COA admonishes Cebu City officials for spending beyond their means

State auditors have warned the Cebu City government to put its finances in order after they discovered that it spent way beyond its means last year.

A memorandum dated April 30 from the Commission on Audit (COA) and addressed to Mayor Michael Rama and City Accountant Diwa Cuevas reminded the city government to “exercise prudence in the use of the (city’s) limited resources”.

“Stop the practice of incurring obligations without the corresponding cash back-up to avoid penalties, surcharges and most of all legal implications in case the City would be unable to meet its obligations,” state auditor Cymbeline Celia Chiong-Uy said in her Audit Observation Memorandum (AOM), a copy of which was obtained by Cebu Daily News.

The COA memorandum said the overspending could result in a potential cash overdraft of nearly a billion pesos. COA said the city’s editors might seek legal remedies should the city government fail to pay its obligations.

City Treasurer Emma Villarete also did not sign the Approved Budget Contract (ABC) for infrastructure projects worth P1.69 billion charged to the 2012 budget and instead wanted the said project subjected to further discussion, evaluation and recommendation “taking into consideration the financial statements for CY 2012.”

Not bankrupt

City Administrator. Jose Marie Poblete however, said that the AOM should not be used as a basis to conclude that the city is now bankrupt.

To date, he said, the city government has about P1 billion in cash and cash deposits.

CTO records show that the city government has a total of P1.023 billion cash in hand and in bank as of May 24, 2013. But only P403.9 million of its money is placed under the general fund.

The general fund also includes the P165.3 million deposit with the Philippine Veterans Bank which was placed on a five-year time deposit and the P43 million deposit with the Philippine Postal Bank which was tagged in relation to the Rallos lot case.

Poblete said that an exit conference with COA will also allow city officials to justify or explain some of the items mentioned in the AOM.

“We have to ask COA gi-unsa na nila pag pagawas ang ilang figures so we can also react, explain or justify the reasons for the expense,” he said in an interview.

Most of the observations mentioned, he said, may be still be corrected with the application of some accounting principles.

“Kasagaran sa audit observation ma-explain ra using accounting procedures. It’s all a matter of documentation And between now and December 31 daghan na sad ang kausaban,” the city administrator said.

Poblete said that as of May 24, 2013, the city’s liabilities have already been cut to only P220 million.

“Ang atong mga payables from the previous years are carried over to the current year and the city government continues to raise money to settle all its obligations. Kada adlaw naay mosulod nga kwarta. Naa na sad tay ma bayaran,” he said.

State auditors have yet to schedule an exit conference with the Cebu City officials because the mayor is still in Manila and is expected to be back tomorrow.

“In terms of liquidity naa man tay kwarta but naa ray accounting principles that we will have to comply with,” he added.

Cash flow

The Cebu City Council had approved a P5.2 billion budget in 2012 and at least P426 million in supplemental appropriations.

But COA said in its April 30 AOM that the city government incurred an “overdraft” of P965.5 million, an indication that “trust collections were misapplied” and “thereby adversely affecting the cash flow of the ensuing year and facing risks of legal suits from unpaid creditors.”

Auditors said that the city’s cash balance of P1.06 billion as of December 31, 2012 is not enough to settle its unpaid obligations of P1.98 billion indicating a substantial deficit of P965.5 million.

“Monies due to the national government agencies, local government agencies and the GOCCs (government owned and controlled corporations) particularly GSIS (Government Service Insurance System) and other corporations for premiums, loan and amortization, etc. were not remitted on time,” COA’s Chiong-Uy said.

COA’s review of the city’s finances showed that “officers concerned failed to determine the capability of the City to fulfill its obligations, thus, there is an urgency for the City Government to implement corrective measures to ensure adequacy of cash.”

Auditors also advised Rama and the city’s finance executives to always monitor cash utilization and refrain from using trust funds for purposes other than what it is intended for.

The city government was also asked to “direct the enforcement of collection of taxes due the City for it to be able to augment its dwindling resources; design strategies to ensure that what is due to the City can be collected for it to be able to undertake its operation in normal conditions.”

Chiong-Uy moreover, directed the city government to inform COA of the corrective measures they have implemented within a period of five days from receipt of the memorandum.

Poblete however, said that although the COA memorandum was dated April 30, they only received the communication just recently, prompting him to order the officials concerned to look into the concerns raised by state auditors, yesterday.

Poblete yesterday met with the members of the Local Finance Committee and directed them to go over the COA memorandum and verify what were the expenditures listed in the P965.5 million overdraft in preparation for their exit conference.