Capacity Building for Local Treasurers on the Statement of Receipts and Expenditures System Decentralization and Local Government (DIALOG) Trust Fund

Summary Report – Capacity Building Program for Local Treasurers

I. Introduction

A. Background In 2008, the Bureau of Local Government Finance (BLGF) completed substantial technical reforms to the Statement of Income and Expenses (SIE) system, which had been the standard financial performance reporting system for local government units (LGUs) since its launch in 2001. Supported by technical assistance from the Asian Development Bank (ADB), the revised Statement of Receipts and Expenditures (SRE) system was designed to harmonize with the Commission on Audit-New Government Accounting System (COA-NGAS) accounts and to incorporate additional data requirements to evaluate the fiscal capacity, level of debt, borrowing capacity, creditworthiness and overall financial performance of each LGU. BLGF circulated a new SRE manual in 2009 to guide the local treasurers in implementing the new reporting system. Beginning in 2009, the reports produced by the LGUs reflected the new SRE reporting format. The SRE generally conforms to the International Financial Reporting Standards (IFRS). It reports current year expenditures of the LGUs from both current and continuing appropriations, and provides specific data on the level of local capital outlays. More importantly, the system allows the BLGF to review the flows of funds and fund balances of the LGUs, facilitating improved monitoring of the performance of local treasurers. With the goal of harmonizing charts of accounts across local government fiscal reports, the new system now requires local treasurers to utilize data from documents and forms prepared by other local fiscal officer, particularly the local accountants and budget officers. Recent changes made by COA to its charts of accounts have led to difficulties for local treasurers in accurately reconciling the SRE reports with the trial balances of the local accountants. Discrepancies have been noted between the SRE and the COA-NGAS accounts in terms of grouping, classification, and treatment of certain accounts, timing of recording transactions, and the use of terminologies. The new system also requires local treasurers to maintain comprehensive SRE databases for their respective LGUs, which is something that the previous system did not require. Hence, for the SRE System to produce consistent, accurate, and timely LGU financial reports, technical assistance is needed to strengthen the capacities of local treasurers to fully adopt the new requirements and processes. In response to this need, BLGF developed a capacity building program to support improvements to the accuracy, consistency, and timeliness of sub-national fiscal data reporting by: a) strengthening the capacities of local treasurers to adopt the requirements of the new SRE System; and b) strengthening the capacities of the BLGF central and regional offices to effectively provide correct and timely guidance to local treasurers in implementing the SRE system.

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In support of BLGF’s efforts to improve sub-national financial reporting, the Decentralization and Local Government (DIALOG) Trust Fund implemented the Capacity Building of Local Treasurers on the SRE System project on March to July 2012 to assist BLGF in implementing a comprehensive capacity building program through the following: 1. Production of Training Manuals and References – This included the reproduction of the

SRE manual entry guide and training guidelines for distribution to local treasurers and BLGF central and regional offices.

2. Capacity Building of BLGF Staff – This included the implementation of capacity building workshops for central and regional office staff to: a) provide guidance to local treasurers on the completion of the SRE reports; and b) monitor the compliance of local treasurers in the implementation of the new SRE system.

3. Capacity Building of Local Treasurers – This included the implementation of capacity building workshops for local treasurers from provinces and cities on the preparation of the quarterly SRE reports. Importantly, officers from LGU accounting and budgeting offices were included as participants in the workshops to ensure the harmonized adoption of the new SRE reports across the fiscal offices of the LGUs.

The support given to the BLGF under this component extended to the local fiscal officers of provincial and city LGUs. BLGF has committed to cascade the training to the remaining municipal treasurers by leveraging on the trained regional BLGF staff, provincial treasurers, and city treasurers.

B. Development Partner Support The DIALOG Trust Fund is a World Bank-managed trust fund that was established in January 2010 to serve as a catalyst for furthering reforms under the Philippine Development Forum, Working Group on Decentralization and Local Government (PDF-WG). The DIALOG Trust Fund provides a mechanism for pooling resources from various development partners to support the implementation of the work-plan of the PDF-WG. The trust fund has been funded with initial contributions from the Australian Agency for International Development (AusAID) and the Canadian International Development Agency (CIDA). This Capacity Building of Local Treasurers on the SRE System is strongly consistent with the first development objective of the DIALOG Trust Fund, namely, to “Accelerate decentralization and local governance reforms in strengthening local public finance and management, improving overall LGU performance, and strengthening the legal and institutional environment for local governance; through capacity development and analytical activities.” The project seeks to support important reforms in local government fiscal reporting that are expected to strengthen: a) the institutional environment for LGU accountability through an improved monitoring system for LGU revenues and expenditures; and b) the capacity for LGUs to more effectively manage public finances. This project further supports the second development objective of the trust fund, that is, to “Intensify government and development partner support for decentralization and local governance reforms, through improved coordination and harmonization of resources and

systems” by building on technical reforms already undertaken by the BLGF with the technical assistance of ADB and by following through with the comprehensive roll-out of the new SRE System.

II. Summary of Capacity Building Program Implementation

A. Workshop Goals While the SRE system was designed to conform to the financial statements prepared under the NGAS, the revised SRE reporting format includes new account titles that have no equivalent accounts in NGAS. The inclusion of these new account titles was necessary in order to provide additional information and to establish financial indicators for economic forecasts, to evaluate the LGUs’ operating performance, and to respond to other needs and demands of the various users and stakeholders of the SRE report. Some of the SRE account titles were also modified to allow for accurate description of the transactions.1 Likewise, the preparation and presentation of SRE reports were designed to conform to the principles of the IFRS and the Philippine Financial Reporting Standards (PFRS). The SRE is widely used by various government offices to evaluate and monitor LGU financial performance, as the basis for LGU loan and grant applications, for statistical analysis, and for the analysis of revenue collections and borrowings vital in decision making processes. The SRE is also used by the Senate and Congress for legislation, by private financial institutions for credit application, and by development partners. With the goal of harmonizing charts of accounts across local government fiscal reports, the capacity building workshops were designed to train a team of local government treasurers, accountants, and budget officers to understand the different reports required and the accounts and terminologies used in the process of reconciling the SRE accounts with the COA-NGAS accounts. The workshops sought to promote uniformity in accomplishing the SRE reports among LGUs as well as to improve the quality of the SRE report in terms of efficiency and timeliness of submission.2

B. Workshop Coverage and Participants

The capacity building program targeted the local treasurers, accountants, and budget officers for all the cities and provinces of the country as the participants for the workshops. A total of nine regional workshops were organized, clustering between eight and 22 cities and provinces per workshop. Consequently, BLGF will cascade the training to the remaining municipal treasurers, accountants and budget officers, taking advantage of the trained regional BLGF staff and provincial and city treasurers, accountants, and budget officers.

1 Specifically, the following are the items included in the new SRE format: a) collection for advance

payment of real property tax; b) supplemental budgets approved by the Sanggunian Bayan during the year; c) other non-income receipts; d) other non-operating expenditures; and e) payments for expenditures arising from continuing appropriations. 2 As directed by Sections 352 and 315 of the Local Government Code, the SRE should be posted within 30

days from the end of each fiscal year and the submission of detailed SREs should be on or before the 15th

day of July of each year.

Appendix 1 provides the composition of BLGF staff for each of the nine workshops. BLGF’s detailed plan for cascading the training to the remaining municipal treasurers, accountants, and budget officers can be found in Appendix 2.

C. Workshop Design

The three-day workshop program was focused on harmonizing the SRE accounts of the local treasurer with the COA-NGAS accounts of the local accountant and the accounts of the local budget officer. The training also emphasized the importance of quality and timely submissions of the SRE. The first day of each workshop was spent discussing an overview of the SRE, the changes it has undergone, its present characteristics, and its possible uses for the public sector as well as for the private sector and development partners. On the second and third days of the workshop, the participants were coached on the process of reconciling the latest SRE account of the local treasurer with the COA-NGAS account of the local accountant. Each workshop culminated in the practical application of the training wherein local treasurers were tasked to prepare harmonized SRE reports that reconcile the SRE accounts with those of the local accountant’s COA-NGAS accounts. The local treasurers were asked to present their workshop outputs to their fellow participants and both the workshop facilitators and other participants were invited to provide feedback. A sample copy of the three-day program can be found in the Appendix 4. Appendix 5 contains all the presentations and training materials utilized during the workshops.

D. Summary of Workshop Implementation

The first of the nine workshops was held from March 20 to 22, 2012, at the Graceland Estate and Country Club in Tayabas, Quezon, while the last of the workshops was held from July 10 to 12, 2012, at the Oasis Hotel in Clark, Pampanga. The list of workshop clusters, locations, implementation dates, and the number of LGUs follows below.

Workshop Clusters Locations Dates Target Number of LGUs

Provinces Cities

Cluster 1: Regions I & CAR Baguio City (Hotel Supreme) June 26-28 10 11

Cluster 2: Regions II & III Manila (Bayview Hotel) June 13-15 12 16

Cluster 3: Regions IV-A & IV-B Tayabas, Quezon (Graceland

Estates and Country Club) March 20-22 10 16

Cluster 4: Regions V & VIII Manila (Bayview Park Hotel) June 5-7 12 14

Cluster 5: Region VI Manila (Bayview Park Hotel) May 22-24 6 16

Cluster 6: Region VII Cebu City (Cebu Grand Hotel) May 9-11 4 16

Cluster 7: Regions IX, X & CARAGA

Cebu City (Cebu Grand Hotel) May 8-10 16 21

Cluster 8: Regions XI & XII Davao City (Apo View Hotel) April 24-26 10 12

Cluster 9: NCR Clark, Pampanga (Oasis Hotel) July 10-12 0 16

TOTAL 80 138

Of the 138 cities and 80 provinces in the country, all but two cities (Laoag City and Vigan City) and three provinces (Batanes, Siquijor, and Sultan Kudarat) sent representatives to the workshop. Given the target participants composed of local treasurers, accountants, and budget officers, the capacity building program expected 645 participants in total (net of the

five LGUs that were unable to send participants). However, only 459 of the targeted participants were eventually able to attend, representing an attendance rate of 71.5 percent. The workshops were also attended by an additional 643 participants, the majority of whom were deputy officers and staff of the LGU fiscal offices. These additional participants also included 15 provincial governors, vice governors, and governors-in-charge, as well as 22 city mayors and vice mayors.3 The following table provides a summary of the participants from each region.

Region

Number of LGUs Expected Target

Participants

Actual Target Participants

Number of Additional

Participants Province City TOTAL

I 4 7 11 33 26 57

II 4 3 7 24 21 29

III 7 13 20 60 49 75

IV - A 5 14 19 57 21 58

IV - B 5 2 7 21 7 35

V 6 7 13 39 11 57

VI 6 16 22 66 54 73

VII 3 16 19 57 51 27

VIII 6 7 13 39 17 47

IX 6 6 12 36 26 18

X 5 9 14 42 41 21

XI 4 6 10 30 23 10

XII 5 6 11 33 26 20

CAR 6 2 8 24 24 33

CARAGA 5 6 11 33 25 22

NCR 174 17 51 37 61

TOTAL 77 137 214 642 459 643

The ratio of actual local treasurers, accountants and budget officers to the expected number of target participants was lowest for Region 5, where the actual number of participants was just 11 compared to the 39 expected target participants, yielding a ratio of 28 percent. This was followed closely by Regions IV-B and IV-A with attendance percentages of 33 percent and 37 percent, respectively. On the other hand, CARAGA had a perfect attendance and this was closely followed by Region X, with a 98 percent attendance of local treasurers, accountants, and budget officers. Please refer to Appendix 3 for a more detailed consolidated list of participants.

E. Summary of Workshop Outputs

Of the 214 LGUs that participated in the capacity building workshop, only 97 LGUs were able to successfully reconcile the SRE accounts with the COA-NGAS accounts, representing a success rate of just 45.3 percent. The shares of LGUs that were able to successfully reconcile the accounts ranged from a low of 29.4 percent for the NCR cluster to a high of 68.4 percent for the Region I and CAR cluster. The table below provides a summary of the

3 The project funded the attendance of the local treasurers, accountants, and budget officers for the

entire three-day workshop along with the attendance of provincial and city local executives. Additional participants from the LGU fiscal offices were funded by the LGUs. 4 The municipality of Pateros was included in the workshop for NCR LGUs.

performance of the local treasurers in successfully preparing the final outputs for the workshops.

Workshop Clusters Number of

LGUs

Number of LGUs able to correctly

reconcile accounts

Percentage of LGUs able to correctly

reconcile accounts

Cluster 1: Regions I & CAR

19 13 68.4%

Cluster 2: Regions II & III 27 9 33.3%

Cluster 3: Regions IV-A & IV-B

26 12 46.2%

Cluster 4: Regions V & VIII 26 16 61.5%

Cluster 5: Region VI 22 8 36.4%

Cluster 6: Region VII 19 7 36.8%

Cluster 7: Regions IX, X & CARAGA

37 13 35.1%

Cluster 8: Regions XI & XII 21 14 66.7%

Cluster 9: NCR 17 5 29.4%

TOTAL 214 97 45.3%

Many of the reconciling problems stemmed from differences in the treatment of accounts. It became clear to the local treasurers after undertaking the exercise, especially those who recently took on their positions, that SREs were cash-based accounts and, as such, could vary greatly from the accounts of the local accountants. Common reconciling items between the SRE accounts and the COA-NGAS accounts were depreciation, bank credit without receipt, bank charges, bank interest, real property tax collection differences due to time period treatment, and inventory adjustments. For a more detailed list of workshop outputs, please see Appendix 8.

F. Summary of Workshop Evaluation

BLGF administered evaluation forms for the participants at the end of each workshop. The table below shows a perfect submission rate for all clusters except for Clusters 5, 6, and 7.

Workshop Clusters Number of

Participants Given Evaluation Forms

Number of Evaluation Forms

Submitted

Submission Percentage

Cluster 1: Regions I & CAR 105 105 100.0%

Cluster 2: Regions II & III 96 96 100.0%

Cluster 3: Regions IV-A & IV-B

78 78 100.0%

Cluster 4: Regions V & VIII 105 105 100.0%

Cluster 5: Region VI 66 54 81.8%

Cluster 6: Region VII 60 48 80.0%

Cluster 7: Regions IX, X & CARAGA

111 108 97.3%

Cluster 8: Regions XI & XII 66 66 100.0%

Cluster 9: NCR 87 87 100.0%

TOTAL 774 747 96.5%

Overall, the participants gave good evaluations for the workshop, with the evaluations averaging 8.78 on a 10-point scale. The four main aspects of the workshop – Facilitation, Course Design, Program Coordination, and Training Materials – received uniformly high ratings, with Facilitation receiving the highest average rating of 8.86. A summary of the

evaluation forms can be found below. Appendix 6 contains a more detailed report on each workshop cluster while a copy of the evaluation form can be found in Appendix 7.

POINTS TO RATE AVERAGE

FACILITATION:

1. The lecturer/facilitator was well-prepared and displayed mastery of the subject matter 8.89

2. The lecturer/facilitator effectively motivated our group’s 8.87

3. The lecturer/facilitator communicated effectively with us 8.88

4. The lecturer/facilitator effectively used the training 8.81

5. Efforts were made to relate the subject/topic to real life situations 8.84

FACILITATION AVERAGE 8.86

COURSE DESIGN:

1. The program’s objective were clearly stated and easy to understand 8.81

2. The topics were complete, relevant and applicable to my specific needs 8.78

3. The sequencing of the topics displayed good flow, logic and organization 8.75

4. The methodologies used enhanced my understanding of the subject matter 8.78

5. The time allotted for each module was appropriate 8.77

COURSE DESIGN AVERAGE 8.78

PROGRAM COORDINATION:

1. Prior to my attendance, I was fully informed of the program’s schedule, venue, objective, description and requirements 8.77

2. The house rules given clarified our expectations regarding the conduct of the program 8.82

3. Extra effort was exerted to satisfy the special request of our group’s members. 8.72

4. The venue was conducive and appropriate to the methodologies used 8.79

5. Efforts were made to determine the effectiveness of the program and its applicability to my work 8.91

PROGRAM COORDINATION AVERAGE 8.80

TRAINING MATERIALS:

1. All training materials satisfactorily addressed the program’s objectives 8.71

2. All training materials were properly prepared, well-organized and user-friendly 8.70

3. The contents of all training materials were up-to-date, accurate and error-free 8.61

4. All needed training materials were complete and issued on time 8.74

5. The design used for hand-outs or manuals looked professional, and their materials were of high quality 8.71

TRAINING MATERIALS AVERAGE 8.69

OVERALL AVERAGE 8.78

The high ratings from the evaluation forms were reinforced by the qualitative feedback from the participants, which supported these results. Comments included the following: “articulate and effective resource speakers and facilitators,” “resource materials are timely and complete,” and “course design is clear and understandable.” Participants agreed that the workshop was very timely given the practical experiences of the participants in encountering differences in the treatment of accounts by the treasury and the accounting offices.

In terms of areas for improvement, activity reports indicated that the participants commented on the need to provide hard copies of the forms used for reconciliation. The participants also felt that the facilitators should find better ways to motivate them to improve their reconciliation output instead of relying on the non-credible threat of not letting them go home from the workshop.

III. Lessons from Capacity Building Program

A. Quality Reporting

Most of the SREs presented by the workshop participants were rejected, and returned to them for correction and resubmission. This was a necessary learning experience as the workshop helped the budget officers and accountants understand the importance of the SRE, what it was about, and what the treasurers needed from them to be able to submit quality and timely SREs. Treasurers also understood the need for continuity. With the present turnover rate, the treasurers felt the need to make sure that what they learned from workshops such as these was passed on to their successors. This highlighted the need for a clear and systematic transfer of knowledge and information from one generation of treasurers to the next. There was also a need for treasurers to be well trained and knowledgeable of the definitions and the nuances of the SRE accounts. The workshops also raised an important question regarding the technical skills of treasurers – whether or not the treasurers possessed the technical skills needed to efficiently and effectively implement the new SRE system.

B. Checks and Balances

According to the SRE Manual prepared by the BLGF, SRE reports done by LGU treasurers are checked and verified twice – first by the BLGF regional office and second by the BLGF central office. If either office discovers an error or a discrepancy in the report, the report is sent back to the LGU for revision. Below is a flowchart that indicates how the SRE is prepared.

In many LGUs, treasurers made use of encoders in the preparation and submission of their SRE reports. The problem with this system of relying on encoders was that it lacked the proper checks and balances. This problem extended to the provincial levels where reports were automatically submitted once received, again without the proper checks and balances. According to the BLGF manual, SRE reports are supposed to be verified by the BLGF regional offices and approved by the BLGF central office. If reports are rejected either by the BLGF regional office or the BLGF central office, reports are sent back to the LGU for revision. However, not all reports are checked. As a result of the sheer number of reports submitted,

the BLGF central office randomly draws SREs for checking. In the future, LGUs that habitually submit incorrect or inaccurate SREs will be asked to submit a reconciliation output.

C. Coordinated Effort A coordinated effort is needed among the treasurers, accountants and budget officers. There appeared to be a lack of clear and effective coordination, which affected the accurate preparation of SREs. One important effect of the workshop is that it has successfully fulfilled the need to inform the accountants and the budget officers about the requirements of the treasurers in the creation and submission of their SREs. For the treasurers, the workshop has impressed upon them the importance and urgency of their SRE reports. Overall, by bringing together the treasurers, accountants and budget officers, the workshop was able to make that crucial step to bringing about an awareness of the necessity of closer collaboration and coordination among them.

IV. Recommendations

A. Proper Checks and Balances One method to check the accuracy of the treasurers’ report is to recommend an annual use of the Statement of SRE reconciliation for all LGUs. As suggested by the BLGF, LGUs that habitually submit inaccurate SRE reports will be asked to submit the Statement of SRE reconciliation. This will serve the twin purpose of: (1) ensuring that the treasurers’ accounts are correct, while (2) providing an incentive for accurate reporting.

B. Seal of Good Housekeeping Another incentive for quality and timely submission of the SRE reports is the Seal of Good Housekeeping (SGH), an award given by the Department of Interior and Local Government (DILG) to deserving local government units that get high scores on planning, budgeting, revenue mobilization, and financial management, among other categories. One of the requirements for the award of the Seal of Good Housekeeping is the accurate and timely submission of the SRE reports. However, when the DILG validates the requirements for SGH, the validation is done at the LGU level and not with BLGF. This may lead to misinformation regarding the actual submission of the SRE reports. There can be instances when the LGU presents an SRE report to the DILG, which, in fact, has not yet been submitted to the DILG. Hence, there is a need for more stringent qualifications for the awarding of the SGH. To date 110 out of 138 cities and 70 out of 81 provinces have been awarded the SGH.

C. Future Training Another important step is the cascading of the capacity building to municipal treasurers, accountants and budget officers not covered by the capacity building workshops. The support to BLGF only extends to the capacity building of provincial and city treasurers. BLGF will cascade the training to the remaining municipal treasurers by taking advantage of the trained regional BLGF staff and the provincial and city treasurers, accounts and budget officers. BLGF’s detailed plan on how to cascade the training to the remaining municipal treasurers, accountants and budget officers can also be found in the appendix.

D. Continuity

It is imperative to create a system of continuity in the treasury department. Outgoing treasurers should not be cleared until all materials from all workshops attended have been handed over and properly explained to their successors. The workshop has brought to light actual examples of treasurers who were not aware that an SRE manual existed. This may have resulted from a lack of continuity of information and knowledge from one generation of treasurers to the next. The importance of a system of continuity will be further highlighted when the soon-to-be-rolled-out enhanced eSRE system is implemented.

List of Appendices

Appendix 1 – Composition List of BLGF Staff Appendix 2 – Memo to All Regional Directors Regarding the Capacity Building of BLGF Regional Offices to Municipalities Appendix 3 – Detailed Consolidated List of Participants Appendix 4 – Workshop Program Appendix 5 – Training Materials Appendix 6 – Detailed Evaluation Report Appendix 7 – Evaluation Form

Appendix 8 – Workshop Outputs