Findings No.9 COA Annual Audit Report 2005

July 25, 2008

9. The enactment of City Ordinance No. 05-4719 in CY 2005 resulted to the released of loans to 204 individuals in the total sum of P2,475,108.01 as of December 31, 2005. The RLAO, COA Region X opined that the Ordinance, in so far as pertinent, is legally infirmed

Sections 4 & 5 of City Ordinance No. 05-4719, series of 2005, read:

“Section 4. – Creation of the City Livelihood REVOLVING Trust Fund – The Annual Twenty Percent (20%) livelihood funds of the city’s share in the utilization and development of the National Wealth, and all other monies which the City Government of Iligan stands to receive in the future from any entities, private or public, for/or in support of livelihood projects, proceeds from sales coming from the livelihood projects of the city and payments of CLAP loans, shall be integrated to comprise the City livelihood REVOLVING Trust Fund, under a separate Account Code”, and,

“Section 5. – Annual Share of SEA-K in the Twenty Percent (20%) Livelihood Funds Derived from the Utilization of the National Wealth – Starting Year 2005, and the years thereafter, Ten Percent (10%) of the Twenty Percent (20%) Livelihood Funds, which is portion of the city’s share from the Utilization of the National Wealth, shall be appropriated as share for the Self Employment Assistance-Kaunlaran (SEA-K) Program. The amount shall be deposited to SEA-K’s Trust Fund.”

Worthy of notice, in said Ordinance under Section 12 (B), under the captioned Self-Help Groups Loan, states:

“The minimum loanable amount is Five Thousand Pesos (P5,000.00) and maximum amount of Twenty Thousand Pesos (P20,000.00) only per member of self-help Group. This will cover any self-help projects. The loan shall carry a four percent (4%) interest per annum at diminishing balance.”

It was stressed to management that the fund assistance that any government may provide shall be limited to accredited Non-Governmental Organizations or People’s Organizations having legal personalities, the purpose of which is to implement developmental projects. Certainly, private individual is not among those contemplated in COA Circular No. 96-003 dated February 27, 1996 qualified to receive financial assistance from government institution.

Anent the foregoing, the Regional Legal and Adjudication Office, COA Region X, in affirming our view, in its 2nd Endorsement dated October 3, 2005 (copy attached as Annex E of this report), opined that the Ordinance is legally infirmed, on matters hereunder discussed:

RA 7160 authorized the maintenance by LGUs of only three funds, the General Fund (Section 308, RA 7160) and two special funds-the Special Education Fund and Trust Funds (Section 309, RA 7160). Each fund is an independent fiscal accounting entity, subject to special regulations, restrictions, or limitations [Section 306(h), RA 7160]. The revenues/receipts that are to be accounted under each fund and the nature and object of disbursements that should be paid out of the fund are all provided for by law. The establishment of special trust using 20% of the share in the proceeds from the development and utilization of the national wealth is even more unauthorized. Such share is revenue that should accrue to the General Fund (Section 289, Chapter 2, Title Three, Book II, RA 7160). This would mean that it should be accounted as income and should be closed to the surplus account at year-end, that disposition of which is subject to budgeting (Section 294, RA 7160), that disbursement of which must satisfy the requirement of appropriation [Section 305(a), RA 7160] and obligation (Section 344, RA 7160). These conditions will loss its relevance if and when the 20% is to be accounted as trust receipt under the so-called special trust funds. Besides, the code did not provide that development and livelihood projects funded either from the Internal Revenue Allotment or from the Share in the National Wealth be treated as trust receipts, what is permitted instead is simply the maintenance of special accounts in the general fund for a proper monitoring of its implementation (Section 313, RA 7160).

The propriety of using 20% of the share in the proceeds from the development and utilization of the national wealth for credit assistance purposes. While it may be argued that the projects being considered are strictly for livelihood, the disposition is still proprietary which in our considered view runs repugnant to Section 294 of RA 7160. Lending is never contemplated in the subject provision. The 20% is to be spent on projects that will benefit the constituents, free of any burden. This can be inferred from the defined usage of the 80%, which is corollary to the 20%. Spending the latter for lending purposes will limit the application of the fund to qualified borrowers. This will in effect constrict public purpose as envisioned under the cited law.

Explicit is the condition that the 20% shall be appropriated for (a) local development projects and (b) local livelihood projects. The term “appropriated” signifies a legislative duty, further implying submission by the local chief executive of his recommended projects/programs to be funded. The revolving nature of the special trust funds created under the subject ordinance defeats compliance to these conditions. In view of the foregoing, these local development and livelihood projects are not to be considered as referring to those appearing in the project proposals submitted by borrowers supporting their respective loan applications.

Our review of the loans transactions for the year 2005 funded from the 20% national wealth disclosed the following information.

Analysis of Loan Receivables – Others

As of December 31, 2005

PeriodCY 2005CY 2004Increase/DecreaseCoveredNo.AmountNo.AmountNo.AmountIndividual204P2,475,108.011P83,008.01203P2,352,100.00Group/NGOs175,498,277.50122,911,340.0052,586,586.50Total221P7,933,385.5113P2,994,348.01208P4,939,037.50

As can be readily seen from above, there was a massive grants of individual loans in CY 2005, it showed an increased of 203 accounts totaling P2.352 Million, from 1 account of P83,008.01 in CY 2004 to 204 accounts totaling P2.475 Million at year end of CY 2005.

While City Ordinance No. 05-4719 prescribes procedures in processing and approval of loans, it failed, however, to designate or assign an Office that should be responsible in handling, nursing and collecting loans already granted.

During the exit conference, the representative of the City Development and Livelihood Office informed that an appeal had already been filed with the COA Central Office on the matter. Meanwhile, they have temporarily stopped their lending operations.

Recommendations

Refrain from using the 20% of the share in the proceeds from the development and utilization of the national wealth for credit assistance purpose, more specifically to individuals.

Take positive steps to collect repayment of loans granted to individuals in the total sum of P2,475,108.01 considering that the basis in the granting of these loans is legally infirmed.

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Written by admin · Filed Under Commission on Audit, Iligan City