COA raises red flags over PNR ‘illegal use’ of funds

Camille Elemia

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COA raises red flags over PNR ‘illegal use’ of funds
EXCLUSIVE: The Philippine National Railways uses P50.9 million of the proposed Manila-Sorsogon projects to pay for its security services


  • State auditors at the Philippine National Railways (PNR) flagged PNR’s “illegal” use of P50.9 million in South railway funds – transferred by the Department of Transportation in June 2018 – for the payment of PNR’s 2017 security services.
  • PNR General Magno designated a single person to “incompatible” and crucial posts, which employees claimed is his way of “controlling” transactions.
  • Magno is facing a complaint before the Presidential Anti-Corruption Commission for alleged “serious dishonesty, grave misconduct, conduct prejudicial to the interest of the service, gross neglect of duty, and perjury.” The PACC is yet to decide.
  • Magno denied all allegations and claimed nothing is wrong with these actions.

2nd of 3 Parts
READ: Part 1| Poor National Railways? Thousands suffer as PNR cancels 713 trips in only 2 months


MANILA, Philippines – Philippine National Railways (PNR) General Manager Junn Magno faces corruption and mismanagement issues as he enters his second year as administrator.

The Commission on Audit flagged PNR’s “illegal” use of P50.9 million – sourced from the multimillion funds for the PNR South Commuter (Manila-Los Baños) and South Long Haul (Los Baños-Sorsogon) projects – for the payment of PNR security services costs incurred in 2017.

Rappler obtained an Audit Observation Memorandum dated September 12, 2018 addressed to Magno. The Office of the Supervising Auditor at PNR said the payment “clearly violates” Section 4(3) of Presidential Decree 1445 or the Government Auditing Code of the Philippines.

It states: “Trust funds shall be available and may be spent only for the specific purpose for which the trust fund was created or the funds received.”

The AOM said that PNR’s payment is counted as an “illegal” expenditure under 2012 COA rules.

COA Circular No. 2012-003 considers illegal the “use of funds for a specific purpose/project, for other purposes such as administrative and miscellaneous expenses of the implementing agency, and for projects not intended to be implemented under the project.”

On June 29, 2018, PNR received from DOTr P875.3 million for the PNR South Commuter and South Long Haul projects.

But 5 days after, the funds were used to pay for the security services costs incurred in 2017.

The said security services, however, were already contracted in November 2015 for P62.7 million covering 3 years. PNR paid P50.9 million in just a year.

The previous board, auditors said, approved a resolution certifying that the funding was to be sourced from the PNR corporate operating budget. The fund source was also certified by the manager of the budget and cash division under the administrative and finance department of the PNR.

The 3-year contract also covers security from Caloocan yard to Calamba, “including all stations in between Caloocan up to Calamba.”

With all these findings, state auditors asked PNR to:

      • Discontinue using the subsidy fund earmarked for specific purposes
      • Pay existing obligations using the budget in the Corporate Operating budget
      • Return the P50.9 million to the funds for the South Commuter and South Long Haul projects “to cover the amount illegally utilized”

Auditors also asked Magno to send his comments on the audit observations within 7 days from receipt. He sent his reply on October 24, more than a month after the date indicated on the letter. Under COA rules, the agency’s response will have to be first evaluated by the auditor.

Nothing ‘illegal’

In his response to COA, Magno said that the PNR, as DOTr’s implementation partner, was assigned to “[maintain] security along the right of way” or ROW.

This is why, he said, they could use the south rail funds for payment of security services for existing ROW.

“Since the ROW has already an existing security provider being an operating line, it was made clear during the negotiation and meetings between PNR and DOTr that…. [it] may be used to pay the existing security services since the services provided also involves securing the ROW for the project,” Magno said in his two-page comment.

He also said that the DOTr approved PNR’s use of the fund “to pay the long outstanding obligation of security services.” He claimed the P50.9-million payment was “within the limit” approved by the PNR.

However, the P50.9 million only covers Caloocan to Calamba. It does not yet cover other ROW areas from Calamba until Matnog, Sorsogon.

Another issue raised was that the costs for security services were incurred in 2017. There was an allocation in the PNR corporate operating budget, as auditors pointed out.

But for Magno, the PNR “is not estopped in accepting funds [from] other agencies for payment of disbursement previously allocated from other funds.”

The Memorandum of Agreement between DOTr and PNR dated December 28, 2017 did not specifically say whether or not the funds could be realigned by PNR. But the MOA clearly said that:

      • DOTr shall disburse transferred funds to PNR pursuant to a Disbursement Plan, as may be revised from time to time, that will be submitted by PNR to and approved by DOTr. The Disbursement Plan shall be consistent with the overall work program of the projects.
      • Disbursements by DOTr to PNR….shall be utilized by PNR solely for the purposes [of the project].

Rappler, in an e-mail on March 6, asked Magno the following questions:

      • Shouldn’t the South rail funds be used for securing to-be-acquired ROW or those that are not yet covered by PNR? After all, PNR security services are a regular and predictable expenditure.
      • What did the PNR do with the original appropriation for the 2017 security services?
      • Why did PNR pay P50.9 million for one year, when COA said the 3-year contract was P62.698 million?

Magno told Rappler he would reply to queries. Asked again on March 8, Magno said he asked his team to “recraft” the response, as he “was not happy with the draft.” He has yet to respond as of posting.

Rappler reported that for the first two months of the year alone, there were already 713 train cancellations. Based on PNR operations data, the high-demand Manila South Commuter trains have had the highest total trip cancellations.

The rehabilitation of this line, which is under the PNR South Commuter project, is part of the massive infrastructure program of the Duterte administration. PNR South Commuter and the PNR South Long Haul projects plan to connect Manila to Sorsogon.

The government targets to start operation of the PNR South Long Haul project by the second quarter of 2022.

The Commuter Line will be funded by official development assistance from Japan while the Long Haul segment will be funded by ODA from China.

But currently, there are only an estimated 13 to 15 trains for the existing routes, according to PNR data. DOTr and PNR are banking on the delivery of 9 brand new trains from Indonesia. This is the first time in decades that the Philippines is buying new trains.

Under the 2018 national budget, PNR received a subsidy of P3.515 billion: P2.5 billion for the acquisition of trains and P1.015 billion for a railway system maintenance program. 

Symptom of a bigger problem?

The AOM is an apparent indicator of an even bigger issue: the current organization of PNR.

From one administration to the next, the agency has been plagued by inefficiency and mismanagement. Employees attribute this to the lack of transparency and deficient checks and balances in the PNR.

Employees allege that the “illegal use of funds” was made possible by Magno’s instructions to PNR’s chief corporate lawyer Celesta Lauta, who also sits as chairman of the agency’s project management office. She has been assigned to various critical but “incompatible” and “conflicting” posts in the PNR.

Lauta heads the corporate planning division, which allocates the resources of PNR. She also heads the legal division, which checks contracts, even as she is a member of the bids and awards committee (BAC). Magno also transferred the BAC secretariat, which handles bidding documents, to Lauta’s legal division.

The new trains were procured under the current management and setup, which did not sit well with workers.

Edgar Bilayon, BKMP president, accused Magno of wanting “to control all transactions” in the agency.

“GM Magno, in order to control all transactions in PNR for him to smoothly execute his personal desires and plans in the PNR, he issued Office Orders designating Atty Lauta on critical, incompatible, and conflicting assignments in PNR where checks and balances and transparency are dispensed with and vital and key corporate responsibilities are concentrated [in] GM Magno and Atty Lauta,” Bilayon said in BKMP’s complaint before the PACC. –

To be concluded: Corruption, mismanagement issues hound PNR chief Junn Magno

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Camille Elemia

Camille Elemia is a former multimedia reporter for Rappler. She covered media and disinformation, the Senate, the Office of the President, and politics.