The Baguio City Council, during its regular session on April 15, 2024, tasked the Committee on Appropriations and Finance Cluster B (Taxes, Fees, and other Charges) to study the results of the financial audit of the Commission on Audit (COA) on the management of funds of the City Government of Baguio.
The audit report showed “discrepancies” in the city government’s management of funds, particularly concerning the placement of idle funds in time deposits/high yield savings accounts (HYSA) and the “misuse” of SEF funds, leading to financial imbalances and deviations from regulatory guidelines.
According to the audit report, the city government had placed P4.4 billion from the city’s general fund into time deposit/HYSA accounts as of December 31, 2023. The report stated that this action is violative of COA Circular 92-382 as the said amount had surpassed the specified limit of P695,005,426.93, the amount of the idle fund under the General Fund which is only authorized to be invested under time deposit for the first semester of 2024.
Idle funds refer to cash that local governments can invest in government securities or fixed-term deposits after considering expenses like salaries, debt servicing, and capital outlays within the cash operating cycle of the government unit. Funds earmarked for obligations to other entities, both government and private, are excluded from idle funds.
The amount placed in time deposits which exceeded the authorized limit for idle funds had resulted in an excessive investment.
The implications of the excessive investment in time deposits include delayed settlement of liabilities to suppliers or contractors and unpaid obligations; accumulation of liabilities and unremitted amounts to other government agencies; and utilization of funds intended for current liabilities and operating expenses for future investments, impacting development projects and socio-economic outcomes.
The audit report recommended unloading the excessive investment in time deposits to address financial imbalances. It also emphasized the need for strict compliance with COA circulars and the adoption of a comprehensive investment policy by the city council to ensure prudent financial management and internal controls.
The said Circular allows local government units to deposit idle funds from the general fund into time deposit accounts only after obtaining prior authorization from relevant authorities such as the local legislative body and the local chief executive.
The city treasurer had been authorized by the city council through Resolution 282-2001 to deposit identified idle funds in time deposit accounts, subject to conditions such as maintaining a minimum interest rate of 7.5%.
The audit report revealed that the interest rates on the time deposits were below the minimum agreed rate of 7.5% as per the resolution.
The audit also identified violations regarding the placement of Special Education Fund (SEF) in time deposit/HYSA accounts, contrary to the fund’s intended purpose specified in Section 272 of Republic Act No. 7160.
The audit report stated that unexpected balances from previous years’ SEF budgets were being invested in time deposits, leading to an increase in unutilized funds and undermining the SEF’s objectives.
During the April 15 council session, City Treasurer Alex Cabarrubias said their office is already preparing a response to this COA audit report.
Cabarrubias provided several justifications for the violations stated in the audit observation.
He said that the city government had to ensure that all the payables or obligations were paid on time, implying that while there might have been violations regarding the amount placed in time deposits compared to what was allowed by the circular, all financial commitments were promptly met. He emphasized that the large amount of money in the bank was available to support the city’s appropriations and ensure that obligations, including salaries and project payments, were settled on time.
Furthermore, he mentioned challenges related to appropriations that were not yet implemented, leading to cash staying idle in the bank.
The city council members questioned why there is a significant amount of unimplemented projects leading to excess funds in the bank. Councilor Betty Lourdes Tabanda said this indicated “poor” management since funds are not being utilized as intended.
Cabarrubias acknowledged the issue and suggested consulting with the departments responsible for project implementation to understand why projects are not being executed.
He explained that there are efforts being made to solve the issue of unimplemented projects, particularly related to the utilization of the 20% Development Fund required for the Seal of Good Local Governance (SGLG). He said funds could be directed from less urgent projects to more immediate needs.
The city council referred the matter to the committee for further action and recommendations on fund usage. **Jordan G. Habbiling
