Gov’t offices may be using DTI firm to avoid returning unspent funds – Drilon

MANILA, Philippines — Government offices may be using the controversial Philippine International Trading Corp. (PITC) either to skirt their obligation to return unspent funds to the treasury once the fiscal year has lapsed or to dodge procurement rules, Senate Minority Leader Franklin Drilon said on Tuesday.

“It appears like government agencies are using PITC to skirt the end-of-the-year validity of appropriations,” Drilon said in a privilege speech.

“Instead of returning to the General Fund the money that they cannot utilize, it seems that government agencies deposit the funds in PITC,” he said. Thus, “billions of pesos in public funds are parked in the bank accounts of PITC.”

Drilon’s allegation, if true, could explain why PITC has kept receiving procurement requests from its client agencies despite the huge backlog of undelivered goods—one of the mysteries surrounding the finding that cash deposits received by the state-run trading company had ballooned to P33 billion as of the end of 2019.

Deliveries begin

In a letter to the Inquirer on Monday, Trade Secretary Ramon Lopez, PITC’s chair, said the company had begun to deliver the requests of several government offices.

“The DTI (Department of Trade and Industry, PITC’s mother agency) also received a report from PITC that many of the mentioned transactions in the article are already undergoing deliveries,” Lopez said, referring to the Inquirer report on Drilon’s allegation that billions of pesos in public funds were “parked” in PITC, representing undelivered procurement requests (Inquirer front page, Nov. 23).

“We stress that should the bidding processes of these transactions fail, all funds are returned to the national treasury,” Lopez said.

The trade chief said he welcomed Drilon’s call for a Senate inquiry into the matter, adding that he had directed PITC to submit to the Senate “the status and full accounting of all their transactions.”

The Inquirer has requested a copy of an updated list of PITC’s completed deliveries.

One year to spend funds

Under the cash-based rules of the General Appropriations Act (GAA), the government has only one year to release and spend funds for the procurement of budgetary items, unlike the traditional obligation-based rules with two-year validity of appropriations.

Section 10 of the GAA of 2020 mandates the reversion of funds to the treasury when the terms have expired or “when they are no longer necessary for the attainment of the purposes for which the funds were established.”

PITC, which has been tasked with procuring still-unavailable coronavirus vaccines, is now at the center of a controversy involving billions of pesos in public funds sitting idle in its coffers due to procurement bottlenecks.

Senate President Pro Tempore Ralph Recto said he hoped the Cabinet “will dictate the tempo” of the vaccine procurement “and not the rank amateurs of PITC whose stint in office has so far been unblemished with success.”

“If they are already having problems buying vinegar, what more with vaccines?” Recto said in a statement on Tuesday.

Citing the Commission on Audit (COA) annual report on PITC and its own financial statements in his privilege speech, Drilon said PITC’s consumer deposits showed “tremendous growth” within five years, from P4.8 billion in 2015 to P33.4 billion in 2019.

He said he received information that “some agencies turn to PITC to avoid procurement-related liabilities.”

After all, it is PITC and not the procuring agency that would ultimately be liable for any irregularity in bidding procedures, Drilon said.

“So if there is a problem with bidding, the agency will not be dragged into it. Is this a scheme?” he said.

This, Drilon added, led him to conclude that PITC was being used as a “pawn.”

Once agencies are unable to obligate and disburse the funds allotted to them by the end of the year, he said, the appropriation will lapse and the funds will revert to the national treasury. This, he noted, will negatively affect the agencies’ absorptive capacity and can be used by the Department of Budget and Management (DBM) to reduce their appropriations in the next budget cycle.

Cover for inefficiencies

But this problem is resolved if it’s PITC that does the procurement, Drilon said. “PITC effectively provides a mechanism to hide inefficiencies in government,” he said.

“The government is having difficulties raising funds due to the drop in revenues. But here you have government agencies depositing their budgets in PITC to make it appear that the funds are obligated, where, in truth and in fact, it is sleeping in the coffers of PITC and interest is being earned,” he said.

“No wonder, Mr. President, government spending, as part of the GDP, is a low 5.8 percent,” the senator added, addressing Senate President Vicente Sotto III.

Drilon reiterated his call to have the billions of pesos in public funds parked in PITC returned.

“This P33.4 billion in cash has been parked for years in the PITC accounts. Why? It only means that the national source agencies do not need the funds for the projects budgeted under the GAA,” he said.

“If these funds have been there, sitting idly, in the PITC accounts, it means the government agencies have no immediate and paramount need for these projects,” he said.

He also questioned the authority of PITC to impose a service fee of 1 to 4 percent for procurement.

“You will even be more surprised with the coverage or kind of procurement that PITC is undertaking for the government bureaucracy: from face towels, T-shirts, shoes, guns, X-ray machines, and firetrucks to infrastructure projects such as fire stations, lighthouses, multipurpose halls, and training centers,” he said.

Processes explained

In his letter to the Inquirer, Lopez explained the procurement processes causing the bottlenecks in PITC’s transactions.

“We wish to emphasize that the terms of reference (TOR) for these projects are thoroughly reviewed with client agencies prior to the bidding process to ensure utmost transparency and neutrality to all bidders,” he said.

“Furthermore, the COA audits all procurement projects to ensure compliance with Republic Act No. 9184, or the Government Procurement Law, and related rules and regulations. We would like to note that the TORs are coordinated with other agencies,” he said.

These, according to Lopez, include the finalization of technical specifications that “usually take time as these are closely discussed with the agencies.”

“TORs undergo a process of iteration before getting finalized. Since 2018, PITC has also adopted the policy reform that funds from agencies must not be transferred until there is a finalized TOR, since the preparation of TORs takes time,” he said.

“Only when the TORs are finalized do the funds get transferred to PITC and the bidding process starts to be administered,” Lopez said. “As such, agencies cannot transfer the funds at the end of the year just to avoid such funds from being returned to the national treasury.”

Commission defended

PITC “simply administers the bidding process,” he stressed.

Lopez also defended PITC’s charging a commission for procurement.

“It is allowed to charge service fees following the schedule of rates. It is a government corporation and is mandated to generate revenues since it does not get any budgetary allocation,” he said.

Half of PITC’s income is declared and remitted as cash dividends to the treasury, he added.

Lopez, in asking the Inquirer to publish his letter in full, said “there is no controversy on these matters, as all government procedures and mandates of government agencies and government corporations are followed.”

“The DTI and its attached agencies, under the leadership of President Rodrigo Roa Duterte, remain committed to transparency and accountability,” he said.