Crooks incorporated: Distortions flood the budget cycle

(Part 3 of 3)

If the budget cycle is airtight with safeguards in place at each stage, why then are we seeing corruption at such a horrible scale and stretch today?

The answer is found in a Filipino idiom: bantay-salakay.

The very actors entrusted to protect the system are the ones raiding it. Once those who are supposed to guard the process turn against it, all defenses are compromised.

Based on admissions before the Senate Blue Ribbon Committee, independent reports by civil society and media organizations, and initial findings by the Independent Commission for Infrastructure (ICI) and the new Department of Public Works and Highways (DPWH) leadership, the emerging picture is one of a system gamed not by a single rogue contractor or a lone corrupt official, but a network and apparent syndicate of politicians, bureaucrats, contractors, and even some regulators working in concert.

THE EXPLOSION OF ‘INSERTIONS’
Congressional insertions are not new; they have been the subject of previous scams and mechanisms in the past that have reached the Supreme Court (the Priority Development Assistance Fund or PDAF, for instance).

What appears to be new in its present incarnation is the magnitude of insertions and the new work-around in appropriation: the use of unprogrammed funds and the scraping of so-called savings of Government-Owned and -Controlled Corporations or GOCCs for transfer to the Treasury.

In her Amicus Curiae brief submitted to the Supreme Court in the pending consolidated PhilHealth cases, Zy-za Suzara discussed “a new scheme” of massively funding pork barrel by defunding strategic development programs in the budget proposal and “parking them instead in the Unprogrammed Appropriations.” The freed up fiscal space in the proposed budget is allocated to legislators’ projects.

According to Suzara’s analysis of budget data, while the level of Unprogrammed Appropriations from the National Expenditure Program (NEP) to the General Appropriations Act (GAA) was historically largely unchanged, there has been a spike in Unprogrammed Appropriations over NEP levels beginning 2022. In 2024, from a proposed level of P282 billion, the GAA level reached P732 billion, or an increase of P450 billion over proposed.

Even as the defunded proposed programs were transferred to Unprogrammed Appropriations and the resulting fiscal space in Programmed Appropriations were replaced by Congressional insertions, the 2024 GAA also introduced a Special Provision authorizing the fund balance of GOCCs as a source of financing for the bloated Unprogrammed Appropriations. The Philippine Health Insurance Corp. (PhilHealth) was among the GOCCs from which fund balances were swept for this purpose.

“Insertions” have become an apt term for this apparent robbery-in-band of the national budget. Which insertions were introduced by which members of the House of Representatives and the Senate is the question in everybody’s mind.

At the Blue Ribbon Committee hearings, contractors and district engineers have said that the insertions become “sponsored” projects by legislators, earning for them “commitment” fees or kickbacks as high as 30% of the allotment — monies advanced by contractors even before formal procurement commences. In the vernacular, nagbababa ng pondo.

These changes to the appropriations bill did not happen transparently during the open budget deliberations as envisioned by House and Senate rules. Under the chambers’ rules, amendments should take place during the period of amendments in plenary. In practice, however, it appears that only committee amendments are openly introduced in plenary. Individual amendments have been introduced after the voting on second reading.

As Navotas Rep. Toby Tiangco claimed, these individual amendments are often handled by a so-called “small committee” in the House, operating behind closed doors. Another opaque stage where such insertions occur is at the bicameral conference committee, which meets behind closed doors to reconcile the House and Senate versions of the budget bill.

Addressing the matter, Senate President Vicente “Tito” Sotto III clarified that “amendments or insertions, whether individual or institutional, done during the deliberations in the Senate, are part of the regular budget process.”

Yet even granting that some amendments are legitimate adjustments, the lack of transparency leaves room for abuse. It is imperative for Congress to disclose and differentiate which changes were proper institutional amendments, which were questionable individual insertions, and who introduced the same, so the public may clearly see how public funds are being allocated.

In the previous PDAF case, the Supreme Court struck down express provisions of the General Appropriations Act that were tantamount to post-enactment appropriation. By contrast, in the current scheme of congressional insertions, no such express provision appears in the text of the GAA.

This absence of explicit language does not render the practice lawful, however. In Belgica v. Ochoa, the Court made clear that even informal practices that allow legislators to intrude into the proper phases of budget execution are equally unconstitutional.

The Court stated: “Corollary thereto, informal practices, through which legislators have effectively intruded into the proper phases of budget execution, must be deemed as acts of grave abuse of discretion amounting to lack or excess of jurisdiction and, hence, accorded the same unconstitutional treatment.”

Thus, while the present scheme of insertions may not be openly written into the GAA, its covert and informal nature makes it no less unconstitutional, as it similarly violates the separation of powers and undermines the integrity of the budget process. In fact, its opacity renders it even more repugnant.

MANIPULATION OF BIDDING
If congressional insertions set the stage for corruption by directing vast sums to specific projects and regions, bidding manipulation is where the scheme is executed on the ground. Procurement rules designed to ensure transparency, competition, and value for money, are subverted through collusion among politicians, insiders within DPWH, and contractors.

What appears on paper as a fair and open procurement process is a sham, with the real winners and losers decided before any bid is opened. Admissions before the Senate Blue Ribbon Committee from DPWH officials and contractors reveal three interrelated schemes: “in-house” contracting; lending of contractors’ credentials for royalty fees, and simulated or pre-arranged bidding.

Under procurement rules, DPWH projects are supposed to be awarded to independent qualified contractors. But admissions speak of instances when actual implementers are DPWH insiders themselves using outside contractors as fronts to get around the documentary requirements.

In this arrangement, a contractor “wins” the bid but merely lends its name, license, and eligibility, while DPWH insiders manage the project execution using government resources, equipment, or personnel. The contractor receives a royalty fee for allowing its accreditation to be used, while the actual work is carried out informally within the agency.

A related scheme is the lending of contractors’ licenses and credentials. Under RA 9184 and its Implementing Rules and Regulations, contractors bidding for public works must meet strict eligibility requirements, including a valid license from Philippine Contractors Accreditation Board (PCAB) and technical and financial capacity.

These rules are meant to ensure that only competent contractors handle infrastructure projects. Based on witness admissions in the Senate, however, there is a practice where contractors “rent out” their licenses and documents to bidders who lack the qualifications to bid. The licensed contractor does not perform the actual work but collects a royalty fee, typically a percentage of the project cost, in exchange for its paper credentials. This constitutes misrepresentation, making the bid fraudulent from the outset.

When combined with “in-house” contracting, license lending creates the appearance of compliance while concealing the truth that unqualified actors are behind the project.

Lastly, in simulated bidding or rigged bidding, the winning bidder is predetermined before the bidding process even begins. Other bidders are recruited to submit losing bids for a fee or other considerations, creating the illusion of competition. By pre-selecting the winner, bid prices are often inflated.

ACCOUNTABILITY? IT’S SYSTEMS FAILURE
The failure of accountability derives not just from a single weak link in the system. Over the decades under the watch of seven Philippine presidents after EDSA People Power, what has unfolded is systems failure, the collapse of multiple accountability safeguards, compromised by the very actors mandated to uphold them.

The Executive branch is not without fault. Rather than acting as a counterweight to questionable legislative practices, it has publicly defended actions that have weakened appropriations discipline.

When concerns were raised previously about the ballooning Unprogrammed Allocations, the Executive had insisted that these were not unconstitutional.

Likewise, when health advocates protested the transfer of “fund balances” from GOCCs, including PhilHealth, to the National Treasury to finance unprogrammed appropriations, Executive officials defended the transfers, citing fiscal management prerogatives.

DPWH officials have claimed at the Senate hearings that insertions do not begin only at the legislative stage but as early as the budget preparation phase. Former DPWH Undersecretary Roberto Bernardo revealed that even the release of Unprogrammed Funds is not shielded from congressional insertions.

These acts clearly blur the line between executive and legislative functions. Thus, while the Department of Budget and Management (DBM) is supposed to exercise supervision and oversight over the Executive throughout the budget cycle, it is being shown to be a complicit enabler of the flood of distortions.

Even the Commission on Audit (CoA), the institution at the very heart of external accountability, has not been spared from controversy. At the Senate hearings, it has been said that a percentage of project funds is regularly “set aside” for CoA officials, which can only be intended to secure an audit pass.

If true, this would mean that the very entity meant to scrutinize irregularities is financially entangled with those it audits. More explosive still is the allegation that a CoA Commissioner had directly solicited projects.

The mechanism of congressional oversight over the budget loses its meaning when legislators are themselves the originators of the system’s breakdown.

In a previous report, R2KRN had asked: Who comes with clean hands? The syndicated corruption among pushers, enablers, and players points to a damning answer: The dirt has stained most everyone, and visited most every entity, private and public.

Nepomuceno Malaluan, Malou Mangahas, and Jenina Joy Chavez are co-convenors of the Right to Know, Right Now! (R2KRN) Coalition.