A Matter of Prudence-A A +A
At Close Range
Thursday, August 29, 2013
IT DOES not take a certified public accountant or a seasoned accounting practitioner to ascertain the financial status of an entity or enterprise and come up with a prognosis if it is ailing financially and is about to belly up.
As it is, if the liabilities far exceed the assets, the entity might find it difficult to carry on its daily operations or activities, liquidate its payables or service its debts as its cash flow becomes burdened and slow and may no longer be able to sustain the affairs of the enterprise.
This scenario may be applicable to local government units. There are some which can proceed with a modest annual budget, pay its payables religiously and come up with a still viable structure. Unfortunately, there is one area in Pampanga which is rumored to experience difficulty to meet its obligations (statutory and otherwise), including payment of benefits due its workers, despite its vaunted resources and financial sources (business and shares in the internal revenue allotment).
Why is this so? One local government unit reportedly acquired heavy equipment paid in cash and pays its obligations as scheduled and the salaries of its employees on time. The promised benefits were also paid on time.
In contrast, a new city is reportedly encountering cash flow problems: it has arrears on its loans and payables and the promised benefits have not been realized by the expecting employees. Worse, the amounts already expended and given to the employees were reportedly disallowed by the Commission on Audit and suggested to be refunded by the recipient employees. Whew! At any given time, are the coffers near empty or they have enough funds to pay future obligations? These questions are in the minds of the employees, so no one blames them.
What happened? Were the built-in procedures to conserve and preserve the monies of the local government unit mishandled and grossly violated? Were the vaunted controls side stepped and brazenly not observed, in accordance with accepted accounting principles and auditing procedures?
The expected results of such financial recklessness are dire and not so inspiring of a new city which boasts of large funds coming even from the Clark Freeport Zone. Its arrearages on several loan accounts are reportedly mounting and the cash balances fast dwindling or have dwindled already.
There is a need for reevaluating the city's priorities: only the most essential of services should be carried out and expenses should be taken care of. Funds should be expended on the most valid disbursements, excepting personal ruses or causes. Financial prudence should be exercised at all times by all those authorized to handle funds so that disaster will not befall the local government unit, period.
One municipality reportedly can operate efficiently only at P100 million, but the city in distress vainly claims it has about P700 million in total funds but debts, arrearages and defaults now bring it toward financial distress, if not near bankruptcy! Observers now say that financial restraint should be observed by the city in distress in order to save its ship of state and not allow it to sink while in its infancy as a newly-minted city. The residents deserve a good, stable government and not one such reckless and super extravagant.
Published in the Sun.Star Pampanga newspaper on August 30, 2013.