio City Treasurer Alex Cabarrubias says the city government has responded to COA, and will comply with all the audit recommendations after the maturity of the deposits

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

In its 2021 Audit Report released on April 4, state auditors questioned the city’s decision to deposit P717.55 million in time deposits. The audit team said 97%  of the funds were from government agencies earmarked for specific projects. 

The amount includes P438.75 million from the Department of Information and Communications Technology (DICT), P204.84 million from the Office of the President (OP), P50 million from the Philippine Amusement and Gaming Corporation (PAGCOR), and P6.28 million from the National Assistance to LGUs (NALGU). 

The city received the amount from DICT and Pagcor in December 2021, and deposited the funds to high-yielding savings accounts in the same month. 

Accounting and auditing guidelines, set in COA Circular No. 92-382 issued in July 1992, only allow LGUs to set idle funds for investment in government securities or fixed-term deposits. The issuance defined idle funds as those “in excess of normal operating requirements.” 

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

In an April 6 interview, City Treasurer Alex Cabarrubias said they were aware of the prohibition but “took the risk” of placing the funds in time deposits, seeing it as more advantageous. 

“We took the risk to put it on a time deposit since it will earn a higher interest compared to the [regular] savings. Implementation of the project would take time and we do not pay until it is done, so the fund will just ‘sleep,'” he explained in Filipino and English. 

According to him, the process would take at most three months from the opening of the bid to awarding of the project. 

“The amount was just downloaded to the city and when we communicated with the implementers, they said it will take time since they still have to put the project for bidding and prepare the [terms of reference],” he said. 

“Even if we wanted to, we cannot implement it yet,” Cabarrubias stressed. 

Command Center

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

The 911 Command Center and the housing project for informal settlers from Pagcor are ongoing, he added. The fund from the OP was intended for the 911 Command Center Phase I to boost 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 agreement with Baguio to establish the National Government Data Center and Digital Transformation Center-Innovation Hub in the city. However, it is not clear if the funds included in the audit report were for this project.

The audit team said the identified amounts would mature in 65 to 183 days after the placement date, with a current interest rate of 0.65% to 1.75%. 

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

“Since the interest income was generated through investment of the trust fund case in fixed term money placements, the interest income should still form part of the trust fund,” the COA report stated. 

In August 2012, under a different administration, the city also transferred the NALGU cash fund set up in 2006 to a time deposit at the Development Bank of the Philippines. 

‘Antiquated’ rules? 

Cabarrubias said they already responded to COA and that Baguio will comply with all the audit recommendations after the maturity of the deposits. 

He also requested the office to “review and change the definition of idle funds” to give LGUs more options. 

“I am sorry for saying it’s antiquated…but we suggested that they review and change the definition of idle funds to include trust funds because there are cases that [the fund] will only sleep since projects are not immediately payable,” he said. 

In its report, COA stressed that implementing programs that will benefit Baguio City residents should take precedence over generating additional revenue from the interest earned from time deposits and high yield accounts. 

“Though COA Circular No. 94-013 issued on December 19, 1994 may be antiquated, the rationale and the definitions embodied therein has not yet become obsolete,” COA said. 

The agency added that the practice of the city government still violated existing financial policies “even if idle funds would include trust funds.” – Rappler.com

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