Core -- By Benjamin E. Diokno

Shadowy funds

Posted on July 13, 2011

Here’s one statement I want to see in President Aquino’s second State of the Nation address: “In the spirit of openness and fiscal responsibility, I am returning the Charity Fund of the Philippine Charity Sweepstakes Office and the President’s Social Fund of the Philippine Amusement and Gaming Corp. to the National Treasury.” For a President who wants to be known for honesty, frugality, and incorruptibility, he has no need for such presidential pork.

The annual P1.7-trillion budget for this year, and all budgets from 2012 to 2016, is his budget -- known as the President’s Budget. It embodies his hopes and dreams. And all the programs, projects, and activities included in the budget are expected to provide flesh and blood to his skeletal dreams.

Proceeds from gambling are now a major source of financing the budget for many developed and developing countries. That should be the case in the Philippines too. But as revenues become scarcer and more difficult to raise, I do not understand why some funds continue to remain outside the Treasury to be disbursed without congressional authorization.

This is true for the PCSO’s Charity Fund, Pagcor’s Presidential Social Fund, and the Department of Energy’s Malampaya Special Account, and some other accounts.

The international best practice is that all funds are remitted to the national treasury. The legislature (Congress or Parliament or Diet) then authorizes the use of such funds through the budgetary process -- meaning, the President submits a budget, Congress authorizes it, and then the Executive Department spends the money in accordance with the authorized budget.

Under an idealized system, there should be no room for shadowy funds lying around to be disbursed by some appointees of the President -- in some cases, upon orders of the President. The existence of these shadowy funds, which turned out to be in billions of pesos, could lead, and has led, to misuse and abuse.

Because they are allocated and disbursed in the dark, these shadowy funds could be, and have been, a source of corruption for corrupt officials and a shield of protection for an unpopular president.

According to the PCSO charter, it has the authority: “Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related investments, programs, projects and activities which may be profit-oriented, by itself or in collaboration, association, or joint venture with any person, association, company or entity, whether domestic or foreign... for the purpose of providing for permanent and continuing sources of funds for health programs, including the expansion of existing ones, medical assistance and services, and/or charitable grants....”

The authority of PCSO to distribute the Social Welfare Fund -- 30% of the net proceeds from gambling -- is so archaic and fuedal. In has no place in a perfectly functioning representative democracy.

The mere mention of the Minister of Human Settlements should raise a red flag. The entrepreneurial purpose of the PCSO, designed during the Marcos martial law years, has been overtaken by events. We now have a 1987 Constitution which has restored to Congress the power of the purse. The use of the Social Welfare Fund no longer rests with the Minister of Human Settlements with the approval of the Office of the President (Prime Minister); that position no longer exists.

But there has been a sea change in the way the government delivers social services. It now has a universal health care program administered by PhilHealth, and a large Conditional Cash Transfer program administered by the Department of Social Welfare and Development. Both basic health care and social welfare have been devolved to the 45,000 or so local government units under the Local Government Code of 1991.

With these changes, what’s the Charity Fund for? With health and social welfare programs and activities amply provided for in the budgets of national and local governments (remember, local governments get 40% of all domestic taxes), what do we need the Charity Fund for?

But as they say in economics, supply creates its own demand. With a lot of money floating around, why not give away ambulances to select politicians, cars to favored priests, subsidies to chosen private hospitals?

Why not use the fund to support the Philippine National Police who have been supportive of the incumbent in Malacañang? But don’t the national police already have enough resources in the national budget?

Why not spend the 15% Operating Expenses for extravagant and unnecessary public relations activities? It doesn’t matter whether the PR activities are meant to sell sweepstakes tickets or to support an unpopular president. But doesn’t the President already have enough resources in the national budget for the Office of the Press Secretary, his other Communications Group, and government radio and TV stations?

Because the allocation and distribution of these charity and social funds are done in the dark rather through the open legislative budgetary authorization process, the practice has led to abuses, waste, and corruption.

The existence of these shadowy funds -- the PCSO’s Charity Fund, the PAGCOR’s presidential social fund, the DOE’s Malampaya special account, and many more -- has led to many questionable transactions. Just read the recent COA annual reports. By the way, the problem with COA reports is that, first, no one reads them and, second, their audit findings and recommendations are largely ignored by agency heads. Attention, ombudsman.

The enormous size of these shadowy funds creates temptations for the weak and the corrupt. I have no doubt that President Aquino is honest and incorruptible. But the President doesn’t have the time, energy, and inclination to keep an eye on all his underlings 24 hours a day, 365 days a year.

The sooner he takes away these shadowy funds from corporations and line agencies and put them where they belong -- the National Treasury -- the better. That’s good for his soul and his deficit reduction program.