Features

COA report raises red flags

SAROs in chaos, DAP deals sans
plans, ‘systems errors’ at DBM

SOME TRANSPARENCY online, but also some opaque and chaotic disbursement practices offline: That seems to be the sorry story so far of the Department of Budget and Management (DBM) under the “Daaang Matuwid” administration of President Benigno Simeon C. Aquino III.

Created as a full department by Executive Order No. 292 or the Revised Administrative Code of 1987, DBM “is responsible for the formulation and implementation of the National Budget with the goal of attaining the national socio-economic plans and objectives” as well as “for the efficient and sound utilization of government funds and revenues to effectively achieve our country’s development objectives.”

Headed by Florencio ‘Butch’ Abad, the department is also a key agency in the Aquino administration’s efforts to promote transparency and curb corruption in government.

In recent weeks, however, DBM has come under intermittent fire from citizens outraged by the billion-peso highly discretionary pork barrel and lump sum funds, as well as the P72-billion Disbursement Acceleration Program (DAP) that was launched via a press statement posted on the DBM website on Oct. 12, 2011, with a general list of fund beneficiaries.

On Jan. 9, 2012, or just four months later, a press release posted on www.gov.ph said that the President had approved the allocation of P13.4 billion more to the original P72.1-billion DAP kitty. In all, DAP would be worth P85.5 billion at least by then.

By the time DAP came to be, the Aquino government had been in power for just a little more than a year — a period that officials now say had them busy in cleaning up the supposed mess left by the previous administration.

But the year 2011 was also when the Commission on Audit (COA) raised a lot more adverse and qualified comments on the allotment and disbursement of taxpayers’ money by DBM under Abad.

In fact, the COA report even found the then still freshly launched DAP already shot full of weaknesses and raised red flags about some of the projects listed for DAP funding.

PCIJ Table 1. DBM Allotment & Cash Programs, 2011

In its 2011 audit report on the DBM, COA had questioned under the heading “budget accountability for unprogrammed projects/activities,” why P1,043,323,000 of DAP money had been allotted to projects “not supported by Physical and Financial Work Plans on the specific activities to be undertaken, targeted outputs, and the corresponding budget allocation.”

The P1.043-billion amount in question included allotments coursed through the DBM and the Department of the Interior and Local Government for three projects: “Special Capacity-Building Projects for POs (People’s Organizations), P43.23 million; “CSO (Civil Society Organizations) Anti-Poverty Strategy and Localization and Empowerment Project”, P250 million; and “ARMM (Autonomous Region in Muslim Mindanao) Transition and Investment Plan”, P750 million.

Messy SARO records

Not least of COA’s observations in its 2011 audit pertained to the integrity and efficiency of DBM’s operations: missing, unaccounted for, double-numbering, and skipping of control numbers for 3,158 different Special Allotment Release Orders (SAROs) until Dec. 31, 2011.

The adverse result, COA said, was that “the validity of the 42,193 SAROs issued to government agencies totaling P1,942,286,355,788.38 remained doubtful due to gaps in the SARO number series resulting in 3,158 unaccounted SAROs.” (SAROs are documents that obligate funds for a project to its implementing agency.)

PCIJ Table 2. A Chaos of SAROs at PNoy_s DBM

The 2011 COA report on DBM is latest on the agency, since the state auditing body has yet to publish the 2012 edition.

According to COA’s agency report on DBM for 2011:

  • “The use of four operating systems in the releasing and monitoring of allotments totaling P1,942,286,355,738.38 resulted in some systems errors affecting its effectiveness and rendering the application systems difficult to manage and uneconomical to maintain.”
  • “The validity of the 42,193 Special Allotment Release Order (SARO) releases amounting to P1,942,286,355,738.38 remained doubtful due to gaps in the SARO number series resulting to 3,158 unaccounted SAROs.”
  • “The Information Technology (IT) Systems were found lacking of the necessary general controls, thus affecting the effectiveness, integrity and availability of systems and data being used in the issuance of budget releases and other IT requirements.”
  • Under Fund 103 — or DBM-administered special purpose funds — “in Region V, lack of policy guidelines on the delineation of responsibility/accountability in the implementation, utilization and monitoring of the PDAF, Agencia Espanola de Cooperacion Internacional Para el Desarollo (AECID), and Calamity Funds transferred to various LGUs during the year in the total amount of P204,548,773.00 cast doubt on the propriety, validity and completeness of the LGU-beneficiaries’ implementation of the programmed projects and the accounting/reporting of the utilization of the subject funds.”
  • Under Fund 151 or the Malampaya Funds — “accountability over the funds transferred/released to LGUs from the Special Account in the General Fund (SAGF) totaling P2,609,019,064.00 could not be established because these were recorded as Subsidy to LGUs rather than Due from LGUs, thereby, understating the latter account by the same amount.”
  • Under Fund 151, “in Region IV-A and B, 57 and 58 fund transfers totaling P760,265,051.00 and P1,319,965,594.00, respectively, released through the PVB were not acknowledged with the Bank’s OR. The non-issuance of OR may cause problem in the determination of accountability over government funds. Further, fund transferred amounting to P500,000.00 for financial assistance to the indigent patients under SARO No. G-10-09913 dated December 20, 2011 with NCA No. 164916-13 dated February 8, 2012 was not received by the Provincial Government of Oriental Mindoro, thus, depriving the said patients of the needed assistance.”

PNoy’s Budget KRAs

In May 2011, President Aquino had issued Executive Order (E.O.) No. 43 “to orient and direct government programs, projects, and activities toward the attainment of five (5) key priority areas (KRAs) of the Administration’s Social Contract.”

These five “KRAs” are:

  • “Transparent, accountable, and participatory governance;
  • “Poverty reduction and empowerment of the poor and vulnerable;
  • “Rapid, inclusive, and sustained economic growth;
  • “Just and lasting peace and the rule of law; and
  • “Integrity of the environment and climate change adaptation and mitigation.”

By most indications, all these were partly aimed at rectifying what the Aquino government deemed to have gone wrong during the previous administration. But it was precisely in its 2011 audit of DBM that a number of significant flaws in the Budget Department’s allotment and cash programs systems that dated back to the Arroyo administration were still found to be present.

In fact, COA noted that “of the 47 audit recommendations contained in the CYs 2010 and 2009 Annual Audit Reports, 23 were implemented, 14 were partially implemented and 10 were not implemented.”

Of the 32 audit observations raised in the 2011 COA report on DBM, possibly the most damning was that concerning a DBM showcase project to “enhance transparency (by using) ICT systems to promote openness and making documents more accessible to the public.”

This pertained to the DBM’s policy of “mandatory disclosure of budget information in the website of national departments and agencies” that applied to the 2011 and 2012 General Appropriations Act (GAA).

In particular, the pivot of this project was the launch in July 2011 of Phase 1 of the Electronic Transparency and Accountability Initiative for Lump Sum Funds or eTAILs.

It involved the “web-enabled Priority Development Assistance Fund (PDAF) module (that) was rolled out and the digitization of other lump sum funds” but which include only the Internal Revenue Allotment of LGUs and the School Building Fund as of this date.

Outsourced, single bidder

Under this program, the DBM central office said it had to resort to “the use of four operating systems in the releasing and monitoring of allotments and cash programs.” These four are:

  • Electronic Budget System (eBudget) for total allotments worth P1.41 trillion;
  • Foreign-Assisted Projects (FAPs) Database System, P3.77 billion;
  • e-TAILs, P20.5 billion; and
  • Manually-Prepared System (MPS), P509.5 billion.

On Jan. 24, 2011, DBM had decided to outsource the software maintenance of its four application systems for fiscal year 2011-2012 to a relatively new IT solutions company called Incuventure Partners Corporation. The total contract cost: P16,694,441.07.

In the project documents, DBM said it announced the public bidding of the contract in October 2010 but that Incuventure submitted “the only responsive bid” at the time the bids were opened in November 2010.

Yet for all the “systems errors” that marked its services for DBM, Incuventure, in joint venture with Computer Network Systems Corporation, won a second contract worth P39.5 million from DBM in August 2013.

‘Systems errors’

By the COA report’s findings, DBM’s online initiatives at transparency may have also messed up the integrity and efficiency of the department’s work offline.

Noted COA:

  • “The use of four operating systems in the releasing and monitoring of allotments totaling P1,942,286,355,738.38 resulted in some systems errors affecting its effectiveness and rendering the application systems difficult to manage and uneconomical to maintain.”

    COA’s recommendation: “Management in CO (central office) give priority to the adoption of one reliable application system in the releasing and monitoring of the budget releases for all government agencies, in order to avoid or minimize systems errors, enhance effectiveness and economy in systems operation and maintenance that will redound to a more transparent government operation.”

  • “The validity of the 42,193 SARO releases amounting to P1,942,286,355,738.38 remained doubtful due to gaps in the SARO number series resulting to 3,158 unaccounted SAROs.”

    COA’s recommendation: “CO submit immediately all the 3,158 unaccounted SAROs for verification. Likewise, the Management should re-visit the process of assigning SARO numbering and install control measures to ensure complete accounting of SARO releases.”

  • “The Information Technology (IT) Systems were found lacking of the necessary general controls, thus, affecting the effectiveness, integrity and availability of systems and data being used in the issuance of budget releases and other IT requirements.”

    COA’s recommendation: “Management in CO prepare the necessary Information Systems Strategic Plan (ISSP) for approval of the National Computer Center (NCC). The NCC is in-charge of the implementation of Government Information System Plan (GISP) that warrants the technology compatibility, security and connectivity to enhance resource sharing and information exchange between and among government offices. It is also responsible for providing the benchmarks and standards for Information and Communications Technology (ICT) procurement and outsourcing.”

    COA’s recommendation: “Management create disaster recovery and business continuity plan as well as a policy on system’s back-up and restorations to enable the agency to secure its operations in case of disruption in the information systems support activities and to survive even if a disastrous event occurs.”

COA said it examined the Agency Budget Matrix/SARO listings under the four application systems and saw that “all listings contained mixed fund sources, purposes, and fund codes, which did not reflect the purposes for which each application system was created/maintained.”

“Last year (2010), the Management informed us that the use of the MPS (manually-prepared system) will be gradually eliminated,” COA reported. “However, it was found out that Management still released 2,353 SAROs with the total amount of P509,474,930,712.03 under this system.”

Worse still, “the SARO Listings submitted under MPA, FAPs, database and some eBudget entries did not indicate the purpose for the released SAROs, the fund codes, and other important data,” COA said.

And worst of all, it added, “repetition of errors like skipping of the SARO numbering and issuance of the same number in two SAROs were likewise observed. Several unaccounted or missing SAROs for FY 2011 were also noted.”

Among other specific findings, the 2011 COA report also revealed that:

  • DBM had issued two SAROs with same number (SARO No. G-11-00893 dated May 6, 2011) covering a P30-million disbursement under the Priority Development Assistance Fund (PDAF) or pork barrel. The first was issued under the Manually-Prepared System or MPS, and the other, under the e-TAILs that DBM told COA was “only a ‘Dummy’ SARO.”
  • Under the Foreign-Assisted Programs System, “based on chronological numbering system, there were 1,946 unaccounted SARO numbers, and 464 unaccounted numbers of Notice of Cash Allocation.”
  • The SARO listing under the Manually-Produced System, Foreign-Assisted Projects, and some eBudget entries “did not indicate the purpose of the released SAROs, the fund codes, and other important details.”

DAP back story

PCIJ filed a request two weeks ago for a sit-down interview with Secretary Abad. Last week, his staff suggested that the PCIJ send questions in writing, saying that Abad was quite busy and might not have time for an extended interview.

PCIJ Table 3. DAP Deals Sans Physical & Financial Plans

For the last few days, in fact, DBM has found itself under renewed public scrutiny because of DAP, which was created two years ago supposedly to finance “new, fast-disbursing projects to be funded from unused 2010, 2011 appropriations.”

The current controversy over DAP was triggered by an allegation by Senator Jose ‘Jinggoy’ Estrada that lawmakers had been awarded additional funds from DAP for their role in the impeachment trial of then Supreme Court Justice Renato Corona.

According to an Oct. 1, 2013 DBM press statement, however, DAP had been “instituted to ramp up spending after sluggish disbursements — resulting from the government’s preliminary efforts to plug fund leakages and seal policy loopholes within key implementing agencies — caused the country’s GDP growth to slow down to just 3.6%.”

“During this period,” Abad said in the statement, “the government also accommodated requests for project funding from legislators and local governments, GOCCs, and national government agencies to help ease the country’s expenditure performance forward.”

In 2011, he said, DAP “supported projects like the relocation of families living along dangerous zones (P10B) under the National Housing Authority, equity infusion under the Bangko Sentral ng Pilipinas (P10B), landowners’ compensation under the Department of Agrarian Reform (P5.4B), ARMM (Autonomous Region in Muslim Mindanao) comprehensive peace and development program (P8.6B), and the augmentation of LGU Internal Revenue Allotments (P6.5B).”

In 2012, DAP “funded crucial projects like tourism road construction under the departments of Tourism and Public Works (P5B), the National Government’s share for the GSIS-DepEd premium payments for teachers (P4.0B), DAR-DPWH Tulay ng Pangulo (P1.8B), DOH-DPWH rehabilitation of regional health units (P1.96B), DepEd’s public-private partnership for school infrastructure (P4.0B), and BSP’s capital infusion (P20B).

For 2013, Abad said, “releases from DAP for legislators were suspended by President Aquino in the aftermath of the COA special audit report.” Hence, as of Oct. 1, 2013, DBM said, “no subsequent DAP releases have since been made to support lawmaker-endorsed projects, in much the same way as we suspended PDAF releases.”

According to Abad, “DAP releases are usually funded from unreleased appropriations under Personnel Services, as is the case when positions are either not filled up or filled up late.”

Too, he said, “the releases may also be funded from the Unprogrammed Fund—due to revenues generated beyond the target, such as GOCC dividends—carry-over appropriations unreleased from the previous year, as well as budgets for slow-moving items or projects that have been realigned to support faster-disbursing projects.”

Abad averred that, “while it is unfortunate that DAP releases are now being maligned to serve some very questionable political interests, we hope that these fund releases are seen exactly for what they are: as a valuable fiscal tool for accelerating government spending and the delivery of public goods and services to the people, not as an instrument for political coercion.”

COA quizzes DAP

It may not have been an efficient tool to start with, though. As early as two months after DAP’s launch, COA had already found it to be wanting in transparency and accountability values.

Under the financial audit observations in regard to “budget accountability for unprogrammed projects/activities,” COA in its 2011 report on DBM said that allotments worth P1,043,323,000 under DAP “were not supported by Physical and Financial Work Plans on the “specific activities to be undertaken, targeted outputs, and the corresponding budget allocation.”

The government “had implemented the P72.11 billion DAP to bolster economic growth in 2011… (for) fast-disbursing and high-impact projects.” Yet, said COA, the P1.043 billion worth of DAP funds that DBM had chosen had neither physical or financial plans as of end-2011, raising questions about whether these were actually done on a whim, or could be “fast-moving and high-impact” projects at all.

Interestingly, in its response to COA, the DBM management reportedly explained that the P1.043 billion was “part of the ‘disbursement acceleration’ fund to the Office of the Secretary to help the government catch up (with) spending.”

In addition, the DBM Management told COA that “the SAROs were released in the last quarter of the year as additional fund releases over and above the FY Annual Appropriations of OSEC, DILG, hence, considered unprogrammed projects/activities for such were not anticipated during the budget preparation.”

COA questioned why the DBM had allocated P1.043 billion in total and issued SAROs for three projects that did not have any supporting physical and financial plans. These are:

  • P43.23 million for “Special Capacity-Building Projects for POs (People’s Organizations) and NGOs (Non-Government Organizations). Its balance as of Dec. 31, 2011, still P43.23 million.
  • P250 million for “CSO (Civil Society Organizations) Anti-Poverty Strategy and Localization and Empowerment Project.” Its balance as of Dec. 31, 2011, still P250 million; and
  • P750 million for “ARMM Transition and Investment Plan.” Its balance as of Dec. 31, 2011, still P750 million.

Yet still, in a press release posted on www.gov.ph on Jan. 9, 2012, Abad announced that “96 percent or P69.3 billion of the P72.11-billion Disbursement Acceleration Plan (DAP) has successfully been released to agencies and government-owned or -controlled corporations (GOCCs) as of end-December 2011.”

The DAP disbursement apparently went quicker than quick, Abad said P53.8 billion or 77.5 percent of the DAP fund “was already disbursed by agencies and GOCCs beginning October 12, when the President approved the DAP.”

“We released about P8 billion from December 6 to 29 (2011) alone to agencies and GOCCs to ramp up spending. The DAP contributed immensely to the government’s increased spending in the last months of the year, allowing agencies to quickly implement programs and projects aligned with the Aquino Social Contract to the Filipino People,” Abad added.

However, it was only on May 30, 2012 — when COA transmitted its 2011 audit to DBM Management — when the DBM finally submitted the initial plans for the P1.043-billion DAP projects that state auditors had questioned. And this happened after the fact of the issuance and release of SAROs for the same projects.

The 2011 COA audit on DBM was published on the COA website only in July 2012.

“As per released SARO,” COA said DBM submitted belatedly the Physical and Financial Plan for the following projects to be funded with DAP money: ARMM Potable Water Program, ARMM PMO (Project Management Office), and ARMM Governance Reforms, “Special Capacity Building”, and “CSO/PPP Empowerment Program”.

“The validity of the allotment is until December 2012,” COA said, adding though that “those (activities) that cannot be complied with are still subject to consultations and final arrangements with different stakeholders.”

What these “final arrangements” and who these “stakeholders” are, DBM did not clarify. — PCIJ, October 2013