COA calls out Cebu City’s inaction to recover P199M for ‘failed drainage project’

CEBU, Philippines – The Commission on Audit (COA) flagged the Cebu City government’s inaction to get back P199.23 million which it paid as 15% mobilization fee to a contractor whose failed drainage project reached only the design stage.

“The City did not show concrete effort to recover the amount of the 15% mobilization amounting to P199,323,870.75 granted in 2021 relating to its Construction of Drainage Mains Project with a contract cost of P1,328,825,805 which failed to progress beyond the design stage even long after the contract expiration,” state auditors said in the city’s 2023 annual audit report (AAR). 

The COA said the city’s prolonged inaction in recovering the money not only made the project “futile” but also deprived the local government unit (LGU) of substantial funds for other projects. Auditors also noted that the city would be at a disadvantage with “the consistent decline in the value of money over time.”

At present, the LGU is locked in a political rift between former allies Cebu City Mayor Raymon Alvin Garcia and Michael Rama. 

The audit covered transactions in 2023, when Rama was mayor and Garcia the vice mayor. The Office of the Ombudsman dismissed Rama for nepotism but he is questioning the implementation of the dismissal.

The drainage contract that is subject of the COA audit observation was entered into during the term of the late Cebu City Mayor Edgardo Labella when Rama served as vice mayor. Rama took over as mayor when Labella died on November 19, 2021.

The contract with a Makati City-based company was for the flood control system on Cabreros Street, Natalio Bacalso Avenue, Vicente Hermosa Garces Street, Gabuya Street, Leon Kilat Street and Escaño Street in Cebu City. It was for P1.328 billion and a construction duration of 570 days. 

On June 15, 2021, the city released P199.323 million as advance payment or mobilization fee equivalent to 15% of the total project cost. The payment covered both the design and build phases.

COA flagged the transaction in its 2022 audit of the city’s financial records since it did not progress to the build phase despite incurring 247 days of delay.

COA said it recommended to the mayor to “immediately demand from the contractor the amount of P188,373,870.75 representing the advance payment for the Build Phase portion, in view of the fact that the project could in no way reach the construction stage based on the original contract.”

Auditors also asked the LGU to determine how much of the payment of P10.950 million for the design phase can still be recovered. Based on the 2023 AAR, Cebu City officials told auditors that they will implement all recommendations during their exit conference on April 25, 2024.

The Agency Action Plan and Status of Implementation (AAPSI) tracker that now comes with each COA report indicates that a notice of disallowance or ND was issued for the payment on July 30, 2024.

Significant findings

Among other significant findings, the report highlighted the P83.6 million spent for hospital equipment that were unused, P269 million in unimplemented projects, “consistently unrealistic” income projections, P4 million in unnecessary or irregular expenses, and over-delayed payment of suppliers.

Auditors also pointed out several issues in the financial reporting of the Cebu City government, rendering it a qualified opinion, which COA said on its website means auditors are unable “to conclude that the financial statements as a whole are free from material misstatement.”

COA cited as one issue the non-observance of COA circulars that affected the presentation of the city’s road networks account, totaling P2.059 billion. 

Based on the report, the local government did not fill out the required pro-forma disclosure. 

COA said that they were told “that the concerned offices involved in the recording and reporting of the road network of the City were not thoroughly aware of their duties and responsibilities and have not attended the training.” – Rappler.com

Max Limpag, a freelance journalist from Cebu, is an Aries Rufo Journalism Fellow of Rappler for 2024.