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Findings No.8 COA Annual Audit Report 2006

July 26, 2008

8. Failure of management to comply with COA Circular No. 87-278 dated November 12, 1987 deprived the early or timely review of the loans involving P223.638 Million of the City Government from the Development Bank of the Philippines.

As restated in COA Memorandum No. 2005-027 dated February 28, 2005, “COA Circular No 87-278 dated November 12, 1987 requires the audited agency to furnish the Auditor with a copy of perfected contract within five (5) working days upon approval, together with the supporting papers documents for review. The Auditor reviews the perfected contracts in accordance with existing regulations within twenty (20) days from receipt”.

For the year in review, the City Government of Iligan obtained P223.638 Million loans with the Development Bank of the Philippines, details thereof are as follows:

P163.638 Million loan to finance the Solid Waste Management System Project of the City Government. This was the subject of SP Resolution No. 06-503 embodying Appropriation Ordinance No. 06-4969-71 dated June 15, 2006 (Supplemental Budget No. 1) appropriating the proceeds of the loan of P163 Million for Solid Waste Management System. The loan shall be payable quarterly in arrears, as follows:

P156,100,000.00 (KFW) – it shall be fixed at the prevailing KFW rate at the time of drawdown throughout the term of the loan.

P7.538,000.00 (DBP) – Prevailing DBP rate at the time of drawdown reviewable monthly.

Incase of default, pay a default charge at the rate of 24% per annum over and above the bank interest rate. Repayment schedule:

P156,100,000.00 – (KFW) in twelve years, inclusive of two years grace period on principal repayment in forty (40) equal quarterly installments to start at the end of the ninth quarter from first drawdown until fully paid.


P7,538,000.00 – (DBP) in five years, inclusive of one year grace period on principal repayment, in sixteen (16) equal quarterly installments, to commence at the end of the ninth quarter from the first drawdown until fully paid.

As security, a holdout provisions over its quarterly IRA allocations equivalent to two quarter amortization until the loan shall be fully paid.

P60 Million loan to finance the Heavy Equipment Acquisition Project and other priority projects of the City Government, the subject of SP Resolution No. 06-504 embodying Appropriation Ordinance No. 06-4970-72 dated June 15, 2006 appropriating the proceeds of the loan of 60 Million for Acquisition of Heavy Equipment.

The interest rate is 9% per annum reviewable yearly. It shall be payable and discounted quarterly. Incase of default, pay a default charge at the rate of 24% per annum over and above the bank interest rate. Payable in four (4) years; Principal payable in sixteen (16) equal quarterly amortization of P3,750,000.00 to start at the end of the third month from first drawdown. Holdout on Savings Deposits equivalent to 100% of loan outstanding until loan is fully paid as security of the loan.

This was the subject of this Office follow-letter dated September 12, 2006 requesting to be provided copies of the Loan Agreements, Deed of Assignment and other related documents of aforesaid loans. As of audit date, we received not reply, thereby depriving early auditorial review and evaluation of the documents.

Recommendation:

Furnish copies of the following loan documents to the Office of the Auditor for review and reference in audit as required under COA Circular No. 87-278:

Loan Agreement, Deed of Assignment and other related documents relative to the City Government Loan from the Development Bank of the Philippines involving the amount of P163.638 Million to finance the Solid Waste Management System Project.

Loan Agreement, Deed of Assignment and other related documents relative to the City Government Loan from the Development Bank of the Philippines involving the amount of P60 Million for acquisition of equipment and other priority projects.

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

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