Preparing for Effective and Robust Financial Management in the Bangsamoro Region WORLD BANK PHILIPPINES MAY 2019 © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 3 ACRONYMS AND ABBREVIATIONS AOL ARMM Organic Law ARMM Autonomous Region in Muslim Mindanao BAC Bids and Awards Committee BARMM Bangsamoro Autonomous Region in Muslim Mindanao BG Bangsamoro Government BOL Organic Law for the Bangsamoro Autonomous Region in Muslim Mindanao (Republic Act no. 11054) BP Bangsamoro Parliament BTA Bangsamoro Transition Authority BTC Bangsamoro Transition Commission BTMS Budget and Treasury Management System CBPRD Congressional Budget and Policy Research Department COA Commission on Audit DBCC Development Budget Coordination Committee DBM Department of Budget and Management DepEd Department of Education DILG Department of Interior and Local Government DOH Department of Health DPWH Department of Public Works and Highways DSWD Department of Social Welfare and Development eNGAS Electronic New Government Accounting System GAA General Appropriation Act IASPPS Internal Auditing Standards for the Philippine Public Sector ICSPPS Internal Control Standards for the Philippine Public Sector IFPB Intergovernmental Fiscal Policy Board 4 ACRONYMS AND ABBREVIATIONS IPSAS International Public Sector Accounting Standards IRA Internal Revenue Allotment LGC Local Government Code 1991 LGU Local Government Unit MOA Memorandum of Agreement NAT National Achievement Test NDRRMC National Disaster Risk Reduction and Management Council NEDA National Economic and Development Authority NEP National Expenditure Program NG National Government NGA National Government Agency NGO Non-Government Organization ODA Overseas Development Assistance OIC Organization of Islamic Conference PDP Philippine Development Plan PPSAS Philippine Public Sector Accounting Standards RBMO Regional Budget and Management Office RDP ARMM Regional Development Plan REDPB Regional Economic and Development Planning Board RG Regional Government RLA Regional Legislative Assembly RLIP Retirement and Life Insurance Premiums PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 5 CONTENTS ACRONYMS AND ABBREVIATIONS 3 EXECUTIVE SUMMARY 7 01 INTRODUCTION 9 Rationale and purpose of the report 10 Methodology 11 02 CONTEXT 13 Historical and prospective governance 13 Legal and regulatory arrangements for Public Financial Management 14 Institutional arrangements for Public Financial Management 16 Other important features of Public Financial Management and its operating environment 17 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM 18 Fiscal planning, budget preparation and allocation 18 Fiscal planning and fiscal risks 18 Budget preparation 20 Budget allocation 22 Revenue collection and management 22 ARMM/BARMM revenue 23 ARMM LGU revenue 29 Locally generated revenue 30 Fiscal and budgetary trends 31 Budget execution 32 Cash management 32 Operational and program expenditure 33 Public investment and asset management 38 Procurement 41 Controls on budget execution 42 Internal audit 43 Accounting and financial reporting 44 6 CONTENTS External audit and oversight 45 Cross-cutting issues 46 Overview of the Internal control framework 46 Cohesion and integration within and across tiers of government 47 Capacity and capability 48 Information systems 49 Transparency 49 Autonomy and accountability 50 General policy objectives 52 Service delivery impact 52 Fiscal impact 56 04 CONCLUSIONS AND IMPLICATIONS FOR BARMM 58 Overall assessment of public financial management 58 Implications for establishment of BARMM and transition 59 05 RECOMMENDATIONS 63 ANNEXES 65 Annex 1: Terms of reference 65 Background and context 65 Project development objective 66 Proposed activities and expected results 66 Scope and coverage 67 Management of the review 68 Annex 2: Organizations consulted 70 REFERENCES 71 PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 7 EXECUTIVE SUMMARY Ratification of the Organic Law for the Bangsamoro These include the ways in which it will be governed, Autonomous Region in Muslim Mindanao, its sources of revenue and the flexibility with which Republic Act No. 11054, (BOL) in January 2019 was it can manage and allocate its resources. It also a major landmark in the evolution of governance has substantial challenges, not least of which are in the region. It is hoped that the law will be the the transition from ARMM and the public financial foundation for a more peaceful, prosperous and management environment that it has inherited. inclusive stage of development in the region. ARMM was bound by the financial management This report aims to provide a baseline for assessing arrangements that apply to national government the public financial management situation facing agencies (NGAs). Its performance within those the Bangsamoro regional government (BG). It seeks arrangements was largely determined by the to identify the strengths and provide some pointers national parliament, national agencies responsible to areas where the quality and effectiveness of for allocation, financial and administrative controls resource management can be strengthened or and procedures general funding arrangements, need attention so that the goals and objectives of budget management and sectoral programs. the national and subnational governments can Deviation from national performance in most be realized. aspects was therefore mainly the result of its internal capacity and internal operations, as is The BOL refers to autonomy in its title, but it is the case for NGAs. ARMM exhibited strengths important to be clear from the start that autonomy and weaknesses in performance but was not is limited. The Bangsamoro Autonomous Region dramatically different to performance in some in Muslim Mindanao (BARMM) region remains NGAs, though it was not among the outstanding tightly within the Philippines republic and subject performers in any aspect covered by this report. to the control of the national parliament and the President. It is also set within a national and There are high expectations for BARMM to perform legal framework and may not deviate from the better for the people of the region than ARMM. arrangements that also apply to other parts of the This will require concerted effort to implement the country. Its powers are limited to those explicitly requirements of BOL, which are substantial, and delegated under the BOL and the restrictions to operate within the fragile social, economic and and directions that the law imposes on many political context. This report identifies three basic aspects of its authority, such as revenue raising, challenges and associated recommendations in borrowing, budget allocation, expenditure, audit, relation to public financial management (PFM) administrative procedures, staffing, institutional in BARMM. arrangements and intergovernmental relations. BARMM may have limited influence over local Firstly, the Bangsamoro Transition Authority government units (LGUs) within its boundaries (BTA) needs to keep government in the region due to the application of national laws, codes and functioning efficiently and effectively while funds transfers that provide a high degree of LGU initiating the transformation necessary. In other independence from BARMM and a high degree of words, it must continue to do what was done by LGU dependence on the national government. ARMM and implement major change at the same time. It will be crucial to the credibility of BTA to Within the constraints imposed on BARMM, the ensure that existing activities and services are BG has many unique powers and privileges not delivered to the people of BARMM efficiently and available to other regions within the Philippines. effectively. Any transformation required should be 8 EXECUTIVE SUMMARY considered in the context of its likely impact on the will avoid unnecessary disruption during transition delivery of the BTA’s obligations as a government. if the inherited resources can be used effectively as The need to keep government functioning the foundation. effectively will have to be a high priority. The transition plan will provide the mechanism for More specific observations and recommendations setting out how the BP and BG will achieve both are included in the body of the report. The analysis continuation of sound government and the provides and overview of the framework and change required. foundation of government, including a brief outline of the relevant history and context. It then analyzes Secondly, the BTA needs to establish key the various activities involved in public financial institutions and agencies to ensure that the management from planning through budget basic financial management functions in the preparation, budget execution, audit and control, governance framework are in place and operating reporting and accountability, and important cross- when needed. Important among these institutions cutting issues. and agencies are the transitional Bangsamoro parliament (BP) and core financial agencies responsible for revenue management, budget planning and preparation, treasury, legislation and internal audit. It is essential that those bodies are operating effectively within the first few months of BARMM to prepare and authorize the first budget law by December 31, 2019. The BG will also need to adopt a Bangsamoro Development Plan so that it can access allocations from the Special Development Fund as soon as practicable. This will need to be achieved while the BTA is limited to a large extent by the resources and rules applied to ARMM in relation to budget, including the line item allocation of the budget approved for 2019. At the time this draft report was completed, the re-enacted 2018 budget was in place so the BTA needed to operate within that context. Thirdly, it is essential that change is managed carefully to make the best use of existing financial resources, skilled and experienced staff, local and national systems while considering the potential to transform them or adopt alternatives in the time available. The BG will need to make trade- offs in the extent to which it would like to achieve major change and the choices available. In that context, a proven approach to adopt in the short term (the first year at least) is to retain existing staff, resources, systems and procedures unless there is an overwhelming net benefit from change. This includes national and local systems, key professional and experienced staff, structures and operating arrangements. This does not preclude plans for change in the medium to long term but it 01 INTRODUCTION The Bangsamoro Autonomous Region in Muslim Muslim provinces: Basilan (except Isabela City), Mindanao (BARMM) is in the Mindanao island Lanao del Sur, Maguindanao, Sulu and Tawi-Tawi. group of the Philippines. It is the only region The original ARMM organic law was amended by that has its own government. Eight of the ten Republic Act 9054 on February 7, 2001 seeking to poorest provinces in the country are in Mindanao. expand the territory and powers of the ARMM. The The conflict-affected areas of Mindanao are the ARMM had a poverty incidence of 53.7 percent in country’s poorest, where violent conflict and fragile 2015, more than double the national average. In institutions continue to be critical constraints to addition to the areas covered by ARMM, BARMM peace and development. includes Cotabato City and 63 barangays within six municipalities in North Cotabato. The BARMM succeeded the Autonomous Region By virtue of its autonomous status, the BARMM in Muslim Mindanao (ARMM) on January 25, 2019 has a different administrative structure from local following the ratification of the Organic Law for government units in the country, including for the Bangsamoro Autonomous Region in Muslim public financial management. In most countries, Mindanao (Republic Act No. 11054) (BOL). ARMM lower tiers of government face greater challenges was created under the Republic Act No. 6734 on than national governments in all areas of budget August 1, 1989. It consisted of five predominantly and financial management. It is also common 10 01 INTRODUCTION for lower tier governments to have difficulty Trust Fund, to assist the Government of the in attracting and retaining adequate qualified Philippines in its socio-economic agenda in personnel which compounds the challenges that Mindanao area particularly the BARMM. Improving they face in managing finances. BARMM is likely to the efficiency and effectiveness of service delivery face even more challenges because of its distance to citizens is of high priority for the government. from the national government and recent history The report is intended to be useful to the of conflict and weak economic circumstances. Bangsamoro Transition Authority (BTA) and other While the processes and procedures around public stakeholders in development of the Bangsamoro financial management in local government units region. It will be an input for informing the design have been documented1, there has not been an and content of the World Bank engagement with analytical assessment of financial management BARMM and inform the design of government for BARMM2. There are few sources of detailed policies and programs for improved public service information on the institutions, systems and delivery in BARMM. processes for public financial management in this region, although the ARMM transition portal is a The main objective of this report is to document valuable source of data on many aspects of ARMM3. institutions, processes and systems in place for financial management in BARMM, drawing largely As attention turns towards addressing the on the arrangements in ARMM where there is no drivers of conflict and laying the foundation for clear alternative to be applied in BARMM. This sustainable development in BARMM, effective examination is intended to provide a basis to financial management arrangements become formulate recommendations for improving the essential to support public policy and planning. efficiency, reliability and timeliness of resource use, These arrangements should ensure that funds are financial management, service delivery and results allocated according to government policy priorities, for the region. approved allocations and project requirements. Procurement should be done in an open, fair and The report is intended to identify the strengths, timely manner. Funds ought to be provided when weaknesses and key risks in the financial required to meet expenses and pay for goods and management processes which are essential for services when invoices are due. Internal control the design of interventions in the BARMM. It structures should be set up to identify errors and seeks to identify where processes and controls are omissions quickly and efficiently leading to actions operating effectively and identify areas that require to address problems effectively. Documents strengthening or additional oversight. It also seeks and records need to be maintained to provide to ensure timely provision of funds to intended Government and development partners assurance service providers and contractors, analyze whether that funds are used for intended purposes with due funds and achievement of results are adequately regard for economy and efficiency. monitored and managed and the extent to which financial information can be relied on to Rationale and purpose of the report assist management. The World Bank initiated this study, with financial support from the Australian Government through the Australia-World Bank Philippines Development 1 Compendium of the Public Financial Management Framework for Local Government Units – Output for P161353, July 2017; Local Government PFM Roadmap developed under technical assistance from the European Union. 2 There was also an examination of ARMM fiscal capacity and flow of funds in 2007. Local Government Support Program in ARMM, Towards strengthening the fiscal capabilities of ARMM, INCITEGov Policy Paper, Pasig City, 2007. 3 The ARMM Transition Portal provides a wealth of information on the ARMM arrangements operating immediately prior to the transition to BARMM as well as data from previous years. See http://www.armmtransition.ph/ PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 11 Methodology funds and identify any significant differences in treatment and management of those resources from the prevalent practices in the rest of The core Bank team4 undertook a desk review the country. of relevant legislation, rules, procedures review and reports. It conducted field surveys and consultations at the ARMM regional government The project involved onsite review of processes and and a sample local government units (LGU) to documentation, interviews with key government document the operational arrangements, processes personnel, development partners and other and issues. The sample of local governments stakeholders to understand and assess financial included provinces, municipalities and cities within management from multiple perspectives. the BARMM region. The project complemented the parallel work by The work involved examination of all phases of the World Bank on Health sector (Programmatic financial management within ARMM using a Advisory Services and Analytics for Health, Nutrition sample of departments and local governments and Population) in ARMM. The health sector including the legal framework, budget planning programmatic analytical assessment included and preparation, budget approval and allocation, related goals to assist the regional government of procurement, disbursement of funds and cash ARMM in improving the efficiency, coverage and management, internal controls on the use of funds, equity of health service delivery in some of the recording of expenditures and associated physical lowest-capacity districts of the country. progress, reporting and review of expenditure, exercise of management control and accountability, The project drew lessons and experiences from the clarity of roles and responsibilities, and capability Public Expenditure and Institutional Review (PEIR) of people responsible for financial management for ARMM basic education conducted in 2014. That across the region. It included consideration of report discussed, inter alia, the public expenditure development project funds as well as government management in ARMM and highlighted several 4 The team comprised Lewis Hawke (Lead Governance Specialist - Public Sector, Philippines – Team Leader), Tomas Sta. Maria (Senior Governance Specialist - Financial Management), Aisha Lanette de Guzman (Senior Governance Specialist - Financial Management), Maria Liennefer Penaroyo (Governance Specialist - Financial Management) under the management of George Larbi (Practice Manager). The team is supported by Ahsan Ali (Lead Governance Specialist - Procurement) and Dominic Aumentado (Senior Governance Specialist - Procurement). Local PFM expert consultant, Mohammad Zidni Marohombsar, contributed substantially to data collection, consultation, analysis and drafting of the report. Gia Mendoza (Program Assistant) provided logistical support for the team. 12 01 INTRODUCTION key findings: (i) fragmented public expenditure The project examined the links between ARMM, management of ARMM resources; (ii) poor regional and national agencies, and municipalities integration of ARMM regional and national budget within the area covered by ARMM. Meetings process; (iii) inconsistency between ARMM regional with COA, DBM, DILG and DPWH, DepEd and “devolution” and national decentralization; and (iv) DOH were conducted to identify important weak stewardship and accountability in handling relationships and contacts in ARMM. The review public funds. of ARMM links with local governments examined the span of control for national government and The project also drew on other reports by the the ARMM governor, for example, in relation to World Bank and other organizations relating to distribution of the regional budget, how funds Mindanao and the Philippines more broadly. For are coordinated and used. The key stakeholders example, the 2016 PEFA assessment identified consulted included the ARMM Governor’s office, weaknesses in budget execution and budget ARMM administration departments and agencies, reliability at the national level. The PEFA findings MILF and other organizations involved in the BTA, included inability to execute the approved budgets, NGAs that administer funding or policy matters weaknesses in procurement arrangements and delivered in ARMM, ARMM business organizations internal controls, limitations in financial reporting and other non-government organizations (NGOs), — especially timeliness of in-year reporting, and and international development partners supporting high expenditure arrears. Philippines financial governance and PFM reform in Mindanao. management systems were rated 18 out of 100 in a separate assessment in 20165, indicating that The organizations consulted during the review are systems had considerable room for improvement. shown in Annex 2. Another study by the World Bank in 20176 noted that institutional structures around central finance functions in the Philippines were characterized by a high level of fragmentation. 5 Hashim, Ali; Piatti, Moritz. 2016. A Diagnostic Framework to Assess the Capacity of a Government’s Financial Management Information System as a Budget Management Tool. World Bank, Washington, DC. © World Bank. 6 Fritz, V., Verhoeven, M. and Avenia, A., Political economy of financial management reforms – reform experiences and implications for dialogue and operational engagement. World Bank, 2017 02 CONTEXT Historical and prospective governance Despite Presidential intervention, hostilities continued until the Organization of Islamic Conference (OIC) intervened and facilitated the The history of Mindanao and its pursuit of self- signing of the Tripoli Agreement between the determination and self-rule has been noted since Philippine Government and the MNLF in Tripoli, the 13th century. The more recent struggles for Libya on December 23, 1976. Pursuant to this autonomy can be traced to the 1960s when the agreement, President Marcos signed Presidential Moro National Liberation Front (MNLF) engaged Proclamation No. 1628 on March 25, 1977 forming an in an armed conflict with the Philippine Armed Autonomous Region in Southern Philippines. Forces. On July 7, 1975, President Ferdinand Marcos signed Presidential Decree No. 742 and Letter of Instruction No. 290 creating the Western The conflict was not resolved, however and further and Central Mindanao regions and establishing developments culminated in the provision for an the Office of the Regional Commissioner in Autonomous Region in Muslim Mindanao (ARMM) both regions. in the 1987 Philippine Constitution7 during the term of President Corazon Aquino. 7 Article X, Sections 1, 15-21 of the 1987 Philippine Constitution 14 02 CONTEXT The ARMM was created through Republic Act On October 15, 2012, the Moro Islamic Liberation No. 6734, otherwise known as the ARMM Organic Front (MILF) and the government signed a Law (AOL) resulting from the work undertaken by Framework Agreement for the creation of the Regional Consultative Council convened by an autonomous political entity called the President Aquino. The AOL was signed on August “Bangsamoro”, replacing the Autonomous Region 1, 1989. The plebiscite required for ratification was in Muslim Mindanao. The MILF was involved in conducted on November 17, 1989 in the proposed crafting the new Bangsamoro law through the areas of ARMM, in which four provinces voted in 15-member Bangsamoro Transition Commission favor of inclusion: Maguindanao; Lanao del Sur (BTC) headed by the MILF chief negotiator, (except Marawi); Sulu and Tawi-Tawi. The first set of Mohagher Iqbal. ARMM officials was elected on February 17, 1990. On July 26, 2018, President Duterte signed the The ARMM was strengthened and expanded Bangsamoro Organic Law (BOL) paving the way for through ratification of Republic Act No. 9054, the abolition of ARMM which was succeeded by the amending R.A. 6734 in September 2001, which BARMM on January 25, 2019. paved the way for the inclusion of the province of Basilan (excluding Isabela City) and the city of Legal and regulatory arrangements for Marawi as part of ARMM. Public Financial Management The legal and regulatory framework for ARMM consisted of separate national laws, executive orders, and regional laws. This resulted in unclear and at times contentious assignment of powers, functions and responsibilities among the National Government (NG), ARMM, and the Local Government Units (LGUs). Much of this complex legal framework continues with BARMM. Article X, Section 20 of the 1987 Constitution enumerates the legislative powers of the autonomous region and requires that these powers be defined through a national law, which is achieved by the BOL. The BOL establishes legislative powers for BARMM over: • Administrative organization; • Creation of sources of revenues; • Ancestral domain and natural resources; • Personal, family, and property relations; • Regional urban and rural planning development; • Economic, social, and tourism development; • Educational policies; • Preservation and development of the cultural heritage; and, • Such other matters as may be authorized by law for the promotion of the general welfare of the people of the region. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 15 The BOL identifies specific powers and of eminent residents of the Bangsamoro region responsibilities that will be retained by national submitted by the Council of Leaders. authorities and notes that any other powers and responsibilities not provided to BARMM in the 1. Powers of the BG: BOL Article V, Section 2 BOL will be retained by the national parliament expressly defines 55 exclusive powers that or NG. The autonomy provided to BARMM, while would be devolved to the Bangsamoro thereby recognized in the Constitution, is dependent on the providing more powers to the Bangsamoro cooperation of national authorities. The BARMM’s region and less intervention from the NG. On powers can be amended through changes to the the other hand, AOL only defined the 14 powers BOL or other national laws, repealed, or resumed (Article IV, Section 3) that would remain with by NG. the National Government. The 1991 Local Government Code (LGC) enacted 2. Sharing of Taxes Collected by the NG: Aside by the Philippine Congress was passed to govern from automatic appropriations via a block the LGUs without considering the special status grant, the BOL also provides for an increased of ARMM LGUs. The passage of this national share for the BG of national taxes collected code, which devolved NG powers, functions, and in the Bangsamoro territorial jurisdiction responsibilities to LGUs including those in the from 70% to 75% inclusive of the shares of the autonomous region means that the power of the constituent LGUs (BOL Article XII, Section 10). BARMM over its constituent LGUs is very limited. The BP will enact a law detailing the share of The BARMM’s influence is further weakened the constituent LGUs in the 75% share (BOL by the fact that the BARMM LGUs receive fiscal Article XII, Section 13), unlike the AOL which transfers (i.e. Internal Revenue Allotment or IRA) itemized the sharing. directly from the NG. The NG continues to have direct dealings with BARMM LGUs about the 3. Sharing in the Exploration, Development, implementation of NG-funded national programs, and Utilization of Natural Resources: which provides a major challenge for development As provided for in the BOL (Article XII, Section of cohesive regional governance. 34), all government revenues generated from the exploration, development, and utilization In comparison with the AOL, some of the key of all natural resources including mines features of the BOL include: and minerals in the Bangsamoro territorial jurisdiction shall pertain fully to the BG. In Form of government: the BARMM will have a the case of uranium and fossil fuels such parliamentary form of government meaning that, as petroleum, natural gas, and coal, there residents will vote directly for their representatives will be co-management and equal sharing in the Bangsamoro Parliament (BP). The BP will between the NG and the BG. The BG share choose a Chief Minister by a majority vote. BARMM will be apportioned as follows: 30% BG; 20% executive authority will be exercised by the Cabinet to the provinces; 15% to the cities; 20% to the headed by a Chief Minister. The Chief Minister municipalities; and 15% to the barangays will be elected by a majority vote of all members (Article XII, Section 35). Under the AOL, NG of the BP. The Chief Minister will nominate two accounted for a 30% share in the taxes imposed Deputy Chief Ministers elected by members of on natural resources. the Parliament. The two Deputy Chief Ministers shall come from the two sub-regions different The BTA will be the interim government in the from that of the Chief Minister to ensure high level Bangsamoro region until a new election in representation of all the Bangsamoro sub-regions. 2022 to coincide with the national election. The 80-member BTA was sworn in by the President in The BP will appoint the Wali who shall serve as the February 2019, including the Interim Chief Minister, ceremonial head of the BG from a list of names who was appointed by the President. 16 02 CONTEXT Institutional arrangements for The BOL defines the key institutions that will be Public Financial Management established under BARMM which includes: The extent of BARMM autonomy and control of 1. Bangsamoro Budget Office public financial management is limited by an 2. Bangsamoro Revenue Office — responsible for ambiguous legal framework, historical deviations the assessment and collection of Bangsamoro of practice from the provisions of the law, and lack taxes as well as other collectible taxes in of complete fiscal autonomy over the territory it the BARMM covers, the government functions and services 3. Bangsamoro Regional Office of the Bureau of provided within BARMM territory, and jurisdiction Local Government Finance — under the NG’s over the constituent sub-regional governments. Department of Finance; will have the authority to coordinate, assist and monitor the treasury and assessment operations of constituent LGUs Under the provisions of the BOL, the BP within BARMM needs to enact priority legislations that will 4. Bangsamoro Treasury Office — with primary establish institutions and define their mandate, function to receive and safeguard all the outline the administrative structure including revenues generated and collected by the BG interrelationships with the National Government 5. Internal Audit Office — handle the internal and the LGUs, and operationalize the powers auditing function and functions including fiscal autonomy over its 6. Regional Civil Service Field Office — to be jurisdiction. This includes: established by the Civil Service Commission 7. Bangsamoro Economic and Development 1. Bangsamoro Administrative Code Council — will serve as the planning, 2. Bangsamoro Budget — annual appropriations monitoring, and coordinating mechanism for law allocating the block grant; should be all development plans, programs, and projects consistent with existing laws, rules and of the Bangsamoro Government regulations of the National Government 8. Bangsamoro Economic Zone Authority — shall 3. Bangsamoro Tax and Revenue Code — have similar powers as those of the Philippine covers the taxing powers of the Economic Zone Authority Bangsamoro Government 9. Bangsamoro Electoral Office — to be 4. Bangsamoro Local Government Code — established by the Commission on Elections should not diminish the privileges of LGUs and under its supervision and control. Yearly under existing laws budget will be with Comelec. 5. Bangsamoro Civil Service Law — consistent 10. Bangsamoro Disaster Risk Reduction and with existing national laws and subject to the Management Council — headed by the Chief Constitutional mandate of the Civil Service Minister; with powers and functions for disaster Commission preparedness and response and will formulate 6. Bangsamoro Electoral Code — consistent with the Bangsamoro Disaster Risk Reduction and existing national laws Management Plan which complements that of 7. Legislation on the Share of the Constituent the NG LGUs in Taxes within BARMM — this will detail 11. Bangsamoro Human Rights Commission — the shares of the constituent LGUs in 75% to cooperate and closely coordinate with the share of the BG in the national taxes, fees and National Commission on Human Rights charges collected in the Bangsamoro territorial 12. Bangsamoro Commission for the Preservation jurisdiction of Cultural Heritage — to preserve the history, 8. Bangsamoro Education Code culture, arts, traditions and rich culture heritage of the Bangsamoro people PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 17 Until the above institutions are established, their Other important features of functions will continue to be undertaken by NG. Public Financial Management and However, the NG will still provide assistance to the its operating environment BG on tax administration and fiscal management, including capacity-building and training programs. Despite the autonomy granted to ARMM as provided for under the AOL and in the newly- BARMM is subject to accountability rules set enacted BOL, it remains an integral part of the by the Commission on Audit (COA) and DBM. territory of the Philippines as provided for in However, it will not be required to justify line item the Constitution. The powers, functions and expenditures for release of authorized funds and responsibilities of BARMM are limited by national will not be subject to the same stringent power legislation. Anything not specified in the BOL is a of the President or the Secretary of Finance that NG responsibility. In addition, some powers and applied to reduce, suspend or cancel the release of responsibilities are outside the BARMM remit due un accounted funds from the block grant and other to explicit legislative provisions in the BOL and shared revenue. elsewhere, including: Mechanisms to facilitate coordination and 1. National Defense and Security — the Police cohesion with the NG on national policies and Regional Office shall be under the direct ensure BARMM’s representation and protection operational control and supervision of the of its interests are also provided for under the Philippine National Police (PNP); the military BOL which involve the creation of the following under Armed Forces of the Philippines (AFP); intergovernmental relations bodies: and the Coastguards. 1. Intergovernmental Relations Body — to 2. External Auditing — the Commission on Audit coordinate and resolve issues between the (COA) remains to be the exclusive external NG and BG. Any unresolved issue will be auditor of the BG and its constituent LGUs raised to the President. Consists of NG and BG appointees supported by a joint secretariat 3. Local Government Finance — the Bangsamoro 2. Philippine Congress-Bangsamoro Parliament Regional Office of the Bureau of Local Forum — for cooperation and coordination of Government Finance under the Department legislative initiatives of Finance (DOF) and shall be guided by 3. Intergovernmental Fiscal Policy Board — the standards set by DOF including the to address revenue imbalances and requirements set for the appointment of fluctuations in regional financial needs and local treasurers. revenue-raising capacity 4. Joint Body for the Zones of Joint Cooperation 4. Official Development Assistance (ODA), Grants — to formulate policies relating to the Zones of and Donations from foreign countries — access Joint Cooperation in the Sulu Sea and Moro Gulf shall be subject to the prior clearance and 5. Intergovernmental Infrastructure approval by the President or their authorized Development Board – to coordinate representative. and synchronize national and BARMM infrastructure development plans 6. Intergovernmental Energy Board — to resolve 5. Public Works and Infrastructure — the NG shall all matters on energy and power generation fund and implement the construction and 7. Bangsamoro Sustainable Development Board maintenance of national roads, bridges, — to ensure the integration and harmonization water supply and services, flood control of economic, social and environmental and irrigation systems and maintenance of considerations for sustainable development existing airports, seaports, and wharves in the policy and practice in BARMM Bangsamoro Region. 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM Fiscal planning, budget preparation The BG will be represented on the national and allocation development plan steering committee and participate in NEDA planning activities. It will need to prepare a regional development plan for Fiscal planning and fiscal risks adoption by the BP, as required under BOL. This is expected to be based on the existing plans for Ratification of the BOL in February 2019 means ARMM, the PDP and other plans relevant regional that future fiscal planning will be founded on a planning documents that have been prepared different basis than previous plans. The ARMM already by groups within BARMM. There may need prepared fiscal plans and budgets, including for to be modifications to existing regional planning the 2019 budget, in much the same way as national and priorities documents within the BTA as they government departments and agencies. This seek to merge existing and new priorities into an involved reliance on national fiscal planning and updated planning document for the region. The procedural arrangements, taking into account the plan to be adopted by the BP will provide the Philippine Development Plan (PDP) and its own basis for budget preparation and for use of funds Regional Development Plan (RDP). provided under the Special Development Fund referred to in the BOL. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 19 ARMM complied with DBM-issued rules, from revenue originating within the region. The regulations, and guidelines covering budget ARMM Regional Legislative Assembly (RLA) mainly preparation, execution, and accountability enacted appropriations of local funds, sourced from of all agencies receiving NG funds, while the internally generated revenue, to cover the financial Congress deliberated budget proposals during operating requirements of the locally created legislation and ratification of the appropriations offices, agencies, and municipalities not entitled to bill. The national budget contained in the General any Internal Revenue Allotment (IRA) under Appropriations Act (GAA) is enacted as a whole the GAA. upon signing by the President. This provided the authority for expenditure for ARMM and it was BARMM will have greater autonomy over fiscal required to comply with the standard provisions policies due to the flexibility provided by the block applied to government departments and agencies grant and other guaranteed revenue sharing that received appropriations under the GAA. arrangements. It will still be subject to some overarching national policies, such as those set out The arrangements for appropriation of revenues in the Administrative Code. There are also explicit to BARMM from the year after the BOL comes into requirements in the BOL for revenues to be spent force will not be subject to the GAA. The provisions in a ‘programmatic, transparent, performance- for revenue sharing and the block grant are defined based, and phased manner’ (Art.XII, Sec,1). However, by formulae in the BOL and may not be withheld BG would be able to develop its own policies on by the NG or NGAs. It will be crucial for effective matters relating to internal fiscal arrangements, planning and budget preparation for BARMM to for example on taxes and fees, borrowing, issue of have clear, reliable and agreed information on the bonds, expenditure allocation and use of funds. The precise amount and timing of funds availability in BOL explicitly states that budgetary arrangements advance of budget preparation activities. should be consistent with NG provisions under a law created by the BP. The BOL provides information on the scope of revenue transfers but is not explicit about the All LGUs within the BARMM territorial jurisdiction timing of availability. It can be assumed that the will continue to receive their annual IRA that is entire amount of transfers will be available from automatically appropriated in the GAA. LGUs the start of the fiscal year, as long as there is a are accountable to the NG as the source of their valid balance diet allocation law in place within IRA. The ARMM did not have any control on LGU BARMM. Additional regulations may be required fiscal management and did not receive any to supplement the law, taking account of issues separate information on their financial positions such as the efficient management of cash at all or performance than available to NG agencies or affected levels of government. These matters the general public. This will make it challenging should be resolved during 2019 to facilitate smooth for the BG to develop holistic fiscal policy for the and efficient planning, allocation and disbursement region because they do not necessarily have from the start of the year. This includes the access to information on LGU plans, activities and calculation method and amounts eligible for achievements as a basis for developing the BARMM revenue sharing, which has been disputed by fiscal plans. There is still no obligation for LGUs to ARMM, as explained in section 3.2. Without reliable provide their plans to BG or discuss the contents and detailed regulations relating to the amount in advance of budget preparation. This could result and availability of revenue, BARMM will face higher in duplication of activities or unintended gaps in cash flow risks affecting its ability to commit funds services at LGU level. A more systematic approach is in advance and to manage cash and liabilities. needed to ensure that LGUs are adequately served and resources allocated efficiently to achieve The legislative branch of the ARMM had no maximum benefit from the perspectives of NG, BG power over fiscal policies affecting the region, and LGUs. other than those relating to ARMM local funds 20 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM The creation of the Intergovernmental Fiscal Policy Governor sat in parliamentary budget hearings to Board which includes the Secretary of Finance explain and defend their budget. and the Minister of the appropriate agency from BARMM (co-chairpersons), the DBM Secretary and The 2017 budget provides a salutary example of the NEDA Director General, will facilitate greater the potential for Congress to intervene in the size coordination with the fiscal policies of the NG and and allocation of the ARMM budget. The largest provide BARMM representation in national fiscal reduction and reallocation of budget in the policy formulation. amended version of the proposed 2017 budget were for ARMM, involving a reduction from PHP Budget preparation 40.6 billion to PHP 32.3 billion. It was reported that congressmen from the ARMM requested ARMM was required to comply with the NG the transfer of PHP 8 billion in fund allocations budget requirements and procedures. This from their respective districts to the DPWH citing involved compiling the annual budget from ARMM concerns over transparency and proper use of departments and agencies and submitting to funds. By contrast, there was not much deliberation DBM in accordance with the annual circular(s). The by the Congress on ARMM’s proposed budget for budgets would be subject to the same scrutiny and 2018 and 2016. negotiations as NG departments by DBM, NEDA and Development Budget Coordination Committee The harmonized or bicameral version of the budget (DBCC), like NG agencies. The ARMM budget was containing ARMM allocations each year was subject included in the consolidated budget proposal to ratification by both Houses before submission usually presented to the President and Cabinet for to the President for enactment of the GAA. The approval in July or August each year. national budget was approved as one, including ARMM’s budget. The President also had power to The President submitted the consolidated veto or set conditions for implementation of certain budget to Congress in August or September for items in the GAA. deliberations and approval by the Committee on Appropriations of the House of Representatives and Table 1 shows the budgets approved for ARMM then by the Senate Committee on Finance. National in the last three completed fiscal years and the lawmakers had the power to question and propose budget proposal for 2019. It shows a steady increase revisions to the ARMM budget without any right of in new appropriations for ARMM over the period. veto by the ARMM Assembly. The ARMM Regional Table 1. ARMM Proposed and Approved Budget (In Pesos Millions) — Net of RLIP 2016 2017 2018 2019 Tier 1 Budget Ceiling (per DBM) 25,208 25,803 27,687 32,224 BESF or NEP for Congressional approval (excluding automatic 28,492 40,574 32,349 31,117 appropriations for retirement and life insurance premiums) New appropriations under GAA 28,492 32,262 33,057 31,117 Source: ARMM ORT documents PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 21 The 2016 PEFA assessment rated the Philippines LGUs follow a different process for budget planning national budget preparation process highly. It and preparation from ARMM and BARMM. scored an ‘A’ for the budget process and ‘B+’ for The DBM issues a local budget memorandum legislative scrutiny of budgets. In 2019 the budget annually that includes the IRA based on the BIR preparation process would have remained at the ‘A’ certification of LGUs’ internal revenue shares for level but legislative scrutiny score would have been the 3rd year preceding the current fiscal year. The reduced due to the re-enactment of the memorandum also contains guidelines on the 2018 budget. preparation of the annual budget for the next fiscal year. The relevant DBM Regional Offices The PEFA performance of the national budget (DBMROs) inform the concerned LGUs of their process provides a somewhat deceptive impression individual IRA allocation. Annual budgets are of budget preparation in ARMM because there has prepared in accordance with RA 7160 and the been no substantive regional budget process or Budget Operations Manual for LGUs for submission ARMM legislative scrutiny for the majority of the to, and budget authorization by, respective Local budget. This is understandable considering that Sanggunians. This process will not change with the process was controlled by NG and the Congress. the establishment of BARMM. There has been no However, for BARMM there will have to be a major involvement by ARMM in budget planning and change because the BP will need to examine, preparation by LGUs and there is no indication that discuss and appropriate budgets. The BG will need this will change under BARMM without additional to establish the necessary rules and procedures for legislation or agreement between the BARMM budgets to be planned, scrutinized and negotiated and LGUs. at administrative and legislative stages. The BOL requires establishment of a Bangsamoro Budget The 2019 budget approved by the Bicameral Office (BBO) for preparing a budget8. The BOL also committee of Congress included an allocation imposes some strict parameters within which the for ARMM but was not enacted at the time this budgets will need to be formulated, particularly in draft report was completed. BARMM is working respect to allocation of the annual block grant9. For with the re-enacted budget of 2018, like NGAs, example, the highest budget priorities should be in the meantime. The implications of this for given to education, health and social services. the operations of BARMM are unclear because the effect on the capital investment program The Regional Budget and Management Office cannot be certain until it is known how long the (RBMO) of ARMM was the regional counterpart re-enacted budget will operate and the extent of the DBM at the national level. It coordinated of unprogrammed funds that will be provided to the regional line agencies’ submissions and BARMM for capital investment projects. It is also accountability on national budgetary activities, unclear whether the supplemental budget for BTA and with ARMM offices and departments on to support transition will be provided in 2019. The local budget preparation for RLA appropriations. Special Development Fund resources proposed The RBMO is expected to provide the seed for under the BOL are available from ratification of the establishing and growing the BBO. The RBMO law at the rate of five billion pesos per year for ten function was limited to the management of years. Expenditures from the Special Development local funds as the regional line agencies directly Fund will be based on the Bangsamoro interacted with the DBM. The BBO will implement development plan to be adopted by the BG. the budgetary laws and procedures to be enacted by the BP on the Bangsamoro Budget and PFM. 8 BOL, Article VII, Section 28 9 BOL Article XII, Sections 19 and 20 22 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM Table 2. GAA Allocations per ARMM Regional Line Agency (In Pesos Millions) — Net of RLIP Department Main expenditure / programs 2016 2017 2018 2019 Amount % Amount % Amount % Amount % Regional DPWH Capital outlay for repairs or improvements, 10,719 38 10,931 34 10,904 33 10,779 33 and construction of road network and other infrastructure facilities. Regional DepEd Personnel and operating costs of 8,066 28 11,553 36 10,258 31 10,894 33 implementing basic education programs. Office of the Operating expenses and capital outlay for 5,881 21 5,473 17 7,385 22 4,653 13 Regional Governor ARMM HELPS, BRIDGE, and PAMANA programs. Regional DOH Personnel, and maintenance and operating 1,154 4 1,292 4 1,333 4 1,504 5 expenses for regional, provincial and city health offices, and district and municipal hospital services. Office of the Operating expenses for ARMM revenue 807 3 809 3 1,009 3 1,008 3 Regional Treasurer generation and fund management. Other 21 ARMM agencies Personnel and operating costs of regional 1,866 7 2,205 7 2,161 7 2,279 8 and the RLA line agencies. Total new ARMM 28,492 100 32,262 100 33,057 100 31,117 100 appropriations per GAA Source: Budget documents Budget allocation the percentage constraint on personnel services expenses should be less confining. Table 2 shows the top allocations to the ARMM regional line agencies, which comprise 93% of the The budget allocation for BG in 2019 will be the total new appropriations for the period 2016-2019 2019 budget for ARMM, which at the time this draft with corresponding regional priority programs, and report was completed, was the re-enacted 2018 allocation by general expense class. The regional ARMM budget. The BOL states that the block grant DPWH and DepEd consistently received the largest will be calculated for the budget year immediately share in allocation among the ARMM line agencies following the effectivity of the BOL, which would in recent years. The reduction in total allocations in be 2020. This means that the degree of autonomy 2019 compared with 2017 and 2018 coincides with over the use of funds anticipated under BARMM the policy change from obligations to annual cash will not apply in 2019. In particular, the application based appropriations. of NG powers controlling the release of funds and to withhold or cancel unaccounted funds will be Table 3 shows the allocation of appropriations an important consideration in whether any funds amongst expense types. The largest shares of affected by such arrangements would be able to be funds are accounted for by personnel services and retained by BARMM for future use. capital outlays. Personnel services accounted for 45 percent in the budget approved by parliament Revenue collection and management for 2019 and 43 percent in 2018. The BOL requires that no more that 45 percent of total annual ARMM revenues from all sources were being revenue is used for personnel services. This could accounted for and reported in accordance with limit the space for the BTA to implement significant existing national accounting and auditing rules new staffing capacity in 2019. In 2020 and beyond, and regulations of the COA. The ORT was mainly the revenue base will be significantly larger so responsible for generating and managing financial PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 23 Table 3. GAA Allocations by General Expense Class, 2015-2019 (In Pesos Millions) — Gross of RLIP Particulars 2015 2016 2017 2018 2019 Amount % Amount % Amount % Amount % Amount % PS 10,868.0 43.1 11,806.2 40.1 15,881.1 47.4 14,661.1 42.9 14,568.4 45.1 MOOE 3,103.4 12.3 4,489.8 15.3 3,994.1 11.8 4,775.0 14.0 4,658.6 14.4 CO 11,258.0 44.6 13117.0 44.6 13,644.7 40.8 14,742.0 43.1 13,058.8 40.4 Fin Ex - - - - - - - - - - Total 25,229.3 100.0 29,413.0 100.0 33,469.9 100.0 34,178.1 100.0 32,285.8 100.0 Source: CPBRD ABN2018 resources for the RG. Included in its mandate was professional staff, which will be a challenge for to act as custodian of all ARMM funds, and adopt the agencies due to limitations in the number of strategies for efficient collections of revenues, available qualified staff in the region. taxes, fees, and charges. However, only the share in internal revenue taxes and the collections The functional arrangements within and between in regional taxes, fees, and charges were being central financial management agencies in handled by the ORT. BARMM are likely to be different to ARMM due to the expanded responsibilities and resources, The Office of the Regional Governor (ORG) but it is not clear how this will be done. The BG managed NG appropriations, while the individual could use the arrangement of responsibilities ARMM line agencies and departments managed amongst NG central agencies, though there may transfers from the ORG and allocations from be opportunities to rationalize and refine them to NGAs. The ORG consolidated budget and financial achieve efficiencies and tailor the structure and accountability reports and submitted them to DBM functions more to regional needs. and to COA for annual audit. ARMM/BARMM revenue BARMM will continue to apply the same policies, standards and procedures as ARMM, as determined The ARMM derived revenue10 mainly from: by COA. The role of the BARMM Department of a. NG appropriations and budgetary allocations; Treasury (BDTr) is likely to expand compared with b. Funding for NGA activities in the region; the ORT because of the larger amount and more c. Shares in internal revenue (and any taxes complex arrangements required for the new imposed on the use of natural resources) agency and a greater need for coordination with collected within its area of autonomy11; and NG counterparts. d. Regional taxes, fees and charges. The new Bangsamoro Revenue Office required BARMM will have the same general sources of under BOL is likely to take over some of the revenue but there will be substantial differences in functions of the ARMM Treasury in relation to the size of NG general transfers and revenue shares collection and management of local revenue, and under the BOL. will have the role of identifying and developing new revenue sources for the region. These new and Details of the ARMM’s revenue sources between expanded functions will involve a steep learning 2016 and 2018 are provided in Table 4. curve and a need for additional experienced 10 The ARMM Transition report identified 8 types of program and project implementation, Book 1, page 123-4 11 Section 9, Article IX of R.A. No. 9054 24 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM Table 4. ARMM Proposed and Approved Budget (In Pesos Millions) Particulars Obligation-Based Cash-Based 2015 2016 2017 2018* 2019~ New General Appropriations 24,299.8 28,492.0 32,261.8 33,057.0 31,117.0 Automatic Appropriations (RLIP)* 209.5 220.3 237.3 1,121.1 1,168.8 Continuing Appropriations 389.0 96.6 3,008.9 - - Budgetary Adjustments 4,341.5 2,618.7 2,207.7 - - Transfers from: 4,866.2 3,148.3 2,854.9 - - DA-OSEC 575.9 - - - - DA-BFAR 92.1 - - - - DEPED-OSEC 136.5 267.8 193.0 - - DPWH-OSEC 1,398.5 - - - - DSWD-OSEC 376.5 839.1 1,519.6 - - Contingent - - 100.0 - - DEPED-School Building Program 25.1 - - - - NDRRMF (Calamity Fund) 2.5 - - - MPBF 1,149.7 1,032.0 5.7 - - PGF 309.4 244.4 236.5 - - Unprogrammed Fund (GFA) 800.0 765.1 800.0 - - Transfers to: (524.7) (529.7) (647.2) - - DBM-OSEC (524.7) (529.7) (647.2) - - Total Available Appropriations 29,239.8 31,427.5 37,715.8 34,178.1 32,285.8 Less: Unused Appropriations 419.5 4,044.1 2,532.0 - - Total Obligations (Expenditure Program) 28,820.3 27,383.5 35,183.7 34,178.1 32,285.8 New Appro-to-Total Available Appro Ratio (%) 83.1 90.7 85.5 96.7 96.4 Obligation-to-Available Appro Ratio (%) 98.6 87.1 93.3 - - Source: CPBRD ABN2018 * Transfer data not available for 2018 at the time of the draft report ~ Budget proposal as submitted PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 25 a. NG appropriations and budgetary allocations required ARMM action but are not controlled The most significant difference between ARMM by the region, such as national disaster and BARMM revenue will be the block grant for recovery activities. Although these resources five percent of net national revenue collections are not revenue for BARMM to allocate as it by the Bureau of Internal Revenue (BIR) and the chooses, it needs to be considered in the overall Bureau of Customs (BOC) from the third fiscal government resources available to the region year immediately preceding the current fiscal and used for the benefit of residents. This year (the budget year)12. Block grant funding includes capital outlays and various special will be included in revenue for 2020 and every purpose funds to implement in relation to subsequent year. The BOL states that it is programs and projects in areas covered by intended to be “sufficient for the exercise of the counterpart agencies in the BG. Many of those powers and responsibilities of the Bangsamoro funds will continue to be centrally managed Government under this Organic Law” 13. and therefore not devolved to their counterpart agencies in the BG. The annual block grant will be the BG’s main source of revenue for the foreseeable future. Fund releases for national programs It is estimated to account for around 80 implemented within ARMM were made percent of total BG revenue in 2020. It will be mostly through cash advances that required automatically appropriated in the GAA and be liquidation before another tranche was made released directly and comprehensively without available. Releases close to the end of the year any further actions required or conditions. LGUs resulted in unused funds. NG appropriations in BARMM anticipate obtaining significant for the ARGMM include significant transfers funding from the block grant in addition to to be used for implementation of identified their IRA and seek assurance for transparent infrastructure projects in the GAA that were and equitable allocation of funds. This will be a subject to enactment of a Public Works Act matter for the BP to decide. (PWA); coordination with the DPWH; strict compliance to national procurement law, rules Another important new source of funds for and regulations, guidelines and applicable BARMM regional development under the BOL general provisions of the GAA; and semi- will be the Special Development Fund. This annual and annual audits by the COA and provides for an allocation of five billion pesos accountability reporting requirements by per year for 10 years from the date of the BOL the DBM. The PWA that the RLA passes to for rebuilding, rehabilitation and development authorize the ARGMM infrastructure budget of conflicted affected communities which is merely a formality since the RLA cannot should be covered by the Bangsamoro amend any allocated project in the GAA. Development Plan to be adopted by BP. It will Appropriations and other budgetary allocations therefore be important for the BP to adopt a from the NG will continue to be a source of development plan as soon as possible to allow revenue for the Bangsamoro Government. the special development funds to be accessed. However, the BOL specified that NG-funded infrastructure projects would now be implemented by the relevant NGAs. b. Funding for NGA activities in the region NGAs such as DOH, DPWH and DepEd also allot funds for use in the BARMM. Other Cash allocations for ARGMM infrastructure functions that are not fully devolved provide budgets in the GAA (2018 – PhP10.242 billion; funds for national government actions that 2017 – PhP10.333 billion; 2016 – PhP10.104 12 BOL Article XII, Section 16 13 BOL Article XII, Section 15 26 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM billion) were being released to the ORG and and managed by the RBMO. However, tax transferred to the Regional Department of collection remains highly centralized through Public Works and Highway (RDPWH) for project the Bureau of Internal Revenue (BIR) which implementation but zero allocations for ROW means that regional funds not automatically acquisitions, which appears to be a matter of available for use after collection. NG policy or discretion. The release of ARMM revenue shares was All of the funds provided by NGAs are part governed by Joint Circular No. 2004-1 which of the resources available for use in BARMM required all collections within the ARMM to be — with each budgeted, appropriated, and centrally remitted for subsequent downloading executed in different ways and by different to the ARMM government by the DBM upon agencies. Each source of funding also has its BIR certification of the ARMM share. The own reporting and accountability obligations. absence of BIR regional office in ARMM The fragmentation in the institutional impeded consolidation and certification as arrangements surrounding the budgeting, collections are reported in three BIR Regions appropriating and execution of BARMM funds namely IX, X, and XII. is partly a result of some provisions in the AOL that were not implemented. Specifically, the The ARMM have not received any share in AOL provided for the passage of a regional revenues from the utilization and development budget law (Article VII, Section 21) and the of strategic minerals or from incremental VAT creation of a regional Department of Budget as provided under AOL in the absence of clear and Management (Article IX, Section 2). implementing guidelines, based on the study Without these, the budgeting process and conducted by the IAG14. the utilization of the revenue remained under the existing laws and rules and regulations It would be important in terms of equity and prescribed by the national government’s incentives for the NG and BARMM to reach DBM. Consequently, the majority of the funds agreement on how to address the anomalies remained outside the control of the in tax sharing to ensure that BARMM and its ARMM government. constituent LGUs benefit from growth and wealth increases within its borders. The approach will be different under BARMM but details of availability and release The BOL provides for establishment of an arrangements had not been developed at the Intergovernmental Fiscal Policy Board that can time this report was prepared. ensure proper procedures, safeguards, and mechanisms in faithfully determining shares c. Shares in internal revenue (and any taxes in internal revenue taxes. Table 5 sets out the imposed on the use of natural resources) arrangements for sharing and administration collected within its area of autonomy of revenues in ARMM and BARMM. The main The regional funds from locally raised taxes differences between arrangements under and fees and the BARMM’s share in the IRA ARMM and BARMM is the increased share of tax (excluding shares for other LGU tiers) is set at revenues collected in BARMM, remittance to 35% are under the full budgetary control of LGUs of the shares in that revenue determined the BARMM government. The regional funds by the BP and the role of a Bangsamoro are programmed by the Regional Economic Revenue Office, to be established in accordance and Development Planning Board (REDPB), with the BOL, in collecting and administering approved by the Regional Legislative Assembly revenue collected within BARMM. 14 Drawing Lessons for the Creation of Regional Governments Under a Federal Setup – Case Study on the Autonomous Region in Muslim Mindanao published by the CPBRD in partnership with the Institute for Autonomy and Governance in 2017. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 27 Table 5. Comparison of ARMM and BARMM shares of national taxes, fees and charges ARMM Bangsamoro Government Regional Government 35%.of revenues collected within the ARMM region 75% of revenues collected in BARMM, including the shares of constituent LGUs. Constituent LGUs 35% of revenues collected within the province or city, which is distributed further to PLGU- BP will enact aa law detailing the shares of the constituent LGUs MLGU-BLGU (40%-35%-20%); and/or to City-BLGU (50%-50%). in the 75% share of the BG. National Government 30% of NG tax collections for five (5) years to be allotted for the ARMM in the GAA. 25% of NG tax collections will be provided to the Bangsamoro Government for the first 10 years from effectivity of the BOL. Assessment and Collections By the BIR but covers only TRA and cash collections of RCOs in the actual sharing. By the BIR, but only until such time that the Bangsamoro Revenue Office has been established by Parliament law. Release of regional government NG releases ARGMM shares, which requires appropriations in the GAA. Lump sum by NG without need of an appropriations law; shares Bangsamoro Revenue Office, upon its establishment, will remit the share of NG. Being charged with the MOOE appropriations to ARMM in the GAA. Balance charged to Separate and distinct from the appropriated annual block available NG unprogrammed funds. grant. Payment of taxes Corporations, partnerships, or firms directly engaged in business, and/or derived income BIR and BRO will agree on modalities for filing of income tax from business operations in the autonomous region are required by the Organic Law to pay returns in BARMM through the Intergovernmental Fiscal corresponding taxes, fees, charges, including income taxes for income realized within the Policy Board. territorial jurisdiction, in the province or city where said business, operations, or activities are located. The large taxpayers and operating branches or units consolidate tax payments at the national level in accordance to BIR regulations. Under Section 9 of Article IX of AOL, the or through their Authorized Agent Banks, ARMM was granted the right to 35% share in and those made through head offices collections from national internal revenue taxes, outside ARMM that are required by the BIR to fees and charges, and taxes imposed on natural consolidate filing and payment of taxes using resources of provinces or cities included in the the EFPS. This is in contrast with the fact that autonomous region. The province or city should AOL required all entities doing business within automatically retain 35% as its share and remit the ARMM and even those with head offices to the national government the balance of 30% outside ARMM to pay taxes to the concerned but only the BIR has authority to collect internal LGU corresponding their income realized within revenue taxes. the ARMM. Moreover, the ARMM-DOF-DBM Joint Circular The Bangsamoro Government will be granted No 2004-01 dated February 26, 2004 that has its share of revenues generated from the been the government issuance that provided operations of public utilities, and with all guidelines on the release to ARMM and government revenues generated from the concerned LGUs their share in the national exploration, development and utilization internal revenue taxes, requires full remittance of all natural resources in the Bangsamoro to the BTr of all internal revenue collections Autonomous Region. 70% of the revenues will within the ARMM. The guidelines cover be shared with the constituent LGUs (20% each only internal revenue collections from Tax to PLGUs and MLGUs; 15% each to cities and Remittance Advice (TRA) of NGAs and from BIR BLGUs). The Parliament will also enact a law Revenue Collecting Officers (RCO). It excluded for the sharing mechanism and percentages internal revenue collections from other modes for indigenous communities on revenues such as those made to the BIR Revenue District generated from their territories. Offices (RDO) covering ARMM territories and/ 28 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM Formulation and adoption of implementing the regional revenue source have never been rules and regulations, specific procedures and reviewed, assessed, and/or updated. coordination arrangements should be a priority of the NG and the BG on all wealth or revenue The BARMM government has powers to raise sharing provisions of the BOL. An independent revenues as provided for in the BOL15. The appraisal body could be considered to ensure amount of funds collected from regional taxes, conformity to agreements between the fees, charges and other income aside from NG national and the regional governments. transfers amounted to less than five percent of total annual revenue for ARMM, as shown in ARMM maintained a long-running dispute Table 4. The largest source of regional revenue with the BLGF regarding the size of its share has been the contractor’s tax. of revenue collected within its boundaries. The primary issue relates to identification The range of regional revenue sources available of the origin of national revenue collections. to BARMM has increased compared with Many entities operate within the BARMM ARMM but it will be difficult in the short term to region but tax payments are made through establish new sources of revenue or to increase the head offices of those entities, which are charges on Bangsamoro businesses and generally in Metro Manila or other large cities. individuals. This is because new taxes will not Consequently, the tax payments are recognized replace existing taxes, they will only increase at the point where the taxes are collected the overall burden of taxes. Also, the residents rather than where the obligations are incurred. of Bangsamoro are among the poorest in the country so their capacity to pay additional taxes The size of the difference between the location is more limited than elsewhere. where the taxable activities were undertaken and where they were paid is difficult to With the expanded revenue source granted determine because the entities are not to the Bangsamoro Government, it needs to required to identify those details. BLGF and ensure appropriate planning and coordination BIR are working with subnational governments with the NG to obtain the necessary assistance on this matter but it has not been resolved. It on tax administration and fiscal management, could involve a significant under-recording of including capacity building and training transfers that BARMM and other subnational programs. The Bangsamoro Tax and Revenue governments outside metropolitan areas Code to be enacted by the Parliament as are eligible for, and offsetting reductions in mentioned in Section 14 of Article XII of the BOL transfers to metropolitan governments. This is should be able to comprehensively cover the not an issue unique to BARMM but affects all BG taxing powers drawing lessons from the other subnational governments. experiences of the ARMM. The Bangsamoro Revenue Office should be established as d. Regional taxes, fees and charges provided under the BOL, which will be primarily The Muslim Mindanao Act No. 49 is the responsible in the proper assessment and Revenue Code of the ARMM and governs the collection of Bangsamoro taxes, and other imposition, assessment, and collection of all collectible taxes with the BARMM. regional taxes, fees, and charges within ARMM territorial jurisdiction. It provided for 27 types ARMM LGU revenue of regional revenue source for which the ORT or his duly authorized deputies are responsible The NG, through the Bureau of Treasury (BTr), in collecting. Since its enactment by the releases IRA directly to LGUs local treasurers Regional Legislative Assembly (RLA) in 1995, appointed by the Department of Finance (DoF). the implementation of the Revenue Code and The LGUs, independently control their respective 15 Article IX, Sections 1, 8 PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 29 IRA and revenue from all sources. This is not LGUs in ARMM have not received any share in expected to change following the establishment revenue from the utilization and development of BARMM. of strategic minerals since ARMM already has a 70% share in the taxes collected within its area of The provisions of the 1991 Local Government jurisdiction, for which LGU sharing was provided Code (LGC) regarding the use of internal revenue under Republic Act No.9064, Organic Law of ARMM. allotment (IRA) for LGUs within the BARMM makes them fiscally independent of BARMM. The IRA LGUs administer their own local tax and non-tax accounts for more than 90 percent of annual revenues. Access to locally generated revenues revenue for many LGUs. As a result, the LGUs are varies in BARMM. It ranks the lowest among intensely focused on that source of funding and the the Philippine regions in terms of local income. conditions under which it is provided, regardless of Discussion with selected LGUs revealed that they any plans or priorities decided by BARMM. need to be capacitated in local tax administration and raising income from public services and Tables 6 and 7 show that LGUs are receiving as economic enterprises as shown on the comparative much IRA as the other non-BARMM Mindanao table below of local revenue for Mindanao regions. regions and higher shares from national tax collections arising from their portion of regional IRA for LGUs does not lapse compared to ARMM government’s share in NG internal revenue. In 2016 budget that needs to be reverted if unutilized. The ARMM LGUs were dependent on IRA for 96 percent ARG has no control over LGU spending or utilization of their revenue compared with the national of their IRA. average of 64 percent. Table 6. 2016 LGU IRA Dependency16 (In Pesos Millions) Region IX Region X Region XI Region XII Region XIII ARMM Mindanao Philippines CARAGA Total Total Locally sourced revenue 2,606 5,952 6,380 3,283 2,608 334 21,163 175,610 Internal revenue allotment (IRA) 14,305 19,120 17,346 16,034 14,474 16,019 97,298 343,777 Annual regular income (ARI) 16,946 25,262 23,764 19,332 17,870 16,643 119,817 536,767 IRA Dependency 84% 76% 73% 83% 81% 96% 81% 64% Table 7. 2016 LGU External Revenue17 (In Pesos Millions) Region IX Region X Region XI Region XII Region XIII ARMM Mindanao Philippines CARAGA Total Total EXTERNAL SOURCES 14,585 19,577 17,598 16,216 15,312 16,473 99,762 369,227 Revenue Allotment 14,305 19,120 17,346 16,034 14,474 16,019 97,298 343,777 Other Shares from National 35 190 39 14 787 290 1,356 17,380 Tax Collections Inter-Local Transfer 30 163 98 104 31 12 440 2,057 Extraordinary Receipts/Grants/ 214 104 115 64 19 152 668 6,013 Donations/Aids 16 Computed from the Statement of Receipts and Expenditures consolidated by the BLGF-DOF 17 Computed from the Statement of Receipts and Expenditures consolidated by the BLGF-DOF. 30 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM Table 8: 2016-2018 Summary of ARMM Releases18 Recipients 2016 2017 2018 Regional Line Agencies 1,151,312,001 1,182,078,597 1,305,970,438 Local Government Units 664,901,929 666,675,042 690,261,270 TOTAL 1,816,213,930 1,848,753,639 1,996,231,708 The ORT remits to ARMM-LGUs their corresponding Locally generated revenue portion in ARMM shares in internal revenue taxes (including any taxes imposed on the use of natural Table 9 presents a comparison of local source resources) which are effectively additional sources revenue for Mindanao regions. The amounts of local of revenue for LGUs within the jurisdiction. Non-IRA taxes and other revenue are significantly lower in municipalities receive financing assistance from ARMM than other Mindanao regions. For example the ARG and/or from their host municipality and Region XI obtained almost 20 times the amount of provincial LGU. Details for the last three fiscal years revenue from local taxes and charges as the are provided in Table 8. The amounts remitted to ARMM LGUs. LGUs exceeded PHP 660 billion in each year. Table 9: 2016 LGU Local Revenue19 (in Million Pesos) Region IX Region X Region XI Region XII Region XIII ARMM Mindanao Philippines CARAGA Total Total LOCAL SOURCES 2,710.44 6,027.38 6,499.63 3,425.29 2,660.52 369.02 21,692.28 181,602.93 TAX REVENUE 1,149.73 3,267.17 4,063.04 1,758.61 1,313.95 214.56 11,767.06 128,317.76 Real Property Tax 471.97 1,412.89 1,516.81 809.08 473.38 43.47 4,727.61 50,828.68 Tax on Business 599.70 1,683.45 2,244.64 831.33 751.86 158.63 6,269.61 69,958.38 Other Taxes 78.05 170.83 301.59 118.19 88.70 12.47 769.84 7,530.71 NON-TAX REVENUE 1,560.72 2,760.20 2,436.59 1,666.68 1,346.57 154.46 9,925.22 53,285.17 Regulatory Fees 148.85 340.54 444.98 232.50 300.22 29.11 1,496.20 11,213.31 (Permit and Licenses) Service/User Charges 291.61 414.06 439.61 708.98 360.31 27.38 2,241.95 14,389.23 (Service Income) Income from Economic 1,015.65 1,930.35 1,432.08 583.38 633.76 62.62 5,657.84 21,689.76 Enterprises (Business Income) Other Receipts 104.61 75.25 119.91 141.82 52.28 35.36 529.23 5,992.87 (Other General Income) Source: Statement of Receipts and Expenditures consolidate by the BLGF-DOF 18 Data from ARMM-ORT 19 Statement of Receipt and Expenditures consolidated by the BLGF-DOF PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 31 Fiscal and budgetary trends PHP 4,866 million in 2015 to PHP 2,619 in 2016 and continued to shrink in 2017. Cessation of certain transfers from DA and DPWH were the main Appropriations to ARMM between 2015 and 2019 reasons for the fall between 2015 and 2016. In showed a gradually increasing trend. 2019 will be an contrast, transfers from DSWD increased during exception due to the introduction of annual cash- the period. based appropriations, contributing to a reduction in total new appropriations proposed for ARMM in that year. Although new appropriations are by far the largest category of funding, accounting for more than 80 percent of total appropriations, the significant There has been greater volatility in other categories volatility of other appropriations created challenges of appropriations during the period. For example, for ARMM, and will have a similar impact on continuing appropriations displayed a significant BARMM. Changes in sectoral transfers can be drop between 2015 and 2016 from PHP 389 million particularly challenging in both upward and to PHP 97 million respectively. This was followed downward directions as the agencies have to adapt by a substantial increase to PHP 3,009 million in to large increases or decreases in workload. These 2017 due to a large amount of unused capital and changes are often unpredictable and the ARMM MOOE appropriations from 2016. It is understood agencies could not plan in preparation for the that a major reason for the unused appropriations changes but had to react as quickly as possible. resulted from long delays in approval of capital and Adjustments in ARMM allocations to affected maintenance projects within ARMM. agencies are difficult when late notice of changes are received because the budget allocations are Automatic appropriations for the retirement and locked in before the start of each year as part of the life insurance premiums of ARMM employees national budget process. averaged around PHP 220 million between 2015 and 2017. They increased almost fivefold between ARMM has been unable to obligate all available 2017 and 2018 to PHP 1,121 million with further appropriations during the period. In 2015 they increases planned for 2019. In contrast, budgetary performed very well in being able to obligate 98.6 adjustments were almost halved between 2015 and percent of available appropriations. The following 2016 and continued to fall in 2017. year, however, ARMM was only able to obligate 87.1 percent of available appropriations. The ratio Transfers from NGAs also experienced volatility of obligated to available appropriations increased between 2015 and 2018. Total transfers fell from again in 2017 to 93.3 percent. This volatility in 32 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM obligation ratios is a signal that there may be Considering that BARMM shall partake the nature problems in reaching timely decisions, difficulties of an LGU, it is not required to maintain a bank arising in maintaining progress on major capital account within the Treasury Single Account. investments or variations in absorption capacity However, the management of funds release and due to institutional or operational factors. cash will be a much bigger responsibility for BARMM will need to examine the reasons for BARMM than ARMM. There will be substantially volatility in the appropriation utilization rates to more funds available to BARMM than ARMM and determine the underlying causes and address the timing of transfer from the BTr to BARMM, and them where possible. from the BARMM treasury to authorized users will need to be carefully managed by the Treasury. This One indicator suggesting that there may be will require establishment of cash management difficulties in meeting administrative capacity rules, consistent with laws, national rules and requirements in ARMM is the increased number procedures, and rigorous application of those rules of unfilled positions in ARMM. There were 4,946 by the BARMM treasury. This should be a priority unfilled positions in 2015 which increased by 80 concern for the BG because cash management has percent to 8,942 unfilled positions in 2018. The been a consistent area for COA audit qualifications share of unfilled positions in total authorized and observations in recent years. positions was 14.3 percent in 2015 and 21.7 percent in 2019. This situation indicates that there may be One warning sign that cash management problems in the administration of new positions or arrangements may need tightening is difficulties in recruiting staff to fill them, or both. It the significant gap between obligation will be difficult for BARMM to meet its obligations and disbursement rates for ARMM. In 2016 under the BOL if it is unable to either establish staff disbursements were 87 percent of obligations positions or successfully recruit and retain while in 2017 the rate fell to 65.7. Obligations are qualified people. incurred from appropriations at a higher rate than disbursements suggesting that payment for goods Budget execution and services contracted by ARMM was significantly slower than intended. BARMM will need to examine the reasons for the relatively low disbursement rate Cash management in 2017 to address any unavoidable payment delays. This will ensure efficient cash management and Responsibility for cash management was shared avoid a build-up of payment arrears. under ARMM between the ORG and ARMM Treasury. The ORG was responsible for facilitating It will be important for BARMM to maintain control transfer of appropriations to the relevant ARMM of all funds coming into and going out of the departments and other entities while Treasury government. The many sources of funds and the handled allocation of locally generated revenues. different ways that they enter the region have not Cash controls on appropriations were primarily been centrally managed in ARMM. Funds provided handled nationally through the normal operations through appropriations to ARMM and from NGAs of DBM and BTr so the ORG’s main role was have entered the region in a variety of ways in obtaining and redirecting funds from NGAs within the past, though most have been channeled a control framework established and managed by through either the ARMM treasury or ORG. DBM and BTr. BARMM should consider having a single agency responsible for managing funds from all sources ARMM was part of the Treasury Single Account and disbursement of those funds to agencies as (TSA) which facilitated electronic transfers needed. This will facilitate good practices in cash between BTr and ARMM for approved allocations management, financial control, recording and and disbursements. reporting on those funds. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 33 Operational and program expenditure providing for a Local Government Code in the ARMM. That law contained a section on local The BG will have authority over several areas fiscal administration particularly on expenditures, critical to basic service delivery such as budgeting, disbursements, accounting and accountability. administration of justice, agriculture, environment, The BARMM will also need to establish a local natural resources, civil service, education, disaster government code, as required by the BOL. The risk reduction and management, health, human BP will establish regional budget management rights, public works, social services, tourism and arrangements and approve an appropriation law for trade and industry. This will be different to other allocation of resources within the region. The BOL SNGs and different to ARMM. emphasizes that the budget must be consistent with existing laws, rules and regulations of the NG.20 Resources for the region will increase with funding coming from the IRA, locally generated revenue, Under the AOL, funds allocated for the ARMM were annual block grants and the ten-year PHP 5 billion released directly to the treasurer of the RG. In the annual allocation from the Special Development same way, the BOL states that annual block grants Fund for conflict-affected communities. This will be automatically appropriated and will be will be weighed against an expanded scope of released directly and comprehensively to the BG responsibilities and obligations to establish new without any lien or holdback that may be imposed and expanded agencies to comply with the BOL by the NG for whatever purpose. Funds received and to cope with the increased administration, from NG through BTr to BARMM will be transferred accountability and service delivery requirements. to the regional agencies based on the approved budget by the BG. National programs and projects shall continue to be funded by the NG, such as ARMM appropriations under the GAA were the Pantawid Pamilyang Pilipino Program, Health authorized on a line-item basis but BARMM will Facility Enhancement Program, School Building receive lump-sum appropriations and will have the Program, retained hospitals at DOH, Philhealth, flexibility to change the basis for appropriations, social pension for senior citizens and subject to alignment with national laws and Taskforce Marawi. regulations, to other forms that may be more appropriate such as functional, program or groupings based on development plans. Such The GAA requires NGAs to prepare regional changes may provide more focus on development and provincial allocations for national projects/ priorities, but would require robust monitoring and programs and funds from NGAs in their respective accountability arrangements to ensure that funds budgets. Upon receipt of such funds, the RG or are properly controlled and used for the purposes any LGU concerned should report the utilization intended. This will be a challenge considering the of such funds from NGAs. Funds released to the absence of such mechanisms under ARMM, and RG for national programs implemented within considering the lack of control over LGUs that may BARMM are treated as cash advances and require receive funding from BARMM. liquidation before another cash advance can be availed. ARMM was required to comply with the AOL and other laws which set policies and procedures The involvement of NGAs in BARMM will continue on budgeting, accounting and auditing to be to entail a complex range of approaches and consistent with national government arrangements procedures with varying degrees of consultation established by COA, DBM, DILG and DOF. ARMM and engagement with BG as has occurred Regional Assembly also enacted the Muslim under ARMM. This will maintain the challenging Mindanao Autonomy Act No. 25 on 26 April 1993, environment for the region in which the BG will 20 BOL, Article VII, Section 28 34 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM need to set its policies, plans and budgets with ad-hoc grants. IRA is allocated to the different partial information on the total government activity levels of local government and to specific LGUs and investment in each sector. This makes it very within each level according to a pre-determined difficult for agencies at all levels of government to formula. LGUs have almost full discretion in the ensure complementarity and efficient alignment of utilization of their IRA after considering national actions to achieve the policy goals and plans they guidelines on spending for development plans, are working towards. debt servicing, gender programs etc. On the other hand, ad hoc grants have specific purposes for LGU funding from NG transfers is received in two which they should be spent. These grants can ways: formula-based block grants or the IRA; and come from a) lump sum allocations in the GAA, b) allocations from national government agencies from their own budget or c) other sources such as donations, grants, development assistance from congressmen etc. The remainder of this section illustrates the nature of this complexity as it applies to sectors receiving most funding from the various tiers of government. • Education Under the AOL, educational funds for the RG allocated by the national government in the GAA were released directly to the RG treasurer. Madaris teachers employed in the public schools were paid from RG funds. The RG also provided scholarships to qualified poor but deserving students in all levels of education. The RG devoted at least fifteen percent (15%) of its regular budget for education to support scholarships. The BOL requires the BP to pass an annual appropriation law allocating the block grant to various agencies and programs according to the powers of the Bangsamoro Government. The national program on school buildings will continue to be funded and implemented by NG DepEd, as is the case for all regions within the country. The funds provided under this arrangement are not controlled by ARMM and are subject to change at DepEd’s discretion. No funds were provided to ARMM under this program in the last three years. ARMM DepEd also considered that the amount of MOOE provided for schools was insufficient to address the needs. They have drawn this to the attention of DepEd national but the matter was not resolved prior to the transition to BARMM. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 35 LGUs also have the Special Education Fund directly to DepEd national instead of through (SEF) that arises from the additional one the ORG. percent (1 %) tax on real property and is allotted by the LGUs21 to the local school boards. • Public Works and Infrastructure This Fund is allocated by the Code for the The AOL provided for ARMM infrastructure operation and maintenance of public schools; funds to be allocated by the NG and construction and repair of school buildings, appropriated through a Regional Assembly facilities and equipment; educational research; Public Works Act. Unless approved by the purchase of books and periodicals; and sports Regional Assembly, no public works funds development in amounts determined by the allocated by the national government for the local schoolboards themselves. Regional Government or allocated by the Regional Government from its own revenues This shared responsibility of the NG, RG could be disbursed, distributed, realigned, or and LGUs creates complex funding and used in any manner. administration arrangements. In the absence of a comprehensive regional plan for education, National DPWH distributed funds appropriated there is a high risk of funds not being for works in ARMM to its offices in the regions maximized for priority projects in the region. overlapping with ARMM (regions IX, XI and XII). ARMM’s role in supporting education at the It then waited for ARMM regional assembly LGU level tended to focus on filling gaps in to approve the works before initiating services provided by LGUs and adjusting for procurement and commencing work. Not disparities in services between LGUs. Funding surprisingly, this process resulted in greater for special education needs was seen as an delays in commencing and completing works important area for cooperation between than in other parts of the country where ARMM and LGUs. ARMM also funded schools the allocation, approval and procurement of established in the non-IRA municipalities works was less complicated. In some years established in the region. the process of obtaining regional assembly approval took more than six months from the Teacher hiring was seen as a challenge by start of the fiscal year. In 2018, for example, ARMM DepEd. The hiring of teachers is the infrastructure program was not ratified by supposed to be done centrally but the region ARMM until October, leaving very little time relies on many volunteer teachers because the until the end of the year to obligate funds, let formal hiring process has been problematic. alone starting the works. There are significant discrepancies between the number of teachers and the formal The BOL provides for most works in BARMM to teacher records in the data base, according to be undertaken by NGAs22, so the potential for ARMM DepEd. delays is likely to be less problematic. However, for regional and local infrastructure funded ARMM DepEd used to report on NG funding for from BARMM resources, it will be important education through the ORG in an attempt to to ensure that preparatory work commence consolidate regional reporting to NG but this early so that procurement and implementation resulted in delays, misdirection of information can commence as soon as possible after the and difficulties in achieving timely funding. The start of the year. BARMM will be expected to reporting process has been changed in more align its financial management arrangements recent years so that ARMM DepEd reported with NG so it can be expected that they will 21 Required under Section 272 of RA 7160 or Local Government Code of 1991 22 Article XIII, Section 37 36 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM also adopt annual cash appropriations if such of the cost of BARMM maintenance in the arrangements are implemented nationally. This GAA. Funding for national roads, bridges, will make it even more urgent than in the past and irrigation systems appropriated by the for works to commence as early as possible in National Parliament will be regularly released the year so that available cash can be spent to the relevant NGAs. This is likely to require by year-end. Practices such as automatic a rationalization of staff and functions within appropriation release and advance approval BARMM, as resources and emphasis are shifted for preparatory work on capital projects that are to areas that were underserved or not required applied by NG would also be beneficial under ARMM. for BARMM. One challenge for BARMM will be to identify DPWH reports on works by standard national and prioritize new projects such as power, region and did not prepare consolidated ports, drainage and roads across all areas, reports for works in ARMM. This could be done, including the islands, to be undertaken by but has not been required by DPWH or ARMM. NGAs and to ensure that those priorities are included in national infrastructure plans. The The BOL establishes clearer policies on public role of BARMM in construction and investment works and infrastructure. The NG shall fund and in infrastructure will need to be clarified and implement the construction and maintenance made complementary to the national plans. of national roads, bridges, water supply and BARMM could focus on social infrastructure, services, and flood control and irrigation for example. systems and for the maintenance of existing airports, seaports, and wharves in the BARMM. National Disaster Risk Reduction and Water supply and services, flood control, and Management Council (NDRRMC) calamity irrigation systems that connect to or from funds for the ARMM region were disbursed facilities outside the BARMM shall be delivered through LGUs, which will not change under through cooperation and coordination between BARMM. The works were undertaken through the BG and the appropriate national or local memoranda of agreement (MOAs) between government bodies. The BG will submit DPWH and LGUs, subject to LGU capacity proposals to the appropriate NGA for inclusion to implement. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 37 Coordination of infrastructure planning in ARMM DOH had a MOA with the national ARMM was undertaken through the Regional DOH on funding, programs and services. Development Planning Board, which Funds for national health programs were included representatives from municipalities channeled through the ORG to ARMM DOH. and cities. This approach is expected to Planning is done at the national program level continue under BARMM, with the additional and it appears that there was no involvement level of coordination provided by BARMM by ARMM DOH in planning or decisions on representation on national planning bodies. those programs. This should help to ensure that priorities from the more localized tiers of government One of the many challenges of the complex will be aligned with regional and national funding and administration arrangements is investments. Additional coordination will be the multiple sets of guidelines for eligibility required on the use of funds from the Special and fund release. Funds flow from the national Development Fund for conflict affected areas budget to LGUs through several channels, each and other specific projects such as Marawi with its own set of requirements on eligibility, redevelopment, adding to the challenges of utilization and reporting. This includes funds having a consistent and efficient regional under overseas development assistance (ODA) approach to development. as well as locally funded programs. The parallel fund flows create an extensive compliance • Health and Social Services burden on the limited capacity of the LGUs The national budget places substantial by requiring different business processes and resources with NGAs for the provision of administrative arrangements. local-level services and investments. Since there are several vertical programs budgeted Delivery on the ground is complicated by under NGAs which are implemented at each agency interacting with LGUs in various the local government level, this has led to ways. The NGAs set their own guidelines for numerous parallel funding flows, resulting in LGUs regarding each of the programs they fragmentation of planning, budgeting, service administer. The local governments shared delivery, and accounting leading to diffused their frustrations on conflicting policies lines of accountability. This was the case prior on fund releases during interviews for this to BARMM and will continue unless a formal project. When the NG releases funds to LGUs, mechanism is established to simplify and it issues corresponding guidelines such as monitor various funds and in-kind flows and compliance with RA 9184. However, specific accountability reporting. provisions of the guidelines may require LGUs to do otherwise. For example, supplemental DOH and DSWD have been particularly feeding for students - LGUs are obliged to involved with LGUs under the local government procure products of local farmers and not a code due to activities that have been full competitive process. LGUs noted that the substantially devolved to LGUs. However, new rules/guidelines are not disseminated many health and social services programs such to them in a timely manner. NGAs place the as the Pantawid Pamilyang Pilipino Program, responsibility of awareness of applicable rules Health Facility Enhancement Program, retained on LGUs, often placing these on websites. hospitals at DOH, Philhealth, social pension However, some LGUs, especially with internet for senior citizens, immunization, control of connectivity challenges, are unable to check communicable diseases, provision of drugs and the NGAs’ websites regularly to be informed of medicines to devolved facilities and operation any new rules/guidelines. of hospitals in the NCR continue to be funded by the central government under the budget of the DOH and DSWD. 38 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM Public investment and asset management Development Council23 for the ARMM that served as the counterpart of the NEDA Board at the Public investment in BARMM is primarily financed subnational level. The ARMM was also granted at the NG level. Project planning and programming representation in the formulation of social and for infrastructure in ARMM was guided by the economic policies, plans and programs through Regional Development Plan (RDP), developed attendance of the ARMM Regional Governor in with inputs from the Infrastructure Convergence meetings of the NEDA Board, the Committee on Committee (Municipal, City, Provincial Planning Social Development and the Committee on representatives, CSOs), consolidated and finalized Social Infrastructure. at the Regional Infrastructure Development Committee, and submitted to the ARMM Regional Fund transfers from NGAs such as Department of Economic and Development Planning Board Agriculture (DA), DepEd, DILG, DSWD, and DPWH (REDPB) before the ratification of the Regional would be provided from time to time to fund Legislative Assembly (RLA). The REDPB consists specific infrastructure programs in ARMM. The of representatives from the five (5) provinces, ARMM Regional government have locally-funded two cities, RLA, and one CSO/NGO. The REDPB is program for roads and other projects under the assisted by its technical secretariat, the Regional PAyapa at MAsaganang PamayaNAn (PAMANA). Planning and Development Office (RPDO) that Foreign-assisted programs also provided funding led preparation of development plans, programs, such as USAID’s Alliance for Mindanao Off-Grid and projects of ARMM such as the recent RDP for Renewable Energy (AMORE) for electrification in 2017-2022. The REDPB functioned as the Regional off-grid areas, the Growth with Equity in Mindanao 23 Executive Order 207 (May 17, 2003) PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 39 (GEM) and the Multi-donor trust fund’s ARMM of national roads and bridges projects while Social Fund Project (ASFP) for port development. the ARMM-DPWH is in-charge of the local infrastructure (e.g. roads and bridges, flood LGUs have locally funded infrastructure projects control, water resources and other public works). from their IRA (at least 20%) as mandated by the Maintenance of both national and local roads is LGC. In addition, LGUs also benefit from ad hoc handled by ARMM-DPWH, with the maintenance non-IRA transfers from NGAs, legislative funds, and funds for national roads and bridges downloaded foreign donors to support various infrastructure to ARMM Engineering District Offices through projects. Funding for public investment in ARMM the DPWH Regional Offices IX and XII. However, is uncoordinated in terms of scale and distribution, there is still unclear delineation of responsibilities there is no central control in how much gets on infrastructure project implementation and distributed to where, resulting to inequities across maintenance among the national DPWH, ARMM- the LGUs, and less transparency and harmonization DPWH, and the LGUs. On the other hand, the across different programs. agencies mandated to oversee and regulate the irrigation and power sectors which are the National Irrigation Administration (NIA) and the National In terms of execution, various modalities exist in Electrification Administration (NEA) respectively, infrastructure delivery. These include: (i) NGA- are not devolved to the ARMM government. funded, NGA-executed (e.g. schools, national roads, bridges); (ii) NGA-funded, ARMM-DPWH- executed (e.g. national roads maintenance, local Table 10 shows that capital outlays (CO) accounted infrastructure); (iii) NGA-funded, LGU-executed (e.g. for the biggest share in the ARMM government DILG water supply, DILG local roads); (iv) ARMM annual expenditure program for the last five years government-funded, ARMM-DPWH-executed (e.g. shows that, averaging at 43.6%. For 2019, the PAMANA); (v) direct fiscal transfer to LGU, LGU- Road Network and Other Public Infrastructure executed through Local Government Support Fund Facilities Program is allocated the second (LGSF) (e.g. water supply, local roads, etc. under biggest share of the budget. This covers the BUB, ADM, KALSADA); (vi) LGU-financed, LGU- construction, development, upgrading, operation executed (various investment funded from AIP). or maintenance of major roads, local roads, bridges, water supply, shore or river wall protection, flood control and drainage facilities. These modalities have different comparative advantages, but they are not applied strategically. Primarily, DPWH oversees the implementation The 2019 national expenditure program (NEP) specifies several conditions to govern the use of Table 10. Expenditure program by general expenditure class, 2015-2019 (Million pesos) Particulars 2015 2016 2017 2018 2019 Amount % Amount % Amount % Amount % Amount % PS 10,692.6 37.1 11,084.8 40.5 12,133.3 34.5 14,661.1 42.9 14,568.4 45.1 MOOE 4,856.3 16.9 5,362.5 19.6 7,297.2 20.7 4,775.0 14.0 4,658.6 14.4 CO 13,271.5 46.0 10,936.2 39.9 15,753.2 44.8 14,742.0 43.1 13,058.8 40.4 Fin Ex - - - - - - - - - - Total 28,820.3 100.0 27,383.5 100.0 35,183.7 100.0 34,178.1 100.0 32,285.8 100.0 Source: CBPRD 2018 ABN (The Years 2015-2018 reflect the actual obligations while Year 2019 shows the GAA level) 40 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM the ARMM infrastructure budget: (i) enactment on Finance and DBM conduct oversight in the of Public Works Act by the RLA; (ii) coordination implementation of various infrastructure projects. with the national DPWH in the implementation It requires the ARMM regional government to of national road projects; (iii) conformity and strict submit quarterly reports on its financial and compliance with national laws including the physical accomplishments within 30 days after the Government Procurement Reform Act (RA 9184); end of every quarter. After submission of these and (iv) semi-annual and annual audits by the COA. reports, it further requires the ARMM government to post these reports in its website. Following the Infrastructure projects may also be undertaken ratification of BOL, the 2019 budget of ARMM will by the Armed Forces of the Philippines (AFP) be transferred to the BTA as provided for in BOL Corps of Engineers. To provide accountability Article 16, Section 14. in the use of infrastructure funds, the House of Representatives, Senate of the Philippines, House The BOL presents opportunities for BARMM Committee on Appropriations, Senate Committee to provide institutional framework, central coordination and efficient service delivery that ensure public investment is fiscally sustainable and effectively coordinated across sectors, levels of government, and between public and private sectors. The creation of an Intergovernmental Infrastructure Development Board as provided for in Article VI, Section 6 enables having a core body who will be responsible for coordinating and synchronizing national and Bangsamoro infrastructure development plans. This body will enhance the linkage of the planning, programming and budgeting process of the BARMM in public investments. An investment program based on an optimal mix of government financing, official development assistance, and private capital need to be undertaken. The BG is likewise being given participation in national development planning activities of the NEDA under Section 6 of Article XIII of the BOL. A Bangsamoro Economic Development Council (BEDC) will be established also to serve as the planning, monitoring, and coordinating agency for all development plans, programs, and projects of the Bangsamoro Government taking into account the development plans of P/C/M/BLGUs approved by their respective local development councils. RA 11054 also allows the BG to enact an urban land reform and land use program for the Bangsamoro Autonomous Region (Section 17 of Article XII), which could ensure coherent comprehensive land use plans (CLUPs) among the LGUs within its jurisdiction that generally lack adequate capacity and resources in preparing their respective CLUPs. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 41 Key institutional mechanisms that can be • Expand e-ARMM system being maintained by considered include: the ARMM-DPWH to be the central repository of all public investments in ARMM including its • Strategic distribution – both sectorally and constituent LGUs spatially – of infrastructure which is essential for inclusive growth and sustainable development. Procurement This entails centralizing control (to the extent possible) and coordinating funding for all All procurement of the national government, public investment in BARMM including the its departments, bureaus, offices and agencies, constituent LGUs. This will allow greater including state universities and colleges, complementation of different modes of government-owned and/or controlled corporations, financing for infrastructure projects – locally- government financial institutions and local funded (e.g. block grants, BARMM revenues), government units are covered by the procurement foreign assisted (donors, grants) and law, RA 9184, Government Procurement Reform Act private sector (GPRA), and its implementing rules and regulations (with latest revision as of 2016). ARMM and its • Agreement on working relationship with the instrumentalities, and the LGUs implement their NEDA through the Bangsamoro Government procurement following GPRA. BARMM will also use representative (i.e., BEDC) GPRA in their procurement implementation. • Adoption of ARMM RDP 2017-2022 which In all cases, the procurement of the government includes a comprehensive section on should be governed by the following principles: accelerating infrastructure development in transparency, competitiveness, efficiency, the region accountability and public monitoring of the process. The government uses a tool to monitor and • Formulation of integrated CLUPs and focus strengthening measures in the Procurement development plans of LGUs within Entities. The Agency Procurement Compliance and territorial jurisdiction Performance Indicator (APCPI) self-assessment are widely supported in the government for its link in the performance-based incentive mechanism. In • Create a governance structure that would the sample APCPI provided by 3 ARMM LGUs, the enhance BARMM’s oversight in its constituent following areas needs strengthening: LGUs that would formulate, coordinate 1. competitiveness of the bidding process; and regulate the implementation of 2. procurement planning and implementation; infrastructure projects 3. use of PhilGEPS in announcing bidding opportunities and results; • Supplement infrastructure funding in 4. efficiency/timeliness of the procurement constituent LGUs that complements BARMM- process; wide investment program, institutionalizing 5. capacity building; accountability mechanisms for better 6. internal audit; and monitoring and evaluation 7. procurement complaint system. • Provide technical capacity training to All government instrumentalities down to the constituent LGUs that would facilitate delivery barangay level will have their respective bids and of infrastructure in a timely manner awards committees (BACs) responsible for the core procurement activities from advertising/posting • Clear delineation of responsibilities among of bids opportunities to recommendation of national DPWH, ARMM-DPWH and LGUs in contract award to the Head of Procurement Entity infrastructure delivery (HOPE), among others. The BAC is supported by 42 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM the Technical Secretariat. Its functions are mainly • Establish internal audit system in line with the providing critical administrative support. From bigger requirements for the PFM; and time to time, BAC creates a Technical Working Group who provides the expertise in the subject • Together with the national government, procurement. A unique feature of the GPRA is the enhance the current procurement complaint inclusion of independent observers coming from system making it more independent from the professional and non-government organizations in Procuring Entity the procurement activities of the BAC. In addition to the representative of the COA, at least (2) Controls on budget execution observers sit in BAC proceedings, and are allowed access to documents available to BAC. The ARMM Government conforms to budgetary rules and regulations of the DBM and of the Under BARMM, the procurement implementation Regional Budget and Management Office will be enhanced by the recommended measures (RBMO) relating to appropriations from the NG which should be implemented in coordination with and the Local Budget Fund, respectively. Both the overall public financial management activities funds are subject to accounting and auditing linked to the following: rules of the COA. BARMM will need to comply with the same arrangements in 2019 because it • Strengthen collaboration with the private will be using the budget appropriated for ARMM sector/market in determining the appropriate by Congress. In 2020 BARMM will have access to procurement arrangement in the region; the block grant and other revenues according to its own budget management rules, however • More transparency in the process including those rules must comply with the BOL provisions publication of investment priorities/budgets; requiring budget preparation and allocation to conform to national laws and budgeting rules and • Institute procurement planning linked with the regulations implemented by DBM and DILG for budgetary process; allocations from the block grant24. The BOL also imposes additional constraints on the content and prioritization of expenditure within the BARMM • Mandatory use of PhilGEPS in announcing budget that are not applied to the national budget. bidding opportunities and results including For example, priority is to be given to health, establishing provincial booth and/or shared education and social services, no expenditure is facilities to allow agencies/LGUs to easy access permitted for firearms, and annual appropriations to PhilGEPS; for personal services, including salaries and allowances, must be less than 45 percent of annual • Ensure appropriate use and reference of revenues. The ARMM budget proposed for 2019 procurement plan including authorizing included personal services expenditure of around jury-duty during bidding process for a more 49 percent of appropriations, which would need to efficient and timely process; be trimmed to comply with the required limit, not including the additional agencies and institutions • Build capacity within the agencies/LGUs that will need to be established and maintained by professionalization of procurement under the BOL. The additional funding available practitioners, tapping the Government to BARMM from 2020 will reduce the pressure Procurement Policy Board-accredited State imposed by the ceiling on expenditure types, but Universities and Colleges for training and this will need to be managed carefully through making them procurement resource for structures, staffing levels and plantilla approvals to BARMM instrumentalities; ensure that they remain under the ceilings. 24 BOL Article XII, Section 19 PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 43 The national rules and regulations applying to budget is also required to be performance budgets are complex and detailed, often requiring based and must adhere to national budget reference to sector specific laws or rules for preparation rules. particular activities or purposes. The use of the infrastructure budget, for example, is governed Consistent will all LGUs, the respective Local by: (i) the RLA Public Works Act; (ii) coordination Chief Executive is responsible in the execution of with the national DPWH in the implementation authorized annual or appropriations ordinance of national road projects; (iii) compliance and supplemental budgets of an LGU in BARMM. with national laws including the Government Any expenditure must be certified by the local Procurement Reform Act (RA 9184); and (iv) semi- budget officer, obligated by the local accountant, annual and annual audits by the COA. In addition, and certified that funds are available by the local infrastructure projects may be undertaken by the treasurer. Local budget execution forms are being Armed Forces of the Philippines (AFP) Corps of used for the release of allotment for PS and MOOE. Engineers. To provide accountability in the use of The department/office/unit head is responsible infrastructure funds, the House of Representatives in keeping expenditures within the limits of the and the Senate Committee on Finance conduct amount allotted. LGU disbursements are being oversight in the implementation of various made for the specified purpose in accordance with infrastructure projects. budgetary, accounting, and auditing rules and regulations being issued and promulgated by the The ARMM government is required to submit National Government through the DBM and the quarterly reports on its financial and physical COA. The ARMM Government did not have any accomplishments within 30 days after the end control over any LGU expenditure and BARMM will of every quarter through the Unified Reporting be the same. System (URS) or other electronic means for reports not covered by the URS and in the ARMM’s Internal audit website. A written notice of the submission or posting to website is sent to the DBM, House of There is no Internal audit across most of the ARMM Representatives, Senate of the Philippines, House Government and LGUs. COA is relied upon to Committee on Appropriations, Senate Committee verify compliance with required procedures and on Finance and other offices where submission is practices. Among the ARMM line agencies, DPWH- required in order to document compliance with the ARMM and DOH-ARMM have internal audit units requirement. The provision also require that use of that report to the respective Regional Secretaries. appropriation shall be specific for the activities and The DBM has been responsible for promulgating projects in the indicated amounts and conditions issuances regarding internal audit of NGAs and as stated in the approved GAA. LGUs. There is a recent COA Circular No. 2018-003 that prescribes the use of the Internal Auditing The ARMM budget submitted to Congress is Standards for the Philippine Public Sector (IASPPS) supplemented by performance indicators that and Internal Control Standards for the Philippine measure the quantity, quality or timeliness of Public Sector (ICSPPS) effective November 21, 2018. outputs and outcomes of the agency’s programs, The new circular aims to update the existing rules activities and projects. This is in line with the and regulations on the internal control system and DBM’s Performance Informed Budgeting (PIB) keep abreast with the recent developments in the where agencies are required to identify measurable internal auditing profession and in the internal targets by which their performance can be control system. measured in terms of economy, efficiency and effectiveness. The performance is assessed in three The BOL requires the BG to establish an auditing select areas: (i) education, science and technology; body that will have internal auditing responsibility (ii) road network and other public infrastructure across the regional government. An internal audit facilities; and (iii) health services. The BARMM charter will need to be enacted by the Parliament in 44 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM order to ensure that the internal audit body would Standards (IPSAS) and are set by the Commission be able to function as intended and effectively on Audit through its Public Sector Accounting contribute in implementing transparency and Standards Board to harmonize the existing public accountability mechanisms as required by the BOL. sector accounting standards to the prevailing international standards. LGUs within BARMM must also have internal audit functions coherent with the objectives of the There are no specific rules or regulations regarding BG. The BARMM internal audit body will need to how BARMM financial reports will be treated coordinate with LGU internal audit units to allow in the context of national financial reporting. for effective assessment of risks and the robustness However, since no consolidated financial reports of arrangements for managing resources across are produced at present there is no urgency the region. The implementation of internal controls in deciding this matter and BARMM financial across the BARMM would benefit from central statements can be included in annual reports by coordination to enable a more systematic review COA in a similar way to ARMM reports in the past. of compliance and a clear process for enforcing If the national government decides to prepare sanctions or penalties for instances of deviation. consolidated financial reports in the future, it can be expected to be guided by PPSAS and related Accounting and financial reporting international standards in how to treat BARMM. ARMM was required to comply with national All LGUs (province, city/municipality and barangays) accounting and financial reporting requirements are required to comply with the accounting rules in the same way as national government agencies. and regulations issued by COA. The PPSAS have The BOL makes no mention of accounting policies been applied in the Local Government accounts and standards but states that BG must implement as of 2015. LGUs are responsible for preparing transparency and accountability mechanisms annual financial statements in accordance with laid consistent with open government practices down standards and formats and to present the and generally accepted financial management statement for audit by the Commission of Audit. principles25. This suggests that BARMM will also be expected to follow the Philippine Public Sector The LGU Accountant, LGU Treasurer, LGU Budget Accounting Standards (PPSAS) and financial Officer and LGU Planning and Development reporting requirements applying to other levels Coordinator shall submit the required of government. The PPSAS are broadly consistent accountability reports for monitoring purposes as with the International Public Sector Accounting indicated in Table 11. Table 11. LGU Financial Reporting Requirements Local Budget Description Responsible Official Date of Submission Accountability Form No.1 Quarterly Report of Income Local Accountant 10 Days after the end of the Quarter No.2 Quarterly Financial Report of Operations Local Budget Officer 10 Days after the end of the Quarter No. 3 Quarterly Physical Report of Operations Department/Office Heads, Planning and 10 Days after the end of the Quarter Development Coordinator No. 4 Statement of Receipts and Expenditures Local Treasurer, Local Budget Officer, Within 30 Days of end of Fiscal Year Local Accountant 25 Article XII, Section 2 PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 45 Most budget execution and accountability reports External audit and oversight in ARMM and LGUs are prepared manually using Microsoft Excel spreadsheets. There are some COA is the designated auditor for BARMM and its exceptions in some municipalities like Sultan constituent LGUs. There is a Regional COA office Kudarat and Sultan Mastura, which keep an in- based in the ARMM Government compound that house developed automated financial accounting has been tasked to oversee the audit of the ARMM system. Reliability of the information may be government offices including the constituent LGUs. questionable considering the lack of appropriate COA assigned auditors to each ARMM agency control mechanisms to ensure accuracy and validity and resident auditors at province and city levels of of financial data. As such, consolidation is entirely ARMM LGUs. manual with supervisory review and authorization that does not fully mitigate the inherent risk There is no consolidated audit report for the whole of errors and omissions. RG and the oversight of ARMM. Separate audit reports are issued for the agencies lack the information to effectively monitor ARMM RG, RLA and each LGU. The RG audit report performance and enforce accountability because covers the 26 RG agencies funded by the NG, 20 there is no systematic technological solution for locally-created offices attached to the Office of capturing information on funds flow and the the Regional Governor (ORG) and other Regional transactions through the budget cycle. Government Agencies (RGAs) which are funded out of the ARMM local budget. Some LGUs consider that the complex accounting requirements imposed by COA are burdensome. The audit reports are submitted to the There are several instances of divergence of corresponding head of agency (i.e. ORG, RLA and interpretation of rules and guidelines both among LGUs). In the absence of a legal requirement COA auditors as well as between COA auditors for submission of audit reports by COA to the and staff of NGAs. This leaves the LGU staff in a legislature (in the case of the ARMM, the RLA), difficult situation. The absence of clear guidance is there was no formal scrutiny process. There was a disincentive to avail of resources for fear of COA no Public Accounts Committee or a similar one findings on ineligible expenditures. created at the RLA to examine and follow-up on the implementation of audit recommendations for 46 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM improvement by the ARMM government. Instead, With the increased fiscal autonomy given to scrutiny and response to audit reports was left to BARMM (e.g. block grants), strengthening the individual agency/LGU heads being audited. accountability and oversight is paramount. Within the context of the provision under Article XII, ARMM produced unqualified reports in only one of Section 2 of BOL cited above, some institutional the last six years based on COA audits, 2014. In 2013 mechanisms could be put in place to meet the BOL COA issued a management letter with no opinion requirement for adherence to good transparency and financial statements for all other years have and accountability practices: been qualified. In addition to opinions, COA has provided recommendations for matters requiring • Institute a formal role for the Bangsamoro attention from the authorities. All government Parliament to scrutinize the audit reports agencies are required to comply with the status of of BARMM agencies and constituent LGUs implementation of COA recommendations on their through regular parliament hearings to audits. ARMM received 216 COA recommendations discuss findings in the COA audit reports in 2017 and fully implemented 111 and partially during the respective review periods. Aside implemented 84. The number of recommendations from strengthening accountability, this will be and the number of recommendations not the venue to hold open discussions with the implemented increased between 2015 and 2017, concerned agencies for all aspects of budget the latest year for which audit reports are available. outcomes especially fiscal discipline. It will The main reasons for COA recommendations also consider the reasons for any difficulties in were unliquidated cash advances, inaccurate and meeting financial obligations to provide a basis unreliable accounts, weak compliance with COA for improvement. regulations, non-settlement of obligations, late submission of financial documents, weak financial • Address the fragmented reporting system and controls, failure to impose obligations on defaulting prepare a set of audited, consolidated financial contractors and improper program beneficiaries statements for scholarships. • Expedite the creation of the Internal Audit body It is of some concern that the number of that will perform central oversight of internal partially implemented and unimplemented audit activities. The implementation of internal recommendations has increased in recent controls across the BARMM needs central years. The frequency of qualified audit opinions coordination to enable a more systematic on financial statements is also a concern. This review of compliance and a clear process for indicates that financial reporting and internal encouraging improvement and adoption of control needs to be strengthened in the region and best practices. requires sustained attention. Strengthening the internal control framework and financial reporting Cross-cutting issues is essential to ensure that BG and BP have reliable financial reports to use for decision-making and provide a strong foundation for accountability in Overview of the Internal control framework the use of resources. COA circular 2018-003 on November 21, 2018 sets There is no specific provision in the BOL for out the arrangements prescribed for the use of parliamentary oversight of financial reporting Internal Auditing Standards for the Philippine or audit reports. However, there is a general Public Sector (IASPPS) and Internal Control requirement on transparency and accountability in Standards for the Philippine Public Sector Article XII, Section 2. (ICSPPS). In addition, the BOL contains a specific requirement to establish an internal audit office. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 47 The internal control standards issued by COA which presented key issues on intergovernmental adhere to the INTOSAI (COSO) Framework and relations pertaining to fragmented national- focuses on the five components namely: control regional, and regional-local government relations, environment; risk assessment; control activities; and weak representation in national policymaking. information and communication and monitoring. Most of the financial reports in ARMM and LGUs are Under the BOL, a NG-BG Intergovernmental compiled through manual spreadsheets without Relations Body will be created as a means by necessary controls that would ensure data integrity. which overlapping concerns can be raised These requirements entail a major challenge for the and addressed by the national and regional BARMM, considering the low base on internal audit government through regular and continuing and control left by ARMM as its starting point. It will consultation or negotiation. Any unresolved be important for COA, DBM and others to provide issues can be elevated to the President. CPBRD substantial advice and support to the BTA to help it has emphasized the need for a structure where achieve an acceptable standard for its internal audit the Bangsamoro Government will be able to and internal control arrangements, particularly in implement and operationalize the provisions of relation to: the BOL, some of which were carried over from 1. The implementation capacity at all levels of the AOL. The creation of an Intergovernmental BARMM structure to adopt the Internal Control Fiscal Policy Board is a crucial improvement in Standards for Philippine Public Sector issued the BOL to promulgate implementing rules and by COA; address any disputes related to fiscal autonomy 2. The structural and reporting responsibility of with concerned NG counterparts. However, the the internal auditing body to be established approach for the mechanisms still needs to be under the BARMM; and developed and detailed appropriately to ensure 3. The implementation capacity of the internal the intergovernmental bodies meet the needs of auditing body to comply with the Internal BARMM and other government institutions. Auditing Standards for the Philippine Public Sector issued by COA. The ARMM had no control over LGUs within its territorial jurisdiction especially in the latter’s use Cohesion and integration within and across tiers of its financial resources in performing devolved of government functions or programs. LGUs are accountable to the NG as the source of their IRA and other The BG will be under the President’s general available government funding. It was noted supervision in its exercise of its powers, as was by the Regional Secretary of Interior and Local the case for ARMM. This includes authority over Government (DILG-ARMM) that IRA utilization budgeting, creation of sources of revenues, grants has been mostly on infrastructure, which should and donations, and Islamic banking and finance26. have been entrusted to the ARMM, but very little on health, education, and other basic services. Intergovernmental relations mechanisms were Nonetheless, the ARMM reached out to LGUs lacking under the AOL. This contributed to on matters of compliance and audit. Results of prolonged unsettled issues in the exercise ARMM’s ARMM’s initiatives include the 75 LGUs that passed powers and functions particularly matters related to the DILG’s Seal of Good Financial Housekeeping fiscal autonomy as discussed in separate sections standards in 2018 from zero in 2015, and the recent of this report. This was highlighted in a recent case linkage with the Bureau of Local Government study on the ARMM by the Congressional Policy Finance (BLGF) to obtain data on IRA utilization and Budget Research Department (CPBRD)27 of LGUs. 26 BOL Article V, Section 2 27 Congressional Policy and Budget Research Department in partnership with the Institute for Autonomy and Governance, Drawing lessons for the creation of regional governments under a federal setup: Case study on the Autonomous Region in Muslim Mindanao, 2017 48 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM ARMM legislation suffered from the absence of control, these functions will become much more authority to regulate the affairs of LGUs within important. Hence, the institutionalization of its territorial jurisdiction that is now provided for regional macro-fiscal and cross-sectoral strategic the BG to a limited extent in the BOL through the planning capacity will be a key priority. requirement for a Bangsamoro Local Government Code. The Code is expected to be a priority to be Under the BOL, BARMM will have greater fiscal enacted by the BP but it needs to be constructed autonomy in generating and budgeting its without diminishing the privileges of LGUs as revenues. However, exercising fiscal autonomy provided for in the Local Government Code of 1991 and organizational capacity in revenue collection and other existing laws. There may also be scope will remain a challenge. Addressing the current within the intergovernmental agencies to be constraints in the organization capacity will be established for BARMM relationships with LGUs to critical with the creation of the Bangsamoro be addressed. Revenue Office (Article XII, Section 11 of BOL). Capacity and capability The enactment of a civil service law for the BARMM as provided for in Article VII, Section 39 of BOL will The BOL provides greater autonomy for BG in facilitate the hiring of civil servants in the BARMM managing resources available to it but there government based on merit-based system and are also many additional obligations, controls, protect civil service eligible in various government limitations and requirements for establishing positions. This will need to be established early in specific institutions within BARMM to deal with the life of BARMM because hiring of appropriate fiscal and financial management matters. This will staff will be crucial. The staff of ARMM will provide require the acquisition of new skills, staff, systems, a valuable source of experienced and qualified laws and regulations as soon as practicable by people but this will not be sufficient to meet the the BTA to create the arrangements and meet its needs of BARMM for new and expanded functions. obligations under the BOL. This would be a major Moreover, the provisions for redundancy and task for any government but will be particularly severance available to ARMM staff may provide an difficult for the BTA because of the limits on attractive alternative and could limit the numbers available professionally qualified and experienced of people who will be available to stay on under the staff in the region and the previous reliance by new administration. ARMM on national agencies and their systems. In 2019 these limits will be further constrained by the The Bangsamoro government will be challenged limits of the ARMM line-item budget approved for with hiring the right number of qualified the year or re-enacted from the previous year. technical staff to handle the increase in This will preclude major structural changes until at resources. Prior assessments of LGUs showed least 2020. that local governments do not have adequate technical capacity e.g. engineering, finance and Fiscal management capacity and framework is procurement, to fulfill their responsibilities. As a critical area that will need to be addressed by noted earlier, each LGU is required to prepare a BG immediately. Prior to the block grants, ARMM multitude of plans for different purposes. Even government functioned like a national government though the NGA-mandated and prescribed sectoral agency and did not produce its own macro-fiscal and thematic plans are made available, preparing estimates for revenue or expenditure over the these individual plans is still time-consuming and medium-term, and it had limited opportunity to requires various sectoral expertise. In addition, make strategic cross-sectoral allocation decisions there are many cases in which the staff occupying within its boundaries. With the increase in the a position is either under- or over-qualified for that amount and flexibility of revenue under BARMM position because of the difficulty in hiring qualified staff due lower compensation. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 49 Information systems Transparency The electronic new government accounting system ARMM and its constituent LGUs were bound by (eNGAS) is an accounting software developed the national laws and regulations on financial by the COA to promote correctness, reliability, reporting and community engagement. The completeness and timeliness in recording Philippines has performed well on international government financial transactions and to generate measures of fiscal transparency. In the 2016 financial reports in accordance with the policies PEFA assessment it scored A or B on most of the and procedures in the Government Accounting transparency related indicators, with the notable Manual (GAM). The ORG adopted the e-NGAS exception of parliamentary scrutiny of audit reports. in June 2015. However, other departments and The Philippines has consistently improved its LGUs under the RG have not yet adopted eNGAS. performance on the Open Budget Index since 2012 Accounting records are maintained manually and now ranks above other countries in South East through Microsoft Excel spreadsheets so the Asia. It also scores well above the global average on accounts cannot be integrated with the systems budget participation. of other departments e.g. systems for local tax collections, roads network monitoring and BARMM can be expected to continue to achieve remittances to NGAs like the payroll GSIS. a high level of transparency on its financial information because it will be subject to the same A new central Budget and Treasury Management general requirements as ARMM in addition to System (BTMS) was commissioned in 2017 by broad transparency requirements under Article XII, DBM intended to cover budget execution and Section 40 of BOL, which states, “The BG adopts accountability. In January 2019 the DBM Secretary a policy of full disclosure of its budget finances, issued Circular 2019-4 requiring all NGAs to adopt bids and public offerings, and shall provide the BTMS for budget utilization and financial protocols for the guidance of local authorities reporting. All transactions will need to be carried in the implementation of said policy which out under the BTMS by July 1, 2019. Although shall include, among others, the posting of the BARMM is not an NGA there would be significant Summary of Income and Expenditures, and the advantages for financial control, accounting and participation of representatives from civil society reporting if it is able to adopt the BTMS for all in the budget process. The same policy shall apply transactions. Adoption of the BTMS will require to its constituent LGUs..”. Other provisions of BOL new equipment, reliable, fast internet and properly include requirements for transparency, reporting trained staff however it would provide a sound and engagement in relation to intergovernmental foundation for financial management to replace matters, inclusion of women and minorities and the weak and fragmented system. sustainable development. The need for an integrated financial management One area where transparency has been a challenge information system has been raised several times for ARMM and will continue to be for BARMM is to in the Philippines. Manual maintenance of records obtain, consolidate and report information on all does not provide the speed and flexibility in public activities within the region. The multiplicity financial reporting that is required in the current of sources of funding, delivery of programs and age. This is especially so in the Philippines where support services by a variety of Philippine and the financial management is decentralized, and international agencies and tiers of government so data on budget utilization is present in manual is not reported. This is made more difficult for records across hundreds of offices. Without information on national activities because BARMM digitization, analysis of this vital information which spreads across three regions and would require is the foundation of for budget decision-making is separation and recalculation, which is not always simply not possible. done. Local government information is not always available to BARMM and even when it is available, 50 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM it may not be timely for decision-making on Autonomy and accountability budgetary planning, allocation and review. This is not solely the problem of BARMM, although it Autonomy within a unitary government system is would be the main beneficiary of such information. a challenging concept because the powers of any It would be a useful initiative for intergovernmental unit of government will always be subordinate to bodies that have been established to consider the national parliament and head of state. Article X options for developing a consolidated data base of the Philippines the 1987 Constitution makes it and reporting framework for BARMM. very clear that the President shall exercise general supervision over autonomous regions (S.16) and all powers, functions, and responsibilities not granted to the autonomous regions shall be vested in the National Government (S.17). The powers are also limited by subservience to other provisions in the Constitution, the BOL, other laws, codes and regulations. The policies and actions of the autonomous region are further constrained by specific obligations and controls, including the establishment of institutions, the adoption of national rules and procedures. In the context of the extensive constraints on BARMM, the extent of autonomy is quite limited compared with an independent provincial government within a federal system such as the United States or Australia. This is not to suggest that the level of autonomy in BARMM is unimportant, because many of the provisions within the BOL permit BARMM to act in ways that are not available to other Philippine regions, recognizing the characteristics and preferences of citizens of BARMM. However, the constraints on BARMM through the Constitution and other means should be recognized when accountability for outcomes in the region are assessed. BARMM should not be held accountable for actions and results that are outside its control or substantive influence. For example, if resources are insufficient to reasonably achieve the obligations set for BG, they share responsibility with NG to the extent that they have done as best they could with the resources available or potentially available. The NG cannot simply wash its hands of BARMM and argue that it is now autonomous and is not the responsibility of NG. On the contrary, NG has an ongoing responsibility to ensure that BARMM is supported in meeting the obligations imposed on it as well as the exercise of its privileges. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 51 If LGUs within the BARMM underperform there interaction between BARMM and LGUs is is little that BARMM can do to address that needed through the proposed BARMM Local underperformance. If the administrative and Government Code and other mechanisms institutional controls on BARMM are difficult to to ensure that BARMM complements implement and manage, the BG would only be the activities of LGUs, avoids duplication partly responsible because they have no control and requires LGUs to meet their share of over the obligations placed on them by national responsibilities for citizens and does not unduly laws, regulations and procedures. These constraints rely on the regional or national governments to need to be recognized in any assessment of supplement their funding or fill gaps BARMM performance because of the limits of in services. their autonomy. 4. Improving revenue-generation capability Even within the autonomy available to BARMM, of the region. The limits placed on BARMM the flexibility and opportunity to govern in ways revenue generation options and the political that are more appropriate for the BARMM citizens sensitivity of imposing additional charges on will not by itself guarantee better governance and residents that are not faced by other regions public services. A clear strategy will have to be put will be a challenge, but necessary if the region in place, drawing lessons from the past to avoid the is to be able to support new activities that are pitfalls of the ARMM experience and address the not undertaken elsewhere in the country. dimensions that still exist under BARMM, including: 5. Strengthening monitoring and accountability 1. Planning and budgeting needs to be better mechanisms over public funds. ARMM relied structured and unified to reflect the plans on national agencies to perform much of and priorities of the new administration. It also the oversight and accountability for funds needs to reflect alignment and integration but BARMM will have a much higher level of with national goals and goals of other areas autonomy over its resources and will therefore within Mindanao. Without that alignment need effective measures to ensure that those and integration there will be a risk that funds are being put to the best use. development will diverge significantly between regions and create or exacerbate The provisions in the BOL, specifically with regards disadvantages and increase tension within and to fiscal autonomy, need to be fully implemented outside BARMM. for the BARMM to obtain the most effective benefit from their special status. The limited success 2. Effectively connecting regional budget of ARMM was not just the result of insufficient processes with national systems. The autonomy or unclear governance, it was also a prior dependence of the region on national result of the incomplete implementation of the processes and systems and their ongoing AOL such as the establishment of effective regional obligations to adopt national laws and budget and management institutions. BARMM procedures means that it would not make should learn from the results of those limitations economic or administrative sense for new and ensure that the new administration is able to systems to be created in BARMM when exercise its powers to the full. satisfactory systems already exist at national level. BARMM should be included in those Development of a regional performance budgeting systems wherever it is to their advantage framework that works for the region and is to do so. acceptable to the national government is needed in order to work effectively with the national systems. 3. Clearer framework of responsibilities, Performance accountability needs to be balanced accountabilities and reporting of constituent with BARMM’s fiscal control and adapted to the LGUs with the BARMM government. Better BARMM’s unique conditions. 52 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM The relationship between the BARMM government seemingly “disconnect” between BARMM and its and its constituent LGUs needs to be elaborated, constituent LGUs. This will facilitate the creation with a clear framework of responsibilities, and formulation of a more cohesive regional plan accountability and reporting established. As it and governance for BARMM. is, LGUs receive direct fiscal transfers from the NG and few responsibilities or accountability to Beyond policies that apply to the BARMM region, ARMM. LGUs should be given a role in planning it will be important for BARMM policies to be and budgeting and made more accountable to the consistent with other developments in the wider BARMM in the stewardship of public funds. region of Mindanao. Most of the focus on policy consistency in the BOL relates to consistency with General policy objectives national laws and regulations, and for LGUs in BARMM to have a common framework but little Article VI, Section 2 of BOL provides for the creation has been discussed on the need for alignment of of intergovernmental relations mechanisms development and social policies across Mindanao. between the NG and the BARMM Government to The intergovernmental bodies will need to consider coordinate and resolve issues on intergovernmental the implications of any actions relating to BARMM relations. The establishment of these mechanisms in the light of policies and actions affecting will allow for a more coordinated and synchronized Mindanao and the adjacent islands as a whole. NG and BARMM development plans and policies on infrastructure, fiscal policies, legislative initiatives, Service delivery impact energy issues, Sulu Sea and Moro Gulf Joint Cooperation and sustainable development policy Mindanao and BARMM in particular are among and practice in BARMM. The intergovernmental the poorest and least well served areas of the relations bodies to be created include: country in most respects including economic • Intergovernmental Relations Body activity, education, health, social services and • Philippine Congress-Bangsamoro environmental management. This adds an extra Parliament Forum layer of difficulty for the BG and constituent • Intergovernmental Fiscal Policy Board LGUs because they are starting this new phase of • Joint Body for the Zones of Joint Cooperation development from a low base, both individually • Intergovernmental Infrastructure and relative to the rest of the country. The Development Board national government has recognized this with • Intergovernmental Energy Board the establishment of the Special Development • Bangsamoro Sustainable Development Board Fund for BARMM which will provide an additional PHP 5 billion over ten years to address particular The Bangsamoro Economic and Development areas of need. BARMM is required to focus on Council (BEDC) will be created by the Parliament education, infrastructure and health as three of its (Article XIII, Section 4 of BOL). BEDC will serve as main budget priorities under the BOL. This section the planning, monitoring, and coordinating agency discussed the challenges it faces in these areas. for all development plans, programs and projects of the BARMM government. BEDC will have a critical Accelerating infrastructure development is one role in ensuring that the development plans of the of the foundations for inclusive growth and provinces, cities, municipalities, and barangays as sustainable development as outlined in the approved by their respective local development Philippine Development Plan (PDP) 2017-2022. councils are taken into account in the BARMM In terms of quantity and quality of infrastructure development plans, programs and projects. development, the ARMM still lags behind other regions as illustrated in Table 12. The enactment of the Bangsamoro local government code by the Bangsamoro Parliament ARMM has been well below average on every as provided for in BOL will hopefully address the indicator in Table 10 except the percentage of PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 53 Table 12. Infrastructure development indicators by region Region Unpaved Access to water Access to toilet Energy Irrigation Number of Number of Teledensity5 provincial roads1 supply source for facilities3 connections4 development hospitals (2015) Barangay health (2014) % drinking and/or % (2016) (2016) stations (2015) cooking2 % % % NCR - 63 95 - - 160 477 30.68 CAR 71.3 56 74 90 86 23 639 3.76 I 27.0 65 85 96 71 86 1,160 1.89 II 56.8 65 77 93 64 59 1,240 0.90 III 27.3 71 90 97 65 168 1,969 2.79 IV-A 19.4 64 90 96 71 208 2,248 3.80 IV-B 81.2 64 66 84 64 23 836 3.80 V 38.4 69 68 91 58 51 1,158 1.75 VI 74.8 57 69 96 64 62 2,059 1.50 VII 49.7 53 72 97 91 57 1,877 2.47 VIII 74.8 74 69 90 78 43 831 0.65 IX 89.4 64 62 74 54 44 702 1.11 X 90.3 72 73 86 58 65 1,085 3.69 XI 64.0 69 78 80 39 54 1,023 4.44 XII 88.4 69 63 68 42 56 1,115 1.98 XIII 87.6 70 78 96 43 17 782 4.65 ARMM 82.7 45 26 38 30 19 421 0.44 1 Data lifted from CPBRD 2017, drawing lessons for the creation of regional government under a federal setup, Case study on ARMM, p.8 2 Stated in terms of percentage of households by source of water supply for drinking and/or cooking (use of faucet or shared faucet), community water system, own use tubed/piped deep well, shared tubed/piped deep well (table 1.23, page 1-39) 3 Stated in terms of percentage of households by kind of toilet facility they use (water-sealed sewer septic tank either used exclusively or shared with other households, water-sealed other depository used exclusively by household) Table 1.27, page 1-40. 4 Date includes on the electric cooperative areas (Table 14.17, page 14-15). 5 Teledensity per 100 population (Table 13, 15, pages 13-25). Source: 2017 Philippines Statistical Yearbook, CPBRD 2017, Drawing lessons for the creation of regional government under a federal setup. 54 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM unpaved roads. The distribution and provision of adequate financial support, human resources electricity has been hampered by factors such as and equipment necessary for the operation and high costs of fuel and logistical support for diesel maintenance of local health infrastructure plants, low technical and absorptive capacities of facilities thus rendering them non-functional some electrical cooperatives, increasing service or underutilized. demands, more funds needed for electrification in marginalized communities in off-grid areas, few The low level of public infrastructure adds an extra private sector participants, various institutional layer of challenges for the BARMM because it bottlenecks such as compliance requirements of makes efficient service delivery difficult, amplifies LGUs, right-of-way, and peace and order. It is not the problems faced by citizens and consequently surprising, therefore, that energy connection is 38 increases pressure on resources to achieve percent compared with the average for all regions comparable levels of service to other parts of of 86 percent. Mindanao and other regions. Less than half of households have access to water The BARMM region has some of the lowest supply source for drinking and/or cooking in ARMM. achievements in education. It was at the bottom Many small water districts and utilities operated of the country’s regions in terms of the National by LGUs have difficulty sustaining operations Achievement Test (NAT) for grade 10 students in and generating capital for expansion due to low 2015 and among the bottom three regions for tariffs and consumers’ low willingness to pay. The grade 6 students. number of health facilities is also low compared with other regions. LGUs are unable to provide PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 55 Table 13. Selected education and health statistics by region Region Vaccinations for Live births delivered in a NAT Grade 6 NAT Grade 10 (SY 2014- Malnutrition among children 0-60 Months children health facility % (SY 2014-2015) 2015) (2015) % 12-23 months % Under weight Stunting NCR 72.7 91.9 58.1 49.3 15.2 25.2 CAR 72.4 85.5 69.8 49.7 16.8 36.8 I 69.5 87.2 70.1 43.3 19.4 31.5 II 62.9 83.3 72.7 49.4 19.9 28.8 III 64.0 84.9 73.4 48.9 16.7 22.9 IV-A 63.1 77.1 57.9 44.5 19.0 27.7 IV-B 48.3 65.9 75.9 52.1 31.6 40.7 V 56.1 72.6 68.0 46.9 28.5 40.2 VI 61.0 78.0 73.8 53.0 26.5 39.9 VII 60.8 85.0 72.2 52.8 22.8 37.7 VIII 68.2 84.6 77.1 53.1 30.0 42.1 IX 60.0 72.3 74.8 54.3 21.5 38.1 X 61.1 76.0 72.2 51.5 20.8 37.0 XI 78.0 74.1 73.7 51.6 20.8 31.6 XII 42.1 63.5 76.1 52.4 26.0 40.2 XIII 58.6 77.2 79.6 61.4 23.9 36.3 ARMM 8.9 28.4 59.6 41.1 25.0 45.0 Source: Philippines Statistical Authority, Philippines Statistical Yearbook 2017 and Philippines National Demographic and Health Survey, 2017 The performance of ARMM in achieving targets for infrastructure repairs and maintenance improvements in the three key budget areas for but missed most targets for construction, BARMM can provide an indication of the potential rehabilitation and improvement by wide margins. for BARMM to strengthen results. Performance information included in the NEP reports offers Although ARMM achieved most of the health some guidance in respect to achievements for targets it set for 2016 and 2017, many of the targets major final outputs (MFOs). are below national averages and have not increased over time. Also, it is questionable whether the The results achieved by ARMM against its targets set are the most important areas of focus. performance targets, and against realistic and Most are activity or output targets relating to the reasonable targets considering its starting point, number of services provided for hospitals and have been mixed in all three expenditure priority health services but not relating to health outcomes. areas. In 2016 and 2017 ARMM achieved most of its Many of the important health indicators from a 56 03 PUBLIC FINANCIAL MANAGEMENT FOR ARMM/BARMM national perspective are worse in BARMM than Fiscal impact other regions in the Philippines, and substantially below that of many low-income countries. The ARMM exercised very little fiscal autonomy granted under the AOL. It has always been subject Health programmatic and surveillance data are to the country’s fiscal policies and placed under the weak and unreliable, meaning that these inequities supervision of NG oversight agencies. The ARGMM’s are likely to be more persistent and intractable main responsibility, through the ORG, was to ensure than is apparent. In addition to dealing with the region’s full compliance with national fiscal issues such infectious diseases and maternal child pronouncements or regulations. Its RLA did not health, BARMM now needs to face the challenges exercise legislative power on fiscal and monetary of more developed parts of the country and policies, although it enacted the revenue code and other economies – chronic non-communicable annual appropriations of regional funds sourced conditions such as heart disease, diabetes and from local revenues and share in internal cancer contribute increasingly to disease burden. revenue taxes. A coherent health strategy and significant The BG has more extensive powers than ARMM investments are needed for the health system to with the objective of attaining self-sufficiency. adapt and improve outcomes. It will be important It is obliged to implement transparency and for BARMM to consider refocusing its efforts accountability mechanisms, and promote the in health on improving outcomes and setting effective use of economic resources to sustain challenging targets in relevant indicators that are genuine development. The extent of BARMM’s needed to close the gap between BARMM and fiscal impact is limited by the significance of other regions. its reliance on NG transfers to its budget. It has limited scope for expanding revenue sources so it is Education performance information suffers unlikely that BARMM will have a substantial impact from similar issues as health in that most of the on the national fiscal outcomes. indicators relate to enrolments. Even so, the achievements tended to fall below the targets, There are potential risks that might result in suggesting that either there was excess capacity or adverse fiscal results if the BARMM is not managed the targets were overly ambitious. Where outcome prudently and efficiently, through accumulation targets were set, for example NAT results and of contingent liabilities and debts. There are wide- employment of graduates, the targets were low by ranging national controls and limitations on its national standards and results were often below activities that will mitigate those risks but it will target. It is not surprising therefore that outcome be important for the BARMM to maintain strong targets have not been increased over time but this control on budget sustainability and effective use of should be a concern when such modest targets by resources. The Bangsamoro Government needs to national standards have not been achieved. ensure high functioning and adequately resourced regional agencies that are to be created with This overview suggests that BARMM will important fiscal responsibilities as shown in face considerable challenges in achieving Table 14. improvements in service delivery outcomes in the areas identified as priorities for its budget. This is The BG needs to closely coordinate with the NG complicated by the multiple sources of activity to ensure that the latter will maintain adequate from all tiers of government that contribute to provisions for all appropriations to the BG under outcomes, making it difficult to establish a unified the BOL in a timely and predictable way. If cash is strategy and to ensure complementarity and limited or delayed in transfer to the BARMM, this effective accountability for results. could have a substantial impact on the ability of the BG to deliver on its budgets. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 57 Table 14. Fiscal authority under the ARMM and the Bangsamoro Autonomous Region Authority or Function ARMM BARMM Planning, monitoring, and coordinating agency to evaluate and REDPB Bangsamoro Economic and Development recommend comprehensive development plans, programs, and Council projects for the autonomous region. Enact annual appropriations law, and tax and revenue code. Philippine Congress for NG appropriations / Regional Legislative Assembly for the Bangsamoro Parliament Local Budget Fund Promulgate budgetary laws, rules, and regulations. NG - Department of Budget and Management for NG funds / ARMM - Bangsamoro Budget Office Regional Budget and Management Office for the Local Budget Fund Periodic reviews of taxing powers, wealth sharing arrangements ARMM - Office of the Regional Treasury Intergovernmental Fiscal Policy Board and sources of revenues, and recommend necessary fiscal policy adjustments and grant of additional fiscal powers. Assessment and collection of regional taxes, as well as all other NG - Bureau of Internal Revenue for Bangsamoro Revenue Office collectible taxes within territorial jurisdiction. national internal revenue taxes; and ARMM - Office of the Regional Treasury for regional taxes Receive and safeguard all the revenues generated and collected by ARMM - Office of the Regional Treasury Bangsamoro Treasury Office the regional government. Internal audit functions. Internal audit units in regional line Internal Audit Body under the agencies and LGUs, if any Bangsamoro Government Coordinate, assist, and monitor the treasury and assessment NG - Department of Finance - Bureau of Bangsamoro Regional Office of NG - operations of the constituent LGUs. Local Government Finance Department of Finance - Bureau of Local Government Finance 04 CONCLUSIONS AND IMPLICATIONS FOR BARMM Overall assessment of public of functions and services in the BARMM region. financial management The introduction of the block grant, the Special Development Fund and expanded revenue sharing will provide a much larger basis for BARMM to This report has examined the financial influence development and policy in the region. management circumstances that applied in ARMM The BOL also provides a basis for more structured and the changes that are established in the BOL. representation in the BP for all parts of the The situation that ARMM operated under involved region and important sections of the population, complexity of responsibilities and interactions particularly women. The freedom and control over with other tiers of government, fragmentation a larger source of revenue is provided within a of functions and services delivered in the region, framework of limited autonomy, in which the NG lack of coherent and consolidated information and and the President will have ultimate authority. management from within ARMM and from other national and local government entities operating in the region, and the lack of coordinated and clear The basic financial management framework for planning, strategy and accountability. BARMM is couched within a system of national laws and procedures which are generally sound. The 2016 PEFA assessment indicated that well over The BOL seeks to address some areas of complexity, half of the institutions and functions of PFM in the lack of flexibility and control and management Philippines are performing satisfactorily, or better, PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 59 based on international standards of good practice. tightly prescribed in the BOL, and many of which it ARMM functioned within that framework like a will need to create early in the BTA’s tenure. Table NGA and faced significant challenges, especially 15 summarized the actions required by the BP and in the areas of financial controls, internal audit, BG under the BOL. It involves the establishment execution of capital projects and service delivery or activation of 29 specific institutions, create and outcomes. adopt around 20 major new laws and regulations, undertake a range of reviews and deliver major The main difference between the AOL and the reports on a variety of topics. This will require BOL is the greater amount of resources that will considerable effort, resources and commitment be within the control of the BP and the flexibility from the BTA and BARMM citizens and needs to be with which it can make policies for the use of achieved within a short time if it is to be effective in funds and allocate according to its own rules establishing a firm foundation for the future. and preferences. This also means that the BP Table 15 includes and indicative timeframe for the will needs to strengthen its institutions, controls priority actions required under the BOL, suggesting and management to ensure that resources that most of these should be completed within are used as intended and in the most efficient 6 months to a year after the establishment of and effective ways. The lack of administrative the BTA. experience amongst members of the BTA has been highlighted elsewhere as a challenge for the The list of actions required in Table 15 offers a BP. There are also limitations on professional skills daunting prospect for the BARMM administration. and knowledge within the BARMM’s continuing It will be crucial for the BTA to establish a administration, partly due to the additional well-considered transition plan, taking into responsibilities that they will need to perform that consideration the context in which it is being were previously performed by NGAs such as DBM implemented and the skills and resources and DOF. at its disposal. The plan should include clear timelines, prioritization, identification of roles and Implications for establishment of responsibilities and risk analysis to ensure that the BARMM and transition results are achieved as effectively as possible, taking account or what is reasonably likely, what could go wrong and how to deal with likely challenges and There are two crucial basic requirements for the impediments along the way. BTA from a PFM perspective: (1) it needs to comply with and implement the requirements of the BOL and other legislation and regulations applying to At the same time, the BTA needs to establish a the region; and (2) it needs to deliver the services sound basis for implementation of the functions and meet the responsibilities of government and services of government. In 2019, the BARMM efficiently and effectively to a standard acceptable will apply the budget approved by the national to its citizens, the President and the national parliament. It will not have access to the block parliament. In other words, it needs to continue grant until 2020 and the availability of other new what was being done by ARMM while achieving resource identified in the BOL until key actions radical transformation of the form and functions are performed, for example, adoption of the of government in the region. There are significant Bangsamoro Development Plan and identification risks and trade-offs in this process to ensure that of needs for funding of transitional measures such both requirements are achieved. as staff separations and reorganization. The details of how such fund may be obtained are unclear and may be limited in 2019 due to the inflexibilities in BP will need to establish new or stronger financial the national budget law and procedures. management arrangements, some of which are 60 04 CONCLUSIONS AND IMPLICATIONS FOR BARMM Table 15. Actions required under BOL Action required Indicative Timeframe Responsibility HIGH PRIORITY (a) Institutional requirements Activate Intergovernmental Relations Body Within 6 months after BTA appointed NG, BTA Activate Intergovernmental Fiscal Policy Board Within 6 months after BTA appointed NG, BTA Activate Philippine Congress-Bangsamoro Parliament Forum Within 6 months after BTA appointed NG, BTA Activate Joint Body for Zones of Joint Cooperation Within 6 months after BTA appointed NG, BTA Activate Intergovernmental Infrastructure Development Board Within 6 months after BTA appointed NG, BTA, BG agencies Activate Intergovernmental Energy Board Within 6 months after BTA appointed NG, BTA, BG agency Create Bangsamoro Sustainable Development Board Within 6 months after BTA appointed NG, BTA Establish Bangsamoro Budget Office Within 6 months after BTA appointed BTA Bangsamoro Electoral Office Within 6 months after BTA appointed COMECOM Activate the Bangsamoro Human Rights Commission Within 6 months after BTA appointed President, CM Create a Regional Police Office Within 6 months after BTA appointed Philippine National Police Create a Philippine Coast Guard Regional Office Within 6 months after BTA appointed Philippine Coast Guard Create a Bangsamoro Internal Audit Authority Within 6 months after BTA appointed BTA Activate a Bangsamoro Regional Office of the Bureau of Local Government Finance Within 6 months after BTA appointed BLGF Activate the Bangsamoro Treasury Office Within 6 months after BTA appointed BTA, CM Establish the Bangsamoro Revenue Office Within 6 months after BTA appointed BTA, BG Establish the Bangsamoro Economic and Development Council Within 6 months after BTA appointed BTA Activate the Bangsamoro Disaster Risk Reduction and Management Council Within 6 months after BTA appointed CM, BG Create the Attorney General’s Office under the Office of the Chief Minister Within 6 months after BTA appointed BTA (b) Legal and administrative actions Prepare and approve a transition plan Within 60 days after BTA appointed CM, BTA Transfer of personnel to BG for offices and agencies transferred to BARMM from 3 months after BTA appointed NG, BTA national government bodies Establish, organize and staff BARMM administration to meet essential requirements Within 6 months after BTA appointed BTA Implement an independent hiring process for all BG offices, agencies and institutions Within 6 months after BTA appointed BTA Conduct a human resources audit 12 Months after BTA appointed BTA Inventory of ARMM liabilities and obligations Within 6 months after BTA appointed DBM, COA, CSC, OP, ORG, BTA Adopt the Bangsamoro Development Plan Within 6 months after BTA appointed BTA Pass an annual appropriations law By Dec. 31, 2019 BTA PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 61 Action required Indicative Timeframe Responsibility Develop and implement a health reform strategy and policy for sustainable Within 12 months after BTA BTA health financing is appointed Enact Bangsamoro Administrative Code 12 months after BTA appointed BTA Enact Bangsamoro Revenue Code 12 months after BTA appointed BTA Enact Bangsamoro Electoral Code 12 months after BTA appointed BTA Enact Bangsamoro Local Government Code 12 months after BTA appointed BTA Enact Bangsamoro Education Code 12 months after BTA appointed BTA Enact Bangsamoro Civil Service Code 12 months after BTA appointed BTA Enact Law on the rights of indigenous peoples 12 months after BTA appointed BTA Determine parliamentary districts for the first regular election of BP members 12 months after BTA appointed BTA Final report and recommendation on the status of government during transition Within 60 days of the assumption of BTA BP into office MEDIUM PRIORITY (a) Institutional requirements Create Ministry for Indigenous Peoples 12 months after BTA ends BP Create a Commission on Women 12 months after BTA ends BP Create a Commission on Youth Affairs 12 months after BTA ends BP Create an Office for Settler Communities 12 months after BTA ends BP Create a Bangsamoro Sports Commission 12 months after BTA ends BP Create an agency for persons with special needs 12 months after BTA ends BP Create the Bangsamoro Commission for the Preservation of Cultural Heritage 12 months after BTA ends BP Create a Bangsamoro Authority for Inland Waters First 12 months after ends BP Establish a Bangsamoro Economic Zone Authority First 12 months after ends BP, BG Establish a Shari’ah Supervisory Board 12 months after BTA ends BG (b) Legal and administrative actions Determine participation of the BG in the Al-Amanah Islamic Investment Bank and 6 months after BTA appointed IFPB the Southern Philippines Development Authority Enact a law on indigenous rights to natural resources 12 months after BTA ends BP Enact Bangsamoro Cooperative Code on Trade and Industry 6 months after BTA appointed BG 62 04 CONCLUSIONS AND IMPLICATIONS FOR BARMM The changes requiring additional resources or preparing a draft budget law. The BDTr will need budget reallocations and realignment will most to be strengthened in preparation for taking on a likely need to be deferred until 2020, unless the BTA larger role in managing and disbursing and much can demonstrate the urgency of changes to justify larger volume of funds and the management of a supplementary budget in 2019. In view of the cash and commitments, which will occur from the difficulties in passage of the 2019 national budget, start of 2020, if not sooner. it is possible that the national government will consider a supplementary budget later in the year Procedural rules and practices will need to be and this could provide an opportunity for the BTA to established for the BP, including how it will deal put forward some early proposals for readjustment with legislation and related matters regarding of its budget. This should not be the main priority finances. Many governments establish special of the BTA, however, and it should focus on standing committees to deal with financial matters, what is achievable within the existing operating such as a public accounts committee. If this is environment before considering changes. considered a useful approach, the BP will need to establish the rules and procedures around how International experience with major structural the committee will operate and what will be the change of the kind experienced in BARMM implications of its deliberations for the suggests that the BP and BG should take a wider parliament. cautious approach to reform. Rather than early radical change, it is likely that emphasis should be The intergovernmental institutions will need to placed on urgent and essential changes at first, be established or activated as soon as possible moving incrementally to more substantial change to ensure that a clear and appropriate set of in the medium to long term as capacity, knowledge policies, procedures and actions are in place and opportunities permit. The BOL and this report as soon as possible to address the weakness in provide a foundation for identifying the urgent current intergovernmental communications and and essential priorities, which are set out in the interactions. The most pressing need from the PFM recommendations below. These are intended as perspective would be for the Intergovernmental a guide for the BARMM and other stakeholders to Relations Board, the Intergovernmental Fiscal discuss and formulate an action plan that takes Policy Board and the Intergovernmental account of the full range of perspectives. Infrastructure Development Board and the Intergovernmental Energy Board. Representation Some major PFM changes are urgent and essential on national coordination committees for budget for BARMM in 2019. A crucial first priority is the planning and infrastructure will also be a priority to establishment of the financial management and ensure that the BARMM has a voice and influence related institutions needed to plan, prepare and on major development and budgeting decisions design the first budget for adoption by December that will affect the region. 31, 2019 at the latest. This will involve drawing on the previous ARMM agencies and institutions The BOL requires a transition plan to be submitted that contributed to budget planning and by BTA within the first 60 days of existence. There management, but they will need to be expanded is also a high degree of urgency to establish and strengthened substantially. The new BRO, BBO, and adopt a Bangsamoro Development Plan to Attorney General’s office and internal audit body contribute to general budget planning and to will be needed to undertake the new functions meet the pre-requisite for access to the Special of undertaking forecasts, drawing on existing Development Fund. An important element of planning documents, drafting budget procedures this activity will be the establishment of the and instructions, proposing initial budget policies Bangsamoro Economic Development Council. and priorities, managing a budget process and 05 RECOMMENDATIONS Recommendations from this study are summarised are intended to be forward looking, rather than in Table 16. The table arranges recommendations backward looking and focus on specific actions according to the stages of the financial proposed for the first year of BARMM. Actions management cycle, similar to the sequencing of beyond the first year of implementation could Chapter 3. It identifies the issue being addressed be considered in a subsequent report, subject to and the action proposed. The recommendations discussions with key stakeholders. 64 05 RECOMMENDATIONS Table 16. Observations and recommendations on BARMM PFM Observations Recommendation Indicative Timeframe (a) Fiscal planning, budget preparation and allocation ARMM strategic plans, national development plan and LGU plans Review of national, regional and LGU plans to achieve Within 6 months after and budget proposals are not fully linked alignment and adopt a Bangsamoro Development Plan BTA appointed Intergovernmental relations will need to be strengthened to Activate the Intergovernmental Relations Body, the Within 6 months after address disconnection between national, regional and LGU Intergovernmental Fiscal Policy Board, the Intergovernmental BTA appointed resource management Infrastructure Development Board and the Intergovernmental Energy Board Budget preparation will change from being managed by NGAs BARMM financial management agencies will need to be Within 6 months after to BARMM in 2020. BP needs to approve a regional budget by established and staffed. Budget rules and procedures will BTA appointed December 31, 2019. need to be developed and implemented. (b) Revenue management and budget execution Revenue sharing methodology used does not accurately reflect BLGF, BIR and subnational governments develop an agreed, Within 6 months after revenue collections revised methodology BTA appointed Different management and accountability arrangements apply Review and rationalize reporting and accountability Within 12 months after depending on the source of funds for the region requirements to streamline and combine requirements BTA appointed where possible Long delays in obligation and under-utilization of budget were BARMM will need to establish rules and procedures for Within 6 months after common under ARMM capital budgets that allow rapid release and utilization while BTA appointed maintaining effective control and accountability Cash planning and cash release experienced delays under BDTr will need to develop capacity and procedures to design Within 12 months after ARMM. BARMM will have responsibility for cash management of and manage cash for BARMM. BTA appointed substantial amounts of cash, possibly from the start of each fiscal year (starting in 2020). (c) Accounting and reporting Complex and fragmented financial reporting and accountability BARMM should work with other tiers of government and Within 12 months after arrangements across the BARMM region. Limited access to LGU intergovernmental bodies to agree on ways to streamline and BTA appointed reports and plans in ARMM. consolidate financial reporting across the region. (d) Evaluation, audit and oversight No evaluation, internal audit or oversight of revenue and Establish BARMM internal audit body as a priority, working Within 6 months after expenditure at the regional level. COA is the only accountability with LGUs to ensure that they have adequate internal audit BTA appointed agency in the region. arrangements. COA and DBM should be consulted on the structure, functions and responsibilities of the BARMM internal audit body. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 65 ANNEXES Annex 1: Terms of reference The ARMM was created under the Republic Act No. 6734 on August 1, 1989. By virtue of its independent status, the ARMM has a different Background and context administrative structure from local government units in the country, including for public financial The Philippines has improved public financial management. In most countries lower tiers of management at the national level over the last government face greater challenges than national decade significantly and continues to be a strong governments in all areas of budget and financial performer within the region. Nonetheless, there management. It is also common for lower tier are areas where persistent weaknesses are evident, governments to have difficulty in attracting and and these include matters of importance to retaining adequate qualified personnel which project implementation, budget management, compounds the challenges that they face in transparency and accountability. For example, managing finances. ARMM is likely to face even the 2016 PEFA assessment identified weaknesses more challenges because of its distance from the in budget execution and budget reliability. This national government and recent history of conflict included inability to execute the approved budgets, and weak economic circumstances. While the weaknesses in procurement arrangements and processes and procedures around public financial internal controls, limitations in financial reporting management in local government units have been – especially timeliness of in-year reporting, and documented30, there has not been an analytical high expenditure arrears. Philippines financial support on financial management for ARMM. management systems were rated 18 out of 100 in a separate assessment in 201628, indicating that The Philippines President signed Republic Law systems had considerable room for improvement. 11054, the Organic Law for the Bangsamoro Another study by the World Bank in 201729 noted Autonomous Region (OLBAR) on July 28, 2018. that institutional structures around central finance This set in train processes for the establishing functions in the Philippines were characterized by a a Bangsamoro autonomous region to succeed high level of fragmentation. ARMM, subject to the outcome of a plebiscite on January 21, 2019 and transitional arrangements until The Autonomous Region of Muslim Mindanao July 2019. There will be crucial differences between (ARMM) located in the Mindanao island group of ARMM and the Bangsamoro autonomous region the Philippines is the only region that has its own (BARMM) but the fundamental question of how government. ARMM consists of five predominantly to provide effective public financial management Muslim provinces: Basilan (except Isabela City), for the region will remain equally important. The Lanao del Sur, Maguindanao, Sulu and Tawi-Tawi. BARMM will not be established out of a vacuum but The ARMM had a poverty incidence of 53.7 percent will build on existing arrangements, some of which in 2015, more than double the national average. will not change as a result of the OLBAR. Eight of the ten poorest provinces in the country are in Mindanao. The conflict-affected areas of As attention turns towards establishment Mindanao are the country’s poorest, where violent of BARMM, effective financial management conflict and fragile institutions continue to be arrangements become essential to support public critical constraints to peace and development. 28 Hashim, Ali; Piatti, Moritz. 2016. A Diagnostic Framework to Assess the Capacity of a Government’s Financial Management Information System as a Budget Management Tool. World Bank, Washington, DC. © World Bank. 29 Fritz, V., Verhoeven, M. and Avenia, A., Political economy of financial management reforms – reform experiences and implications for dialogue and operational engagement. World Bank, 2017 30 Compendium of the Public Financial Management Framework for Local Government Units – Output for P161353, July 2017; Local Government PFM Roadmap developed under technical assistance from the European Union. 66 ANNEXES policy and planning. These arrangements should for strengthening relevant aspects of existing ensure that funds are allocated according to policy arrangements which are likely to be retained after priorities at all levels of government within each BARMM is established. area of responsibility, approved allocations and project requirements. Goods and services must The study aims to assist the governments of be procured in an open, fair and timely manner. the Philippines in its socio-economic agenda in Funds ought to be provided when required to relation to the Bangsamoro autonomous region. meet expenses and pay for goods and services Improving the efficiency and effectiveness of when invoices due. Internal control structures service delivery to citizens is of high priority for should be set up to identify errors and omissions the governments. The report intends to serve as quickly and efficiently leading to actions to address an input for informing the design and content of problems effectively. Documents and records need the World Bank engagement with BARMM and as to be maintained to provide Government and applicable, to serve as input in informing the design development partners assurance that funds are of government policies and programs for improved used for intended purposes with due regard for public service delivery in the BARMM. economy and efficiency. Proposed activities and expected results The Team is cognizant of the fact that the situation with ARMM is fluid and will need flexibility in The activity is Bank executed analytical work in design. The team will make contact with key support of both: (a) operations identified under the stakeholders at local, regional and national levels World Bank’s Comprehensive Program for Regional early in project preparation to ensure that there Development in Mindanao and (b) other priority is support for the proposal and to fine tune the reform areas with high potential for collaboration scope and approach to achieve the best outcomes. among WB, DFAT and the Philippine Government. Regardless of any change in government The output will particularly contribute towards the structure, the analytical support will need to be Program’s component (3) i.e. addressing drivers of timely and useful in highlighting the strengths conflict and fragility while building up institutions and weaknesses in financial controls and flaws in in ARMM and other conflict-affected areas. financial reporting that can inform the government in developing an action plan on how to address priority areas for strengthening. This analytical work would constitute the first time that regional financial management institutions and processes have been comprehensively Project development objective supported for ARMM beyond fiduciary monitoring of individual projects. It will build on work already The main objective is to document institutions, done at the sectoral level31 and complement processes and systems in place for financial other analyses at the regional level32. The analysis management for the ARMM/BARMM at all levels would apply methodology consistent with that as a basis to formulate recommendations for used at national and regional level by the World improving the efficiency, reliability and timeliness Bank for more than a decade, but adapted to the of resource use, project management and project circumstances of ARMM and constituent results. Additionally, the project will consider the local governments. implications of the OLBAR for public financial management and, to the extent possible, The work will involve examination of all phases identify risks, opportunities and potential areas of financial management within ARMM using a 31 World Bank, Making Education Count for Children of the Autonomous Region in Muslim Mindanao, August 2014 32 Congressional Policy and Budget Research Department, Drawing Lessons for the Creation of Regional Governments Under a Federal Setup, case study on the Autonomous Region in Muslim Mindanao, November 2017. PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 67 sample of departments and local government will meet regularly with those who are currently units (LGUs). The sample of LGUs will be chosen working in Mindanao or planning to work there on in consultation with ARMM and potential LGUs. our progress. We will share knowledge and lessons The examination will include the legal framework, throughout the project. budget planning and preparation, budget approval and allocation, disbursement of funds and cash The project will also draw lessons and experiences management, internal controls on the use of funds, from the Public Expenditure and Institutional recording of expenditures and associated physical Review for ARMM Basic Education conducted progress, reporting and review of expenditure, in 2014. The published report discussed, among exercise of management control and accountability, others, the public expenditure management in clarity of roles and responsibilities, and capability ARMM and have shown several findings as follows: of people responsible for financial management (i) fragmented public expenditure management across the region. It will include consideration of of ARMM resources; (ii) poor integration of ARMM development project funds as well as government Regional and National budget process; (iii) funds and identify any significant differences in inconsistency between ARMM regional “devolution” treatment and management of those resources and national decentralization; and (iv) weak from the prevalent practices in the rest of stewardship and accountability in handling the country. public funds. The project will involve onsite review of processes The project and its results will provide an and documentation, interviews with key understanding of the strengths, weaknesses and government personnel, development partners key risks in the financial management processes and other stakeholders to understand and assess which are essential for the design of interventions financial management from multiple perspectives. in the BARMM. It will help to identify where A draft report will be discussed with government processes and controls are operating effectively officials and development partners and comments and identify areas that require strengthening or taken into consideration before a final report is additional oversight to ensure timely provision of published. The report will include key findings funds to intended service providers and contractors, and recommendations for strengthening. If funds analyze whether funds and achievement of results are available after the report has been finalized are adequately monitored and managed and the and discussed, the team will work with officials to extent to which financial information can be relied develop an action plan on how to address priority on to assist management. areas for strengthening. Scope and coverage The project will complement the on-going work by the Bank, including on Health Sector The project will examine ARMM and its links to (Programmatic Advisory Services and Analytics regional and national agencies, and to LGUs for Health, Nutrition and Population) in ARMM. within the area covered by ARMM. Preliminary The Team will work closely with Bank colleagues meetings with CoA, DBM, DILG and DSWD, DepEd working in Mindanao. For example, the health and Health are planned to identify important sector programmatic ASA includes related goals relationships and contacts in ARMM. The review to assist the regional government of ARMM in will include funding sources from within and improving the efficiency, coverage and equity outside the region, including projects (eg from of Health Service Delivery in some of the lowest- DOF funds) managed by PMO in Mindanao that performing districts of the country. It will be are independent from the ARMM administration, crucial to maintain a close dialogue between eg Mindanao trust fund implemented by NGO teams as both activities proceed. The team will for Bangsomoro Development agency. LGUs are brief other Manila office staff with an interest in receiving their own allocation from DILG and ARMM financial management on the proposal. We under supervision of ARMM. It will be important 68 ANNEXES for the project to consider ARMM links with Management of the review local governments, span of control for national government and the ARMM governor eg in relation The World Bank will perform the review with to distribution of the regional budget, how are funds provided by the Australian Department of funds coordinated and used. Foreign Affairs and Trade. The review team includes Lewis Hawke, Lead Governance Specialist - Public The key stakeholders to be consulted throughout Sector (Team Leader), Tomas Sta. Maria, Senior the project include the ARMM Governor’s office, Governance Specialist – Financial Management, ARMM administration departments and agencies, Aisha de Guzman, Senior Governance Specialist – MILF and other organizations involved in the Financial Management, Maria Liennefer Penaroyo, Bangsomoro Transitional Authority, Institute of Governance Specialist – Financial Management, Autonomy and Governance (IAG), Congressional Ahsan Ali, Lead Procurement Specialist, Dominic Policy and Budget Research Department, national Aumentado, Senior Procurement Specialist, Gia government agencies that administer funding Mendoza, Program Assistant, and Mohammad or policy matters delivered in ARMM, ARMM Zidni Marohombsar, Consultant. business organizations and NGOs, and international development partners supporting governance and The timetable of activities planned for the review PFM reform in Mindanao. are presented in Table 2. The main outputs are highlighted in the table, including the concept The project will focus on the current year, the note and inception report, the draft report, the budget year 2019, the last completed fiscal year final report and a PFM action plan – all prepared in and, data permitting, the last three completed consultation with key stakeholders. fiscal years. Topic areas proposed for the review are listed in table 1. Table 1. Areas to be covered by the review Topic Implications for ARMM/BRMM administrations National government Regional government Provincial government Municipality/City government Fiscal & budget strategy, planning and preparation Congress, President, COA, ARMM ORG, ARMM Case studies: Case studies: Revenue management DBM, BTr, BIR, BLGF, DILG, agencies, COA, • Maguindanao • Upi Expenditure management DepEd DOH, DPWH, NEDA BOL, transitional • Basilan • Sultan Kudarat Accounting and reporting arrangements, possible • Sultan Mastura External audit & oversight BARMM arrangements • Lamitan Cross-cutting issues: • Legal & institutional framework • Intergovernmental cooperation & coordination • Capacity and capability • Management of gender impact • Systems • Service delivery • Fiscal impact & risks • Transparency & accountability PREPARING FOR EFFECTIVE AND ROBUST FINANCIAL MANAGEMENT IN THE BANGSAMORO REGION 69 Table 2. Project implementation plan Task Deliverable Date(s) Preparatory work • Preliminary TOR and launch meetings Meetings at national and ARMM levels October 2018 • Revise TOR TOR for consultation October 2018 • Preliminary meetings, Manila and ARMM Refined concept note October 2018 • Initial data request Data request issued to responsible units Mid-October 2018 Field work • Official commencement meetings LGU initial discussions November 2018 • Onsite data collection and follow up Data collection, all necessary data November - December 2018 • Preparation of draft report by assessment Draft report January – February 2019 • Presentation of draft report and initial Presentation of initial findings End March 2019 findings to authorities Post-field work • Review of comments and further drafting Comments recorded and considered, April 2019 of report draft report revised • Presentation of revised report to Revised draft consultations May 2019 authorities • Publication of final report Publication May 2019 (post-election) Planned post-assessment activity • PFM reform dialogue based on PEFA Briefing on the relevance to Bangsomoro May 2019 assessment findings and national PFM policies and procedures • Development of a PFM action plan or Draft PFM action plan June 2019 reform program 70 ANNEXES Annex 2: Organizations consulted 1. Commission on Audit (COA) 2. Congressional Policy and Budget Research Department (CPBRD), House of Representatives 3. Bureau of Local Government Finance (BLGF) 4. Bureau of Internal Revenue (BIR) 5. Department of Budget and Management (DBM) 6. Department of Education (DepEd) 7. Department of Interior and Local Government (DILG) 8. Department of Health (DOH) 9. Department of Public Works and Highways (DPWH) 10. Bangsamoro Development Agency (BDA) 11. Office of the Regional Governor, ARMM 12. Regional Government Agencies • Department of Education-ARMM • Department of Interior and Local Government-ARMM • Office of the Regional Treasurer-ARMM • Regional Bureau of Investments-ARMM • Regional Planning and Development Office-ARMM • Department of Health-ARMM • Department of Public Works and Highways-ARMM 13. Commission on Audit (COA)-ARMM 14. Institute for Autonomy and Governance (IAG) 15. Australian Embassy – Department of Foreign Affairs and Trade (DFAT) 16. Local Governments • Basilan Province • Lamitan City • Municipality of Upi, Maguindanao • Municipality of Sultan Kudarat, Maguindanao • Maguindanao Province • Municipality of Sultan Mastura, Maguindanao 17. Bangsamoro Transition Commission (BTC) 18. 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(2017), Designing the fiscal features perspective, Manila of a federal form of government: autonomy, accountability and equity considerations, Philippines Institute for Development Studies, Discussion paper series no. 2017-56 The World Bank PHILIPPINES 26th Floor, One Global Place 5th Avenue corner 25th Street, Bonifacio Global City Taguig, Metro Manila 1634 Telephone +63 2 465 2500 Fax +63 2 465 2505 Website www.worldbank.org/en/country/philippines