Spend more prudently, Rama told COA: City has P1B overdraft

CEBU, Philippines - A state audit observation memorandum reviewing the city’s Cash and Current Liability Accounts for the year 2012 noted that the city government has a potential cash overdraft of almost P1 billion.

The Commission on Audit noted that the cash balance at the end of 2012 totaling P1,016,168,077 did not meet the current obligations and trust liabilities that reached P1,981,726,196 which excluded the intra-agency payables of P2.9 billion creating a deficit of about almost P965,558,119.

Moreover, the observation noted that the city “misapplied” trust collections and is unable to pay its current obligations.

With this, the city was observed to have violated Sections 305 and 337 of Republic Act 7160 or the Local Government Code and Section 4 of Presidential Decree No. State 1445 otherwise known as the Audit Code of the Philippines.

Cebu City’s quick asset ratio for 2012 also showed it has .97:1, which is lower than the ideal 1:1. A quick asset ratio measures the ability of a local government unit to use its quick assets to pay its current liabilities.

The April 30 AOM prepared by city auditor Cymbeline Celia Chiong Uy asked Cebu City Mayor Michael Rama to require both the city accountant and city treasurer to monitor cash utilization and refrain from using trust funds other than for its intended purpose.

“The officers concerned failed to determine the capability of the city to fulfill its obligations, thus, there is that urgency of the city government to implement corrective measures to ensure adequacy of cash,” the state auditor said.

Furthermore, Uy recommended that the city “exercise prudence in the use of the limited cash resources” and not to continue the incorrect practice of incurring obligations without the corresponding cash back-up.

Rama was then advised to direct enforcement of tax collection as well as design strategies to ensure collections which will help improve the city’s “dwindling resources.”

City Accountant Diwa Cuevas explained that the analysis used a different method as their office.

"Not all payables that we have obligated at end of the year are to be paid immediately. And besides, we have also our receivables that can be converted into cash once collected. They limit their analysis as to cash balances only. We are using the accrual method of accounting," Cuevas said.

Accrual is an accounting method under which revenues are recognized on the income statement when they are earned rather than when the cash is received.

City administrator Jose Marie Poblete said they will provide their explanation today after a thorough review of the AOM. — /BRP (FREEMAN)