Low fund disbursement of LGU incentives noted

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State auditors have noted low disbursement of funds meant for the Performance-Based Grant System (PBGS) component of the Municipal Development Fund Office’s (MDFO) Agrarian Reform Communities Project II (ARCP II).

The observation was made in a Value for Money Audit included in the 2014 Commission on Audit (COA) report on the MDFO, an office under the Department of Finance mandated to provide development financial support to local government units (LGUs).

“The LGUs disbursed only P62,432,084.47 or 14 percent of the P470,773,000.00 budget for the PBGS component of the [ARCP II] and P124,499,925.14 or 26.45 percent of this disbursement was not for the intended purposes,” the auditors said.

The ARCP II, one of the MDFO’s financing windows, aims to reduce poverty in agrarian reform communities.


According to COA, the Development Budget Coordinating Committee approved the Performance-Based Incentive Policy (PBIP) in 2009 to be implemented in projects with PBGS components.

“The PBIP is an incentive framework to rationalize National Government inter-governmental fiscals to LGUs toward improving overall LGU performance in governance. Identified as among the projects where the framework will be pilot-tested, the ARCP II has PBIP as one of its components,” the auditors explained.

The PBGS Technical Committee agreed on the ARCP II grant allocation of P1.12 billion for its PBGS component, they said.

Based on the audit report, the allocation is broken down into P876 million for Capital Grant (CG), P210 million for Capability Development Grant (CDG) and P34 million for Maintenance and Other Operating Expenses (MOOE) for 2011-2014, with requested extension of project implementation till end-2015.

Based on the audit report, the targeted ARCP II beneficiaries of the PBGS were the 20 of the poorest provinces in Southern Philippines including Region IV-B (Mimaropa), Region V (Bicol), Region VI (Western Visayas), Region VIII (Eastern Visayas), Region IX (Zamboanga Peninsula) and the Autonomous Region in Muslim Mindanao (ARMM).

“We have noted that there was significant delay in release by the Department of Agrarian Reform [DAR] of the fund for the PBGS-ARCP II as the MDFO received this fund only in the fourth quarter of CY [Calendar Year] 2012. Moreover, the DAR transferred only P470,773,000.00 or 42 percent of the total allocation of P1.12 billion,” the auditors said.

But they found that the MDFO earmarked only P450.4 million for 61 LGUs or 42 percent of the budget allocated for CG and CDG.

Based on the audit report, the remaining P20.37 million of the P470.77 million funds from DAR were for MOOE.

Also, the MDFO only granted CG to 27 LGUs and failed to release CDG to any LGU, according to the auditors.

“The 27 LGUs disbursed only P62,432,084.47 of the CG which is equivalent to only 14 percent of the total amount earmarked for CG and CDG of P450,405,443.49 and 5.7 percent of the corresponding budget allocation of P1,086 billion,” they said.

This left P387.97 million representing unused funds under the CG and CDG.

Camarines Sur province received the largest amount of CG with P9.9 million. It is followed by Javier town in Leyte with P5.546 million and town

In the same audit report, the auditors said they found on verification that P124.5 million or 26 percent of the PBGS-ARCP II was disbursed for the implementation of Rural Infrastructure (RI), another program component of the ARCP II.

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