Is Realignment of LGU Funds Allowed? Budgeting and COA Rules in the Philippines

Introduction

In the Philippine local government system, the management of public funds is a cornerstone of fiscal responsibility and accountability. Local Government Units (LGUs), which include provinces, cities, municipalities, and barangays, operate under a framework that emphasizes prudent budgeting and expenditure practices. One key aspect of this framework is the realignment of funds, which refers to the process of transferring or reallocating appropriated funds from one program, project, or activity to another within the approved budget. This practice raises questions about its permissibility, the governing rules, and the oversight role of the Commission on Audit (COA).

Realignment is not outright prohibited but is subject to strict conditions to prevent misuse, ensure transparency, and align with public interest. It is rooted in the principles of fiscal autonomy granted to LGUs under the 1987 Constitution and the Local Government Code of 1991 (Republic Act No. 7160, or LGC). However, it must comply with budgeting laws, executive issuances, and COA regulations to avoid disallowances or administrative sanctions. This article explores the legal basis, procedures, limitations, and implications of fund realignment in LGUs, drawing from relevant statutes, administrative rules, and judicial interpretations.

Legal Basis for Fund Realignment in LGUs

Constitutional and Statutory Foundations

The 1987 Philippine Constitution, particularly Article X, Sections 1-3, establishes local autonomy, including fiscal autonomy, allowing LGUs to generate and manage their own revenues. This autonomy extends to budgeting, but it is not absolute; it must adhere to national laws and policies.

The primary law governing LGU finances is the LGC. Key provisions include:

Section 305: This outlines the principles of local fiscal administration, emphasizing that funds shall be spent solely for public purposes, in accordance with law, and subject to accounting and auditing requirements.
Section 306: Defines the local budget as the financial plan embodying the estimates of income and expenditures, which must be enacted through an appropriation ordinance by the sanggunian (local legislative body).
Section 322: Allows for the declaration and use of savings. Savings arise from unexpended balances after the completion or abandonment of a project, or from reduced costs. These savings can be realigned to augment items in the same expense class within the same fund, subject to approval by the sanggunian.
Section 336: Permits the use of unappropriated balances or savings for purposes authorized by the sanggunian, provided they are certified by the local treasurer and accountant.

Additionally, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) and Republic Act No. 9184 (Government Procurement Reform Act) provide overarching rules on government expenditures, which apply to LGUs.

Executive issuances, such as Department of Budget and Management (DBM) Local Budget Circulars, further detail budgeting processes. For instance, DBM Local Budget Circular No. 125 (2020) and its predecessors guide the preparation and execution of local budgets, including realignment protocols.

Specific Provisions on Realignment

Realignment is explicitly addressed in the context of savings and supplemental budgets:

From Savings: Under Section 322 of the LGC, savings can be realigned within the general fund or special funds, but only for items within the same expense class (e.g., personal services, maintenance and other operating expenses, or capital outlay). Cross-class realignments are generally prohibited unless authorized by law.
Supplemental Appropriations: Section 321 of the LGC allows for supplemental budgets when there are additional funds from new revenue sources or savings. This can involve realignment if it augments existing appropriations.
Calamity Funds: Section 324(d) of the LGC mandates a 5% calamity fund, which can be realigned for disaster response without the usual restrictions, as per Republic Act No. 10121 (Philippine Disaster Risk Reduction and Management Act of 2010). During declared states of calamity, realignments are expedited.
Development Funds: The 20% development fund under Section 287 of the LGC is ring-fenced for socio-economic development projects and cannot be realigned for other purposes without violating the law.

Realignment is also permissible in cases of budget adjustments due to changes in income estimates or unforeseen circumstances, but it requires sanggunian approval via ordinance.

Procedures for Fund Realignment

The process for realigning LGU funds is procedural and involves multiple stakeholders to ensure checks and balances:

Identification of Savings or Need: The local chief executive (LCE), such as the governor, mayor, or punong barangay, initiates the request based on certifications from the local treasurer (available funds) and accountant (savings declaration).
Sanggunian Approval: Realignment requires an ordinance from the sanggunian. For amounts exceeding certain thresholds, it may need review by higher bodies, like the provincial sanggunian for municipal budgets.
DBM Review: Under Section 326 of the LGC, local budgets are subject to DBM review for conformity with laws. Realignments that alter the budget structure may trigger re-review.
Implementation: Once approved, the local accountant records the realignment, and procurement follows RA 9184 if applicable.
Reporting: LGUs must submit quarterly reports on fund utilization to the DBM and COA, as per DBM Circulars.

Failure to follow these steps can lead to the realignment being deemed irregular.

Role of the Commission on Audit (COA)

The COA, as the constitutional body tasked with auditing government accounts (Article IX-D, 1987 Constitution), plays a pivotal role in overseeing LGU fund realignments. Its rules ensure that realignments are not used to circumvent budgeting controls or perpetrate graft.

Key COA Rules and Circulars

COA Circular No. 2012-001: Prescribes the Revised Manual on the New Government Accounting System for LGUs, which includes guidelines on recording realignments. It emphasizes that realignments must be supported by documentary evidence and not result in over-obligations.
COA Circular No. 2015-009: Details procedures for the settlement of audit disallowances, which often arise from improper realignments. Disallowances occur if realignments violate expense class restrictions or lack sanggunian approval.
COA Resolution No. 2011-006: Addresses the use of savings, clarifying that savings can only be declared after a project is completed or finally discontinued, not midway.
Audit Observations: COA auditors review realignments during post-audit. Common issues include realigning funds for unauthorized purposes (e.g., from capital outlay to personal services) or without sufficient savings.

COA has the authority to issue Notices of Suspension (NS), Notices of Disallowance (ND), or Notices of Charge (NC) for irregular expenditures. Officials found liable may face administrative charges under Republic Act No. 6770 (Ombudsman Act) or criminal charges under Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act).

Limitations and Prohibitions

While realignment is allowed, it is hemmed in by restrictions to prevent abuse:

No Realignment Across Funds: Funds from the general fund cannot be realigned to special funds or vice versa without legal basis.
Expense Class Restrictions: As per DBM guidelines, realignments are limited to the same category to maintain budget balance.
Prohibited Uses: Funds cannot be realigned for salaries if it violates the 45-55% personal services cap under Section 325(a) of the LGC (45% for provinces/cities, 55% for municipalities).
No Anticipatory Realignments: Savings cannot be declared in anticipation; they must be actual.
IRA Dependency: Internal Revenue Allotment (IRA) funds, now National Tax Allotment (NTA) post-Mandanas-Garcia ruling (G.R. No. 199802, 2019), are subject to the same rules, but realignments must not impair mandatory appropriations like the 20% development fund.
During Election Periods: Comelec resolutions restrict realignments that could be seen as electioneering.

Violations can result in audit disallowances, with personal liability for officials to refund amounts.

Judicial Interpretations and Case Law

Philippine jurisprudence reinforces the regulated nature of realignments:

Garcia v. Corona (G.R. No. 132451, 1998): The Supreme Court upheld COA's authority to disallow improper realignments, emphasizing adherence to budgeting laws.
Mandanas v. Ochoa (G.R. No. 199802, 2018; resolution 2019): This expanded LGU shares in national taxes, indirectly affecting realignment flexibility by increasing available funds but maintaining oversight.
COA Decisions: Numerous COA en banc decisions, such as on disallowed realignments for confidential funds without proper justification, illustrate strict enforcement.

Courts generally defer to COA's technical findings unless arbitrary.

Implications and Best Practices

Realignment, when done properly, enables LGUs to respond to emerging needs, such as public health crises or infrastructure repairs. However, misuse can lead to fiscal imbalances, corruption charges, or loss of public trust.

Best practices include:

Maintaining robust internal controls and documentation.
Seeking DBM or COA opinions for complex realignments.
Training local officials on budgeting rules.

In summary, realignment of LGU funds is allowed under Philippine law but is tightly regulated by the LGC, DBM issuances, and COA rules to ensure accountability. LGUs must navigate these frameworks carefully to avoid sanctions, ultimately serving the goal of efficient public service delivery.