DEFENSOR ‘MISMANAGES’ FUNDS: Capitol wastes P36M in interest payments despite P2B available cash

WAS it necessary for the administration of Iloilo Gov. Arthur Defensor Sr. to borrow P300 million from the Land Bank of the Philippines and waste more than P36 million in interest payments when the Capitol had more than enough cash?

The Omnibus Term Loan Facility (OTLF) from Land Bank loan was contracted in 2013 for the Hospital Enhancement Program covering 12 provincial and district hospitals.

The Defensor administration justified the loan saying the capitol lacked funds for the hospitals.

But based on the Commission on Audit’s (COA) Annual Audit Report (AAR) for 2013, the provincial government’s cash and other accounts are:

General Fund – P774,357,423.04

Special Education Fund – P88,638,838.35

Trust Fund – P539,431,173.20

In 2013, the Capitol’s domestic loans was P77,197,565.66. (New Provincial Capitol Building loan balance – P60,659,065.66 and Hospital Enhancement Program or HEP loan – P16,538,500)

The following year, the capitol coffers continued to reflect substantial cash accounts as indicated in the 2014 audit report of COA:

General Fund – P1,011,189,871.21

Special Education Fund – 147,854,595.28

Trust Fund – P376,263,075.85

The Capitol’s domestic loans in that year totaled P151,934,976.92 (Provincial Capitol Building loan balance – P49,630,144.64 and HEP loan – P102,304,832.28).

 

AWASH WITH CASH BUT…

By 2015, COA told the Defensor capitol that it could have saved more than P9 million in Documentary Stamp Tax and Interest Expenses if only it properly managed and used idle cash instead of borrowing P300 million from Land Bank for the hospital enhancement project.

COA’s summary of the Capitol’s financial position in 2015 showed that the provincial government was actually swimming in cash:

Date  of Loan Drawdown Available Cash in Bank and Time Deposit  (General Fund)

(in Peso)

Amount of Loan Drawdown

 

(in Peso)

Balance

(in Peso)

11/22/13 959,601,054.99 7,607,500.00 951,993,554.99
12/13/13 956,841,433.89 8,931,000.00 947,910,433.89
05/06/14 933,483,152.95 11,675,496.30 921,807,656.65
05/21/14 991,557,896.55 7,563,193.53 983,994,703.02
06/04/14 953,050,175.94 12,848,037.77 940,202,138.17
07/31/14 1,007,695,551.27 8,982,291.89 998,713,259.38
08/06/14 1,000,276,152.75 7,611,340.82 992,664,811.93
08/14/14 1,084,936,312.06 8,636,025.21 1,076,300,286.85
12/29/14 974,418,963.74 18,081,483.64 956,337,480.10
12/29/14 964,050,500.62 10,368,463.12 953,682,037.50
04/06/15 1,137,347,152.68 9,117,543.32 1,128,229,609.36
05/12/15 1,309,270,878.95 16,124,972.63 1,293,145,906.32
09/09/15 1,284,526,840.84 8,260,716.93 1,276,266,123.91
09/11/15 1,432,593,446.15 7,323,198.04 1,425,270,248.11
12/28/15 1,338,469,768.62 11,382,643.00 1,327,087,125.62
TOTAL 154,513,906.20  

The table indicates that between November 2013 and December 2015, the Capitol had P1.338 billion in cash, more than enough to cover the P154.513 million it borrowed from Land Bank.

The summary of Documentary Stamp Tax and Interest Expenses for the HEP loan showed how much the capitol lost for incurring the Land Bank loan:

Period Documentary Stamp Tax

(in Peso)

Interest Expense

(in Peso)

TOTAL

(in Peso)

CY 2013 82,693.00 82,693.00
CY 2014 428,836.00 2,438,803.20 2,867,639.20
CY 2015 261,047.00 6,748,493.61 7,009,540.61
TOTAL 772,576.00 9,187,296.81 9,959,872.81

A comparison of available cash vs. liabilities and continuing appropriation in the 2015 annual audit report showed that the capitol will never run out of money and does not need to borrow from banks:

Particulars CY 2013 CY 2014 CY 2015
Cash Net of Loan Proceeds from OTLF 757,396,665.63 1,096,756,249.99 1,410,024,323.05
Less:      
Current Liabilities 169,902,019.50 292,943,437.30 229,255,827.71
Loan Balances (Except Loan availed from OTLF) 60,659,065.66 49,630,144.64 38,601,223.62
Continuing Appropriation 519,239,960.78 722,805,738.58 720,533,433.47
Net Available Cash 238,156,704.85 373,950,511.41 689,490,889.58

As earlier reported, the 2015 audit report indicated that P1,199,958,040.86 in capitol cash were sleeping in a time deposit instead of being spent on social services.

“Major portion of these time deposits remained idle and unutilized since 2010, thus, if only financial analysis was made, and re-appropriation/re-alignment of cash was availed of instead of incurring the loan, documentary stamp tax and interest expense could have been avoided,” the audit report said.

In 2016, the Capitol kept borrowing from Land Bank and its domestic loans ballooned to P223,098,000.80 despite healthy cash position as reported by COA in its 2016 audit findings:

Comparison of Cash Available versus Liabilities and Continuing Appropriation

Cash and Cash Equivalent, as of 12/31/16

1,907,588,056.36
Less:
Current Liabilities
Financial Liabilities 226,982,633.62
Inter-Agency Payables 83,533,865.56
Intra-Agency Payables 75,884,592.47
Trust Liabilities 19,661,722.37
Loan Payables 11,322,319.08 417,385,133.10
Non-Current Liabilities

Loan Payables

212,069,084.78 212,069,084.78

Bal. of Current Appropriation on Capital Outlay (CY 2016 Budget)

454,303,353.63

Bal. Continuing Appropriation

361,312,417.13

1,445,069,988.64

Available Cash

462,518,067.72

The table indicates that the Capitol’s available cash is more than enough to fund the hospital enhancement project. Thus, there is no need to borrow money from Land Bank and incur Documentary Stamp Tax and Interest Expenses totaling P12,217,111.77.

An analysis of cash and cash equivalent account of the provincial government showed that P1,711,468,937.30 out of P1,907,588,056.36, or 89.72%, was in a time deposit.

COA recommended that the Capitol stop the Land Bank since it had enough cash for the hospital upgrading project but the Defensor administration did not heed the audit body.

In 2017, COA again told the Capitol that it could have avoided interest expense totaling P15,147,762.16 if it stopped borrowing money from Land Bank since it had more than enough cash.

By that time, the Capitol’s loan totaled P231,052,708.13.

The COA audit report for 2017 showed that the Capitol had more than P2 billion in cash and still had enough money to cover the P300-million loan after fulfilling its obligations:

Cash and Cash Equivalent Balance as of December 31, 2017, net of Loan balance from OTLF 2,329,263,802.87
Less:

Current Liabilities (excluding OTLF Loan Balance and current portion of other loans payable)

525,230,556.95

Loans Payable (including current and non-current except OTLF)

16,543,381.58 541,773,938.53

Bal. of Current Appropriation on Capital Outlay (CY 2017 Budget)

792,614,932.04

Bal. Continuing Appropriation

505,392,781.47

Available Cash

489,482,150.83

The table shows that the provincial government had P489,482,150.83 free cash as of December 31, 2017, which is more than enough to cover the total loan of P300 million.

Instead of using this free cash to pay off the obligation, the Capitol continuously placed large amount of their cash to time deposit. As of December 31, 2017, the IPG has a balance of P1,726,245,857.16 in Cash in Bank-Time Deposits.

If only the Defensor administration heeded COA’s recommendation to settle and pre-terminate the loan from Land Bank by utilizing the available cash placed in its Time Deposit Account, it could have saved a total of P36,735,299.01 from interest payments from 2015 to 2017.

“It needs to be emphasized that holding large amount of idle cash does not mean that the IPG is performing well in terms of upholding its mandate. In fact, the presence of huge amount of idle cash could be an indication of poor financial management and inefficient and untimely implementation of Programs/Projects/Activities (PPAs),” the 2017 COA audit report said.

“In this regard, Management should review and assess the availability of cash, other sources before availing of credit, loans or financing. Likewise, Management should evaluate the feasibility of the PPAs implementation at present, if the same are still responsive to the needs of its constituents, otherwise reprogramming of funds may be considered.”

 

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