PFM Assessment Report (PFM-AR)

ANALYSIS OF BANATE FINANCIAL MANAGEMENT ASSESSMENT BANATE, ILOILO, PHILIPPINES

OVERALL SCORE: 2.87 (Intermediate)

1. Executive Summary

In general, the year in review has exhibited a struggle for prosperity. Notwithstanding
constraints, the municipality nevertheless managed to pursue its plans by putting together
available resources expected to provide a systematic approach towards better service delivery
through an improved Public Financial Management (PFM) system.

Based on the results of the assessment, the municipality had achieved very well in the
critical dimensions of Comprehensiveness and Transparency, and Citizens' Participation. On the
other hand, very low scores were obtained in the areas of Policy based Budgeting, Internal and
External Audit and Accounting, Recording and Reporting.

Overall, the municipality obtained a score of 2.87. This indicates that while elements of an
open and orderly PFM system are not complete, the existing elements are nevertheless fully
operational. It is recognized that the municipal government cannot go a long way in terms of
better service delivery with poorly managed financial system.

Accordingly, appropriate measures should be adopted by the municipal government to

complete and fully operationalize all the elements of an open and orderly PFM system. This can
be accomplished by improving performance in all the critical dimensions of a sound PFM system.
This report embodies the results of the evaluation of this LGU's PFM system and shall serve as a
jumping board for PFM improvement efforts.

2. Introduction

The importance of good governance in the attainment of development goals cannot be

understated. Part and parcel of good governance and the strengthening of public institutions is
the continued improvement of the local PFM system.

But for PFM improvements to be effectively undertaken, the LGU should be able to
establish baseline Information on the state of its PFM system. The issuance of the Public Financial
Management Assessment Tool for Local Government Units (PFMAT for LGU's) is therefore timely as
it serves as a mechanism by which the LGU's could measure their current PFM systems and
determine which areas need improvement.

This report embodies the results of the evaluation of this LGU's PFM system and shall serve
as a jumping board for PFM improvement efforts.

3. Background Information

Location

It is located 50 kilometers from the Municipality of Banate of Iloilo towards the tip of the
province. It is bounded on the northeast by the Municipalities of Barotac Viejo and San Enrique.
On the southeast portion is Banate Bay and on the west are the Municipalities of Dingle and
Anilao. Geographically, its shape resembles a boat shoe with its island barangay as the heels. It is
13 kilometers long and 7 kilometers at its widest point. It has a total land area of 11,886 hectares.
It is composed of 18 barangays, 7 of which are coastal and 11 belong to upland. The coastal
barangays are San Salvador, Talokgangan, Bularan, Poblacion, Alacaygan, Zona Sur and Belen,
while the upland barangays are Fuentes, Carmelo, Dugwakan, Libertad, Merced, Magdalo,
Bariga, Bobon, De La Paz, Juanico and Managopaya.

Land Area

The town’s total land area is 11,886 hectares, and constitutes about 2.18 percent of the
total land area of the Province of Iloilo which is 554,465 hectares. The agricultural area constitutes
the biggest portion of the town consisting 10,189.87 hectares or almost 86 percent of the total land
area of the municipality. The open grassland constitutes the town’s second biggest portion which
is 652.49 hectares; followed by forest land which is about 450.13 hectares; fishpond area, 387

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hectares; mangrove area 86.87 hectares; residential land, 109.64 hectares; and industrial land, 10
hectares.

Climate

Banate’s climate is categorized as third type, that is; seasons are not very pronounced. It
is relatively dry from November to April and wet during the rest of the year. The maximum rain
periods are not very pronounced, with the short dry season lasting only from one to three months.
The sea on the southeast and the forest in the opposite direction tempers Banate’s climate.

Topography:

Banate is characterized with plain, gently sloping and rolling mountains. The hilly portion is
found at Barangay Managopaya, Merced, Magdalo, Dugwakan, and Libertad.

Soil Types

There are, three types of soil in the Municipality of Banate, namely: Alimodian, Clay Loam
Barotac and Sta. Clay Loam. Approximately 70% of the total area are Alimondian Clay. This types
is suitable to any kind of agricultural crops. Barotac loam constitute 23.5% Sta. Rita Clay loam,
6.5%.

Population Size and Structure

The 2010 National Census on Population and Housing shows that Banate has a total
population of 29, 543 excluding Brgy. Fuentes. However, including Brgy. Fuentes, (a contested
Barangay between Banate and Anilao), it has a total population of 30, 231. The annual growth
rate is 1.29%. Urban Population is 11, 932 while Rural Population is 18, 299. Based on the A & D area
of 5,240.849 and a population of 30, 231, the municipal gross density is 5 persons per hectare.

Of the 30,231 total population, 14,813 or 49% comprises the male while 15,418 or 51%
comprises the female. 21, 366 population 15 years and over employed is 9,988 unemployed 11,378
not in the labor force 8,865

Income and Poverty Incidence

Income and Poverty Incidence. Based on the CPDBMP 2011 of the POPCOM, the
municipality has 55.39% poverty incidence; 22.14% of this or 1,476 households have income falling
below the poverty threshold, while 77.53% or 5,168 households earns below the food threshold.

The potential of the community in commerce generally relies on its source of livelihood
stated previously. Strategically intersected by the national highway, trade and commerce finds
its way easily to Banate. Convergence of products from neighboring towns happens at Banate in
daily basis. Fruits and vegetables from parts of San Enrique, Btac Viejo and Anilao as well as marine
products from Barotac Nuevo and Viejo were sold at Banate thus, categorized as the minor
Central Business District (CBD).

Fishing boats lands and delivers their catch at three general schedules, 2am; 4am and 10‐
11am. The commonly known market day in Banate is Wednesday but Sunday and other ordinary
days prove to be as commercially active as well. In addition to this, another market day is active
on Sundays at Brgy. De la Paz, 12 kilometers inland from the Poblacion or town proper.

The public market is being cleaned and maintained only by three (3) personnel. Aside from
this 3 personnel, there are 2 other personnel who are given assignments, 4 are to collect taxes
every day the other to conduct inspection on meat products and the other to supervise everyday
undertakings. During market day, there are about 5 personnel to augment the tax collection
activity.

Surrounding the public market are privately owned business enterprises which retail variety
of products which also serve as terminal and parking areas of various public utility vehicles.

To date, there are four (4) major types of business or trade that are present in the
municipality, wherein majority of these are concentrated in the public market. These included
wholesale trade, retail, banking and finance and recreational and personal services.

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 Most of the residents engage in retail trade. In the Barangay Poblacion alone, as of CY
1998, there are 65 sari‐sari stores, 3 rice & corn dealers, 3 palay traders, 38 fish vendors, 2 auto
supply, 2 hardware, 3 gasoline station operators, 4 agricultural supply dealers, 4 butchers/meat
dealers and 3 drugstores. Aside from the public market, majority of the retail trade which are
spread in the barangays are sari‐sari stores which total to 198, bringing the number of retail trade
in the municipality of Banate to 263. Meanwhile, the presence of sarisari stores in the barangay is
a big help among the residents. Though incomplete and quite expensive, then somehow answer
to their everyday needs. Then it saves a lot of time and effort for the residents in going to and from
the public market.

For banking and finance, the municipality has three (3) banking institutions, Rural Bank of
Marayo, Valiant Bank and RBG Imperial Bank, all located at Poblacion.

The municipality also caters to two (2) kinds of services. One is recreational and the other
is personal. Meanwhile, the municipality has a total of personal services which are mostly located
at the Public Market which include internet café/gaming stations, carinderia/refreshment, beauty
parlors, photography studio and tailoring. Likewise Barangay Alacaygan, Bularan, Carmelo,
Talokgangan, Belen and De la Paz also cater to personal services like carinderia/refreshments,
funeral parlors, medical clinic and dental clinic.

Local Economic Outlook

The Municipality of Banate is a fourth class municipality with its livelihood strongly
dependent in agriculture, fishing, trade, commerce and industry. The potential of the community
in commerce generally relies on its source of livelihood stated previously. Strategically intersected
by the national highway, trade and commerce finds its way easily to Banate. Convergence of
products from neighboring towns happens at Banate in daily basis. Fruits and vegetables from
parts of San Enrique, Btac Viejo and Anilao as well as marine products from Barotac Nuevo and
Viejo were sold at Banate thus, categorized as the minor Central Business District (CBD).

In CY 2012, it has an income of P 53,797,771.08 comprising local revenues amounting to P

4,997,345.08 and Internal Revenue Allotment amounting to P 48,800,426.00

The agricultural area constitutes the biggest portion of the town consisting 10,189.87
hectares or almost 86 percent of the total land area of the municipality. The open grassland
constitutes the town’s second biggest portion which is 652.49 hectares; followed by forest land
which is about 450.13 hectares; fishpond area, 387 hectares; mangrove area 86.87 hectares;
residential land, 109.64 hectares; and industrial land, 10 hectares.

The total area planted to rice is 2,529.56 has. of which 1,106.70 is irrigated and 1,422,86 has.
Is dependent on rain or rainfed area. Banate’s topography is 0‐ 2.5% areas in a slope level
category comprising 63% of the total land area and the rest 37% is distributed to forest and open
lands. Most common source of family income is agriculture and fisheries, including livestock raising.
Livestock most commonly raised in Banate includes, cattles, goats, swine and poultry. In fact there
are five (5) commercial poultry and also five (5) piggery farms here in Banate.

4. Assessment of the LGU’s PFM Systems

The overall FMA score of ‘Intermediate’ for Banate reflects its high developed level of
financial reporting (4.0) and fairly high level of disclosure (4.0), adequate performance in annual
budgeting and debt management skills (4.0) which are at par with most local peers. On the other
hand, the score takes into account the basic practices of Banate in elements of FMA like
expenditure management and medium-term planning.

Notably, Banate overall FMA score reflects the more balanced developments in its FMA
practices for most key areas, as opposed to some local peers who may demonstrate sound
practices in certain elements such as revenue management, but at the same time scoring poorly
in half the areas like debt management, budgeting etc. Nevertheless, the Banate’s lack of a fully
centralized digital apps in most aspects of financial management such as annual budgeting,
financial reporting, tax collection and disbursement have emerged as a constraint on these
respective scores. A comprehensive computerization of the system could potentially see
improvement in Banate’s overall FMA and individual element scores.

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 In addition to Banate own weaknesses in policy based budgeting practices (1.89), the
overall FMA score is constrained by the poor public finance environment that Philippines LGUs
operate in general.

The complicated national set-up to supervise LGUs involves multiple national agencies
simultaneously managing the same local government space, and the general lack of co-
ordination among them has contributed to ineffective oversight. An extremely politicized
environment has also brought about general institutional weaknesses in the government, although
this is not unlike many other LGUs. In the absence of institutionalized policies and a medium-term
policy framework, the key-man risk factor is significant for Banate, since elected mayors have
almost full discretion in all key decisions, which is a similar situation to other LGUs.

Unlike many LGUs in the Philippines, Banate does have accounting software in place and
still relying on archaic manual procedures that are cumbersome and lengthy. Mitigating this is the
existence of timely and comprehensive audits by the National Commission on Audit (3.67).
However, the majority of LGUs received qualified opinions on their financial statements.

Overview of Banate key strengths and weaknesses

Despite the lack of centralized budgeting or accounting software, the LGU has been
accurate in its budgeting performance on both revenue and expenditure. And as mentioned, its
audited financial statements are free of material qualifications, few among Philippines LGUs.

This is a significant driving factor behind the overall score as well. Banate has also proven
to have the capacity to manage debt and demonstrated a relatively high level of quality in its
debt monitoring. In Addition, the overall score is strengthened by the developing practices in
expenditure management, financial policy and medium-term framework and to a lesser extent
liquidity & cash management. Most of Banate systems are not centralized digitally however its
disbursement process is partly digitized, resulting in shorter procedures and faster turnaround in
clearing payables. However the absence of medium or long-term planning is evident in most
elements of financial management of Banate (although again this is a prevalent weakness
among Philippine local governments in general)

The financial statements had received clean audit opinions from COA in the last few years.
No notable discrepancies appeared on Banate’s audited statements except for the usual
inconsistency in the valuation of physical assets, and COA reported that the LGU is expected to
resolve them by end of 2014.

Banate’s transparency in its reporting of financial performance is also noteworthy, with the
comprehensive publishing of its annual budget, interim annual and quarterly financial statements
released on a timely basis (and sooner on the website). However its financial reporting score is
boosted by the presence of accounting software that potentially reduce paperwork and offer
easier access to financial information within the administration. Banate has managed to
consistently produce reliable financial statements with the help of electronic solutions.

Likewise, despite the absence of any budgeting software other than that of Basic
Spreadsheet, Banate’s annual budgeting performances have been strong and demonstrated
relative accuracy on both revenue and expenditure planning. It is conservative on revenue
budgeting, with final outcome more often than not exceeding initial budgeted amount.

Furthermore, all of the loans are negotiated with clauses that allow prepayment without
penalties. The government actively monitors borrowing rates and would seek cheaper refinancing
whenever the opportunity arises. However, like most LGUs, Banate’s debt management score is
weakened by the lack of a coherent and explicit debt policy. The disbursement and authorization
processes are lengthy and cumbersome. Revenue collection is also on a manual basis and this
lack of computerization throughout the whole administration has translated to the high number
of civil servants employed. Personnel expenses currently stand at around __% of Banate’s total
income, close to the regulated --% ceiling

Constraining the overall FMA score is also its lack of a stipulated financial policy, no liquidity
targets and no comprehensive risk assessment tools. These translate to significant constraints in
Banate’s liquidity and cash management score. No paperless payment exists and the
government takes as long days to clear payables, suggesting delays to suppliers and contractor

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and/or significant past obligations outstanding for considerable amount of time but still classified
as current liabilities.

Peer comparison

In the Philippines local context, Banate overall FMA is at par or advanced than most peers,
reflecting the more balanced developments in its FMA practices for most key areas, relative to
some local peers who may demonstrate sound practices in certain areas but at the same time
scoring poorly in others.
External stakeholders are consulted and tacit agreement is sought before revisions of rates
are proposed. Its revenue projections is also significantly more accurate, however the distinct lack
of computerization in its collection system put its revenue management score on the same level
as other lgus.

Key trends and challenges for the development of Banate’s FMA score

A comprehensive computerization of the revenue and expenditure management systems,

adopting an accounting software (such as e-NGAS) and implementing an e-budgeting software,
could help address some of the weaknesses in the elements of expenditure and revenue
management, financial reporting and annual budgeting. Banate should be in the process of
developing new computerized systems for both the RPT and business tax collection, and these are
expected to come on board by _______. If successful, the computerized revenue collection would
help streamline processes and reduce paperwork.

Consequently, the benefits from a more efficient revenue collection system could lead to
a leaner civil service. Nonetheless, reducing headcount has often proved to be challenging in the
politicized public finance environment of Philippines local governments. In the area of
expenditure management, a full computerization of the payment process and adoption of an e-
commerce facility would make disbursement more efficient and faster clearing of payables. This
in turn would help reduce the currently high ratio for number of day’s payables.

To raise Banate overall FMA assessment to a Sound level, would depend on the
administration taking a longer-term view on all aspects of its financial planning. A key area is the
establishment of a forward-looking revenue and expenditure framework, with linkages to a
comprehensive long-term investment plan and the annual budgeting process. While the LDIP is a
good starting point for development of a longer-term approach to financial management, its
usefulness would increase with more details on programs, accountability for achievement of key
targets and comprehensive exploration of potential funding sources.

Banate’s overall FMA score could also benefit from directly linking the LDIP to the annual
budgeting process. With the introduction of more program-based expenditure planning, this
could improve the overall level of financial management sophistication for the LGU. In addition,
stipulation of policies in liquidity, debt and investment management would help improve
continuity beyond the political cycle. At the more systemic level, an introduction of medium-term
budgeting framework requirement would have a positive effecting terms of general impact on
financial management sophistication of Philippines LGUs. More effective and efficient co-
ordination between central agencies and LGUs would also require efforts on the central
government’s part. Nonetheless, the establishment of the Joint Memorandum Circular should help
in some way to further the endeavours to co-ordinate and synchronize local governments
planning, execution and reporting cycles and formats with those of national agencies. Central
efforts to transit all LGUs to a full accrual accounting system, ensuring consistency of its application
and imposing penalties for non-compliance would also help improve financial reporting and
disclosure standards.

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5. Recommendations

Improvement efforts should, foremost, be focused on the critical dimensions which

garnered the lowest score. Hence, adjustments and further study of an active PFM system should
be given priority.

Accordingly, the municipality should take extra effort to established an operationalize

Internal Audit System (lAS). Moreover, it should also look into the staffing and training requirements
of the Accounting office. Failure to comply with the reglementary periods for the liquidation of
cash advances, preparation and submission of financial statements appear to be caused by
Accounting Office lack of personnel. Notwithstanding higher scores obtained for the rest of the
critical dimensions, the municipality should also consider the following:

a. Pursuit of innovative local revenue raising measures to strengthen the continuous delivery
of quality services;

b. Take extra effort to double tax collection to lessen dependency on Internal! Revenue
Allotment (IRA) to achieve economic growth;

c. Focus on the computerization program on the integrated revenue collection and

Financial Management System for effective and efficient local governance.

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 PUBLIC FINANCIAL MANAGEMENT IMPROVEMENT PLAN
CY 2014

CRITICAL DIMENSION
PFMAT PFMAT PROGRAM/PROJECT/ACTIVITY EXPECTED RESULTS IMPLEMENTATION RESPONSIBLE PROPOSED BUDGET FUNDING SOURCE
INDICATOR/SUB – SCORE (3) (4) PERIOD OFFICE/S (7)
INDICATOR (2) (5)
(1) START END YI Y2 Y3 Y1 Y2 Y3
Policy Based Budgeting
Multi-year perspective 3.33
in Fiscal Planning and
Budgeting
Linkage between CDP Formulation and approval of CDP Approved CDP
and LDIP Formulation and approval of LDIP Approved LDIP consistent
based on the approved CDP with CDP
Linkage between LDIP Formulate AIP based on approved Approved AIP consistent
and Annual Investment LDIP with the approved LDIP
Program
Linkage between AIP Prepare Budget in accordance with Approved Annual
and Appropriation the approved AIP Budget/AO is consistent
Ordinances covering with the approved AIP
the Budgets
PFM improvement 1.00 Formulate and implement  Improvement plans
policies are included in Improvement Plans based on the implemented
the budgets covered PFMAR  Well-
by Appropriation Organized/Efficient
Ordinances PFM
Orderliness of activities in the Annual Budget process 2.00
Adherence to a fixed Issuance of Executive Order Annual Budget submitted
calendar for budget directing strict compliance with to the Sanggunian for
preparation and fixed Budget Preparation Calendar authorization on or
authorization phases before October 16 of the
year
Timely enactment and LCE shall certify that the Annual Budget approved
approval of the Appropriation Bill submitted to the before the start of the
Appropriation Sanggunian is urgent Budget Year
Ordinance authorizing
the Annual Budget
Timely submission of SB Secretary shall submit AO to Appropriation Ordinance
the Appropriation the reviewing office within 3 days submitted for review
Ordinance authorizing from its approval within 3 days from its
the Annual Budget to approval
the appropriate
reviewing authority
3. Credibility of Budget
Actual revenue Revision/Updating of Local Approved New Local
collections compared 1.00 Revenue Code Government Code
with estimated
revenues in the budget
Creation of Local Economic Local Economic
Enterprise Enterprise created
4. Predictability and Control in Budget Execution
Real property tax 1.00 Intensive Real Property Tax Increase in Real Property
accomplishment rate Collection Tax Collection
(RPTAR)
Effectiveness of Tax 1.00 Conduct IEC in all Barangays Pulong-Pulong Conducted
enhancement in 18 Brgys.
measures
Establish a computer network Establishment of
among the offices responsible for computer networking
real property assessment and tax among offices
collection
Predictability in the Strict Implementation of Local
availability of cash for Revenue Code
committed
expenditures
Value for money and
controls in
Procurement