A Beginner’s Guide to Transparency in Local Government

By Raphael N. Montes, Jr.

TRANSPARENCY AND ACCOUNTABILITY SUPPORTS GOOD governance by ensuring the availability of information and making use of that information to improve government systems and processes and/or enforce anti-corruption laws. Transparency in government often comes in form of mandatory disclosures. But the challenges of processing, disseminating and use of the disclosed data become the issues after disclosures have been made.

This highlights the important role of the media which greatly multiplies citizen’s access to information. Eventually, transparency and accountability point to “freedom of information” but also the responsible use of information in defining the public discourse on good governance. But for purposes of this report, we will focus on transparency and accountability as it applies to government.

Context of decentralization and local autonomy

The Philippines adopted the constitutional principles of separation of powers and the checks and balances from the Constitution of the United States. Unlike the U.S. however, the Philippines has had a highly centralized system of government since independence. There had been attempts at decentralization during the different stages of the country’s political development but the Local Government Code (LGC) of 1991 (Republic Act 7160) is considered as the most empowering and is even considered as a model for many countries exploring the option of decentralization.

The LGC provides meat to the general constitutional provision that the Philippines’ “territorial and political subdivisions…enjoy local autonomy” (Article X, Section 2, Constitution of the Philippines 1987). Section 3 specifically identified local autonomy and the enactment of a local government code “shall provide for a more responsive and accountable local government structure…”.

Born out of the end of the 20-year authoritarian regime of Ferdinand Marcos where the pre-existing system of over-centralization had supported centrally planned governance, the 1987 Constitution saw devolution of powers to local governments as the right strategy to re-democratize and disperse power from central government. It was widely known that local government officials would have to make regular “pilgrimages” to Manila in order to get projects approved or to request for funding. Not that this has changed significantly today because the vertical fiscal imbalance still puts the lion’s share of resources in the hands of national government. However, local governments today are more autonomous than they were before.

Scholarly consensus point to three essential elements of “genuine local autonomy”: (1) the power to make and enforce policies with minimal or without national government interference; (2) administrative independence through a separate local bureaucracy that is enabled with discretion to procure and provide goods and services; and (3) fiscal autonomy—that is the right to raise, allocate and disburse sufficient funds to support the operation of the local government and the provision of services. The third element is usually considered the defining element of genuine autonomy (World Bank 2013b).

The LGC satisfies these three elements—although debates continue on the sufficiency of the degree of autonomy that local government units (LGUs) have. The LGC delegated an expanded set of legislative powers including regulatory, corporate and revenue raising powers. Following the principle of separation of powers, the local chief executive and the local bureaucracy are tasked to implement laws (ordinances) and policies and execute the programs and projects that have been budgeted for the year. Local department heads and LGU employees are no longer considered part of the national bureaucracy which run the national agencies, but are still tasked to implement national policies in addition to policies laid out by the local chief executive and the local legislature.

As a hallmark, the LGC provided LGUs several funding sources with which they have autonomy to allocate without intervention from national government. Conditional transfers from national government are still used as supplemental funding.

The principal source of funding for most LGUs is the Internal Revenue Allotment (IRA), sourced from the LGUs’ 40 percent share in national internal revenue (personal and corporate income tax) collections. The IRA is divided among 80 provinces, 140 cities, 1,494 municipalities and 42,027 barangays (NSCB, 2012) using a formula that considers population, land area, and equal sharing. The IRA is automatically released to the LGU monthly as a block or unconditional grant. Dependency on the IRA ranges from 50 percent to 90 percent.

LGUs also have local revenue sources apart from IRA. The Real Property Tax is an exclusive imposition which the LGC gave to provinces and cities. Municipalities get a share from the province’s collections. Municipalities and cities also levy a business tax which is based on annual gross receipts.

LGUs also impose taxes on local franchise, professionals, amusement, and delivery trucks or vans. They also impose rentals, fees and charges mainly for service and processing of clearances or certifications, and the use of public facilities and utilities that they provide.

LGUs also have a share in the proceeds from the use of national wealth derived from income from mining, forestry and fishery charges, and royalties from the exploitation of natural resources in their area. This income, however, is highly dependent on the “accidents” of geography and endowment of natural resources that correspond to LGU territory.

All local revenue collected and IRA are programmed into the “General Fund” through the Annual Appropriations Ordinance (commonly called the LGU Budget). But there are Trust Funds that are either a portion of a revenue base or a percentage of the budget.

The 20 percent share of the IRA is used for development projects, and the Special Education Fund (proceeds from 1 percent tax levied on the assessed value of real property). Other trust funds like the Gender and Development Fund and the Disaster Risk Reduction and Management Fund (formerly called calamity fund) are governed by guidelines in separate laws. The LGU has the autonomy to allocate the General Fund and the Trust Funds according to locally determined priorities.

The LGU budget has four main expense classes: (1) personal services; (2) maintenance and other operating expenses; (3) capital outlay; and (4) other financial expenses (bank charges, interests etc.). The LGUs budgets these according to allowable practice which the national government similarly use. The local executive branch prepares and submits the LGU budget to the local legislature for authorization.

Devolution under the LGC has technically divested national government from most frontline functions in delivering basic services. It has given LGUs to define their own programs and projects in agriculture support and extension, health and sanitation, social welfare, environmental and natural resources management, local infrastructure and facilities and support to local economic development.

LGUs are also able to provide support to national agencies delivering services at the local level like schools, police and fire departments. This means that LGUs do not have the same priority programs or uniform budgetary allocations for similar sets of functions and responsibilities.

The LGC has given LGUs discretionary space in their political, administrative, and fiscal powers and functions. Discretion is not necessarily a bad thing although lately it is often affiliated with graft and corruption: Unscrupulous government officials exploit decision points, bottlenecks and grey areas in government processes just to profit from bribes, kickbacks or “incentives” in doing a transaction. Discretion in the context of autonomy is what paves the LGU’s innovation and adaptation to local context instead of waiting directions from the distant national government.

“Ensuring appropriate use of such discretionary space requires introducing effective accountability systems. Within their discretionary space, local governments would be accountable to higher levels of government (upward accountability) as well as to citizens (downward accountability)” (Yilmaz et al 2008). 

But accountability (especially involving citizens or civil society) can be fully exercised when the public has access to information through systems promoting transparency.

Autonomy is not independence

Accountability laws implemented over national government agencies also apply to LGUs. Charters of the constitutional bodies (Ombudsman, Civil Service Commission, Commission on Audit, and Commission on Human Rights) also govern LGUs. They provide both advisory and disciplinary capacities that rein in possible abuse of government powers.

Local governments – although autonomous -- are still constitutionally under the supervision of the President of the Philippines and his/her main alter egos in local governance and local finance, the Department of the Interior and Local Government and the Department of Finance’s Bureau of Local Government Finance and the Department of Budget and Management, respectively.

Other national agencies often coordinate with the DILG on accountability of LGUs in their respective portfolios. The DILG from time to time issues memoranda or circulars that provide more specific guidelines to LGUs as means to follow the letter and spirit of LGC. The DILG’s regional offices also have review powers on all ordinances which provinces and highly urbanized cities pass. Provinces have review powers over ordinances of component cities and municipalities, while the later have review powers over barangay ordinances.

The next sections focus more on existing mechanisms on downward accountability and how transparency promotes this type of accountability. The World Bank’s framework that examines the mechanisms installed to ensure transparency in the three dimensions of decentralization: political, administrative, and fiscal (World Bank 2009) is useful to analyse transparency of LGUs.

Transparency through conspicuous places

Transparency for LGUs focuses on posting requirements. The LGC, for instance, specifies posting requirements for different LGU services and processes. National laws like the Government Procurement Reform Act (R.A. 9184) and the Anti-Red Tape Act of 2007 (ARTA) have similarly added posting requirements. Many provisions refer to the posting of documents specified in the law in at least three conspicuous public places.

The Code specifies only one conspicuous public place: the main building of the municipal, city or provincial government. The types of “conspicuous places” vary according to peculiar social activities in individual LGUs, pattern of settlements, or geographic features. In practice, some conspicuous places where postings are used are public markets, public transport terminals, social halls or sports centers.

Fiscal transparency. Prior to the introduction of the Full Disclosure Policy (FDP), LGUs’ compliance with posting requirements are usually inconsistent if not anecdotal. This led the national government to issue policy reiterating posting requirements as stated in several laws. The principal guide for LGU transparency to date is the FDP, which the DILG issued in 2010 (DILG Memorandum Circular 2010-83: Full Disclosure of Local Budget and Finances and Bids and Public Offerings).

But while it lacked the permanency of a law, the General Appropriations Act for Fiscal Year 2011 (R.A. 10147) gave the FDP legal strength through Section 90, mandating the “strict compliance with Sections 288 and 354 of the Local Government Code and DILG Memorandum Circular No. 2010-83…”

Sections 288 and 354 refer to the LGC’s directive to the Department of Finance (DOF), Department of Budget and Management (DBM) and the Commission on Audit (COA) to promulgate rules and design manuals to improve and systematize methods, techniques and procedures employed in budget preparation, authorization, execution and accountability.

The FDP lists the 15 documents to be posted in

  1. the LGU’s website; 
  2. at least three publicly accessible and conspicuous places in the locality; or 
  3. a newspaper of general circulation in the territorial jurisdiction of the local government unit.

The FDP reports and the required frequency of posting are:

LGUs without websites can upload their FDP documents at the
FDP Portal. The Portal also has a search page which interested parties or individuals can use to access specific reports.

The FDP also clarifies the definition of “conspicuous places” -- “refer to the provincial capitol, city hall, municipal hall, barangay hall and government-owned facilities to include but not limited to, social center, gymnasium, auditorium, manpower development center, training center, transport terminal, public market, public school, health station or center and hospital.”

LGUs can post in privately-owned building or facilities where the general public usually converges, including those owned by religious groups and the Chamber of Commerce subject to their consent. The LGU covers costs of installing a bulletin board.

Political transparency
. Every Sanggunian (board or council) is required to post and publish ordinances and resolutions. The inherent consultative nature of the work of legislation in a democratic space also implies that the public has to be informed and given the opportunity to participate in the legislative process. This is done through public hearings or by submitting a proposed ordinance by people’s initiative or by ratifying an ordinance by referendum. The annual budget is authorized through the annual appropriations ordinance and undergoes the same legislative process.

The LGC requires local legislators to disclose their financial and business interests as guaranty against conflict of interests. It allows local legislators to practice their profession or continue their businesses. The disclosure is supposed to be declared at the inaugural session of the Sanggunian and whenever it is necessary. The declarations are part of the journal and public document since they are done are made in the Sanggunian session.

Administrative transparency. The LGC also requires LGUs to do administrative functions with transparency mechanisms. LGUs for instance should publish information on hiring personnel vacancy and application requirements to ensure competitive and fair recruitment. This echoes civil service rules on posting of vacancies in government positions. The LGC also stated the announcement of public offers and bids which have now been superseded by requirements of R.A. 9184.

The ARTA, passed in 2007 requires all government offices to post in billboards and publish materials containing procedure, fees and requirements for government services, persons responsible and the time it takes to undergo the process. Since they now handle most of the direct service delivery, LGU departments and offices are supposed to follow ARTA requirements.

LGUs are required to do regular time and motion studies and re-engineer processes and procedures. Government transparency is usually connected to “ease of doing business” for investors and business locators. The DILG and the Department of Trade and Industry issued a Joint Memorandum Circular for the streamlining of business permits and licensing system to provide faster and more predictable transactions between LGUs and the business sector.

While individual LGU departments and offices are expected to undertake periodic systems improvement, Administrative Order 70 (2003) requires all government offices to establish an internal audit unit which is tasked to undertake management audits and systems improvements.

Citizens when transacting with LGUs should expect billboards explaining step-by-step process for each service (with related information like service standards and persons in charge). LGUs also provide brochures or booklets often called the Citizens’ Charter to further explain the processes and procedures in the local governments.


Participatory governance and convergence

The participatory mechanisms which the LGC instituted into local governance are among its most praised aspects. NGOs and people’s organizations were given the chance to participate in planning LGU projects through the local special boards. At least a fourth of the membership of the Local Development Council (LDC) should come from NGOs and citizens’ groups.

The local school board (LSB), local health board (LHB) and local prequalification, bids and awards committee (PBAC) are mandated to include representatives of NGOs or citizens’ groups as members. The LDC, LSB, LHB and PBAC are councils involved in planning specific budgetary items to be submitted for annual budget authorization. Having NGO representatives in LGUs’ planning stage opens input processes (disclosure being “transparency on outputs”) to some transparency.

The LGC also enables LGUs to find convergent projects with NGOs and may also provide assistance to NGOs, POs and cooperatives on service delivery:

SEC. 35. Linkages with People's and Non-Governmental Organizations. - Local government units may enter into joint ventures and such other cooperative arrangements with people's and nongovernmental organizations to engage in the delivery of certain basic services, capability-building and livelihood projects, and to develop local enterprises designed to improve productivity and income, diversify agriculture, spur rural industrialization, promote ecological balance, and enhance the economic and social well-being of the people.

SEC. 36. Assistance to People's and Nongovernmental Organizations. - A local government unit may, through its local chief executive and with the concurrence of the sanggunian concerned, provide assistance, financial or otherwise, to such people's and nongovernmental organizations for economic, socially-oriented, environmental, or cultural projects to be implemented within its territorial jurisdiction.

Finally, LGUs are allowed to form alliances to improve service delivery or law enforcement. These arrangements demand a certain level of transparency among members of the alliance (Calugay, Cureg & Montes 2012).

SEC. 33. Cooperative Undertakings among Local Government Units. - Local government units may, through appropriate ordinances, group themselves, consolidate, or coordinate their efforts, services, and resources for purposes commonly beneficial to them. In support of such undertakings, the local government units involved may, upon approval by the sanggunian concerned after a public hearing conducted for the purpose, contribute funds, real estate, equipment, and other kinds of property and appoint or assign personnel under such terms and conditions as may be agreed upon by the participating local units through Memoranda of Agreement.

These participatory provisions reinforce the posting requirements and inject transparency mechanisms in several stages of local government operations, not just in disclosure of data and reports.

But these equally provided new challenges the Code was not able to anticipate.

Reflection on the results and possible ways forward

Several factors affect the effectiveness and sustainability of transparency policies: (1) the design of the transparency mechanism; (2) the quality of information disclosed; (3) enforcement of the policy; and (4) the behaviour of end-users and disclosers.

Transparency policies have five basic features that seek to bridge an information imbalance between government and the public:

  • A specific policy purpose
  • Specified targets
  • A defined scope of information
  • A defined information structure and vehicle
  • An enforcement mechanism (Fung, Graham and Weil 2007).

Using this initial checklist and their main components, how does the LGC (and related policies) measure up to the design requirements?

Compliance. The general environment of autonomy expects to have mixed results for LGU practice of transparency. The mere fact that the DILG and DBM had to issue a joint memorandum circular to “remind” LGUs of their obligations under several laws for transparent governance, points to the difficulty to enforce compliance.

In the pilot test of the Integrity Development Tools for LGUs (a USAID-sponsored project of the Office of Ombudsman), only 5 of the 14 LGUs who used self-assessment tools got low scores. But in the stakeholders’ survey -- which included indicators in posting requirements of the FDP and requirements of the ARTA and was expected to validate some parts of the self-assessment – only four LGUs received ratings at the higher end of the spectrum of the scoring system (Center for Local and Regional Governance 2011).

This can be symptomatic of the information gap at the LGU level. While this gap can be construed as indicative of corruption vulnerabilities, they may also indicate a simple problem like the failure to communicate with citizens.

In many cases, practice only stops at compliance, or more accurately “just for compliance purposes only” in order to avoid certain penalties or disincentives.

After a year of implementation, the DILG said that 1,551 out of 1,713 LGUs (90 percent) have complied with the FDP requirements. It however did not clarify whether the compliance was partial or full (DILG 2012a).

A year after implementation, data from the DILG’s Bureau of Local Government Supervision showed that by the 4th Quarter of 2011, only 23 percent of LGUs have fully complied, 65 percent partially, 5 percent with no compliance, and 7 percent with no data. This did not include data from the Autonomous Region in Muslim Mindanao.

In its 2012 report, the DILG said four out of the five provincial governments in the ARMM together with a few municipalities were reported to have complied with the FDP requirements.

Many documents under the FDP are supposed to be readily available at the respective LGU offices. They are assumed to be part of regular fiscal management functions of LGUs. The FDP only requires them to post it. Compliance is further made easy with the FDP Portal website where LGUs can directly upload and post the documents.


A positive development in 2012 is the DILG’s granting of the Seal of Good Housekeeping to 1,323 out of 1713 LGUs (77%) for complying with the FDP and having no adverse findings from the Commission on Audit.

A total of 397 LGUs have been given financial assistance through the Performance Challenge Fund while 1,305 were given other funding assistance. However, the 13 percent difference between the FDP-compliant LGUs and the recipients of the Seal of Good Housekeeping show that not all FDP-compliant LGUs have practices that pass the scrutiny of COA.

Compliance with ARTA is slightly higher at 93 percent, or 1,586 out of 1,713 LGUs (DILG 2012a). But the quality of the compliance may still be an issue: While billboards explaining LGU processes and procedures may be present, checking whether the billboards truthfully reflect the actual number of steps that take place during a transaction is very difficult to monitor. For example, the billboard may comply with the recommended five signatures – implying five steps of the transaction – but may not reflect “linked processes” or additional hidden yet required steps.

LGUs nevertheless have been the laboratories for innovations in good governance—and in this case on transparency. ARTA’s main features have been tried and tested at the local government level before it was mainstreamed at the national level. We hear of the often-cited best practice of Naga City which published the first edition of its Citizen’s Charter in 2001. Eight cities were already implementing the Citizen’s Charter practice before the enactment of RA 9485 (Bacolod, Digos, Dumaguete, Iligan, Laoag, Marikina, Naga, and Sorsogon) (Saguin 2012 ;DAP 2007). The Civil Service Commission’s monitoring showed that LGUs were the most compliant government entities (with 95.7% compliance) compared to the 70 percent rate among national agencies and 79.4 percent among government corporations (Saguin 2012; CSC 2010).

But because mainstreaming the ARTA became a top-down initiative, the citizen’s charters were written from perspectives of the service provider and not the end-user. The citizen’s charter is meant to be a service contract between the LGU and the end-user (Saguin 2012). The posting of processes in plain view of the public is meant to assure the citizens that all transactions will happen as illustrated in the billboards. But as in the situation with the FDP documents, compliance with upward accountability may not necessarily connect with public expectations. It is nonetheless a start towards defining service standards at the LGU level.

Quality of information. Summary reports required for posting under the LGC and the FDP follow downloadable templates at the FDP portal. Even the source of the summary reports also follows templates which national agencies defined. The templates which LGUs use in financial reporting are designed for upward accountability as the DOF, DBM and COA enforced. This only requires some organizing of the raw data and the report is ready to be posted.

But because the system is reliant on outputs of the disclosers, the format of the reports posted at the LGU websites and at the FDP portal is highly variable. The formats range from:

  • PDF copies of the electronic documents
  • PDF copies of scanned documents
  • Spread sheets in Word format
  • Spread sheets in Excel format
  • JPEG copies of scanned documents

While these comply with the requirement of posting through websites, end-users will have to re-encode the documents to a format which can process disaggregated data. But it may be too soon to expect this since the transparency website is only in its infancy. A more user-friendly facility on the FDP portal could be a filter that enables interested stakeholders to compare, integrate, or organize the posted data in order to analyse for trends in the spending behaviour of a particular LGU.

Transparency in the information age does not only mean the use of websites as additional posting areas but the advances in internet technology now already allow for some data processing on websites. According to Fung, comprehension is an important consideration in designing transparency policies. Disclosure is most effective when information content and formats are matched to users’ levels of attention and comprehension. Simple distinctions, grades, stars, bar or pie charts or other relatively straight forward metrics –with back up files available –may work well when information users have limited time or are rushed to make a decision (Fung, Graham and Weil 2007).

The preferred format for financial data may already be available in a different online platform which the DOF’s Bureau of Local Government Finance (BLGF) now uses for reporting and data aggregation purposes. It has controlled access, so this does not function like the FDP Portal.

Latest available data from the BLGF’s eSRE (Electronic Statement of Receipts and Expenditures) system is only for the year 2010. The postings in the FDP Portal and LGU websites are more updated. The two systems must achieve synergy to make data more user-friendly.

While concerns on formatting and user-friendliness may be more of an administrative nature than a necessary LGC, supporting policies that clarify the Code should address these concerns as the transparency policies evolve and mature.

Interpretation of data. In the absence of a data processing system in the communication vehicles, citizens may have to rely on “intermediaries” (Fung, Graham & Weil 2007) who have the competence and credibility to process the data and provide more digestible reports and analysis of the outputs of LGU transparency. Intermediaries or third party organizations may be able to convene a group of experts to analyse the data and provide feedback to the LGU and analysis for general public consumption. This is what DILG Undersecretary for Local Government Austere Panadero calls the “analytics” for the FDP which goes beyond tracking compliance.

These parameters can be observed in crafting analytics:

  1. Tools must be user-centered;
  2. Tools must be able to process standardized, comparable, and disaggregated information; 
  3. Tools must be able to maximize ICT to aggregate, translate, simplify and benchmark data (Fung, Graham & Weil 2007).

This points to a large role for the academe in developing analytical tools and undertaking analysis itself. The academe can also help in analyzing contents of LGU citizens’ charters and aid in the continuous improvement of systems and procedures. The Philippines has a vast network of state colleges and universities as well as private ones which can do analysis at the regional level.

Other intermediaries who can help in data acquisition and interpretation include media organizations or user groups. Whether such efforts would need public funding will have to be examined by national government decision-makers.

Incentives versus penalties. The Code does not specify a penalty for not complying with posting requirements. This was the reason why the FDP was attached to the 2011 General Appropriations Act in order for the policy, which was originally a memorandum circular, to have the force law. According to DILG Memorandum Circular 2011-08, disciplinary action may be meted on the accountable local official under Section 60 of the Code which categorizes the violation of the FDP under gross negligence and dereliction of duty.

This is why Congressman (now Senator-elect) Sonny Angara has filed a bill in the 15th Congress institutionalizing the initiative of the FDP and setting penalties for violations. House Bill 607 holds all local chief executives as the responsible officers who are tasked to faithfully comply with the posting requirements of the Code and other related policies. The penalties include:

  • A fine ranging from PhP 30,000 to 50,000 or
  • Imprisonment for three to six months or
  • Both the fine and imprisonment and
  • Temporary disqualification to hold/be a candidate for any public office during the terms of the sentence.

But Angara’s bill tends to overuse newspapers as the principal communication vehicle for posting. It does not clarify whether the FDP’s inclusion and maximization of the FDP Portal will be considered as a valid posting. Nonetheless clear-cut penalties are still required. The effectiveness of transparency mechanisms are also hinged on the disclosers' assessments of costs and benefits from transparency policies including expected costs of noncompliance--that is, the costs associated with failing to report accurately, factoring in the likelihood of getting caught (Fung, Graham & Weil 2007).

In the absence of definitive set penalties, the DILG resorted to incentivizing compliance by including FDP compliance as the primary component of the Seal of Good Housekeeping. The SGH has three categories:

  • Bronze: Full compliance to FDP and zero adverse finding from COA;
  • Silver: Good or Excellent rating in the Civil Service Commission Report Card Survey on the ARTA implementation, functionality of the Bids and Awards Committee and full compliance to the posting requirement of the Philippine Government Electronic Procurement System (PhilGEPS); and
  • Gold: High Local Government Performance Management System (LGPMS) rating, functionality of local special bodies, innovative practices and representation of indigenous people in the sanggunian and other policy making bodies (DILG 2012b).

SGH recipients are allowed to access the Performance Challenge Fund—a supplemental fund for local development projects. In 2012, the DOF issued a policy that only LGUs which have been conferred with the SGH will be allowed to secure a loan from banks and other finance institutions (DOF 2012).

House Bill 607 is a step in the right direction but some policy harmonization must be made to include other connected policies so that only one legislation would clarify the incentives, disincentives and penalties of violation transparency requirements for LGUs. But national policymakers should also keep in mind to strike a balance between regulating LGU behaviour and the constitutionally guaranteed autonomy of local governments.

Catching up

The LGC has remained largely unchanged since its first implementation in 1991 in spite of a growing compilation of amendments filed every Congress. Several developments in local governance have overtaken transparency provisions of the Code. These developments have sprung from LGU innovation as well as encouragement from the Code and from the DILG. The developments are not necessarily negative but are currently in a grey area where transparency mechanism is still ambiguous.

Checking the entrepreneurial spirit. Local governments were also given the “autonomy to exercise their proprietary function and in the management of their economic enterprises” (Section 22d, LGC 1991) as part of its corporate powers. The usual LGU enterprises include public markets and slaughterhouses. These have later evolved to include innovative practices like shopping malls, transport terminals, even corporatized hospitals. Economic enterprises are assigned a “special account” in the LGU’s General Fund because of different fund management procedures are followed. Section 313 provides:

….Profits or income derived from the operation of public utilities and other economic enterprises, after deduction for the cost of improvement, repair and other related expenses of the public utility or economic enterprise concerned, shall first be applied for the return of the advances or loans made therefor. Any excess shall form part of the general fund of the local government unit concerned.

This allows public enterprises some flexibility and more room to innovate in order to make their activities more profitable, consequently increasing the revenue of the LGU. However, one aspect of the management of LGU enterprises that is prone to abuse of discretion is the exemption for personnel in these enterprises. Section 325 provides:

.…The appropriations for salaries, wages, representation and transportation allowances of officials and employees of the public utilities and economic enterprises owned, operated, and maintained by the local government unit concerned shall not be included in the annual budget or in the computation of the maximum amount for personal services. The appropriations for the personal services of such economic enterprises shall be charged to their respective budgets;

Enterprises can be used for patronage especially for hiring political supporters who cannot be accommodated in the permanent items subject to the Personal Services limitation. Packing enterprises with personnel may also be detrimental to the spirit of the LGC to enable LGUs to supplement income from taxes with income from enterprises. Having too much personnel may affect the profitability of enterprises and therefore not deliver the expected revenue.

The BLGF requires LGUs to submit an annual report on the Statement of Financial Operations of Economic Enterprises (SFOEE), a supplemental report and is not fully reflected in the Statement of Receipts and Expenditures (SRE) posted in compliance to the FDP.

Furthermore the Code’s encouragement of engaging NGOs, POs and cooperatives in service delivery and enterprises also opens public funds to the risk of mismanagement because these organizations may not be totally familiar with government fiscal rules. The risk is higher when government-organized NGOs or NGOs put up by relatives of LGU officials become the beneficiary of these contributions or capital. A more detailed disclosure of donations and contributions to non-government entities and alliances/inter-local cooperation (ILC) can help reassure the citizens that such organizations are not being used in malversation of funds.

Development of inter-local cooperation. The Code provided mandatory reporting for most local government finances. But one aspect of LGU finances that is still in “unchartered territory” is contributions to LGU alliances or ILC. The Code encourages alliances or ILCs to allow LGUs to achieve common service delivery goals through a more efficient method of cooperation and sharing costs for inputs.

Fund management for ILCs have two existing modes of practice: (1) assigning a trustee LGU which manages the funds in behalf of the alliance; and (2) following corporate accounting practices when the alliance is registered at the SEC (Calugay, Cureg and Montes 2012).

According to former COA Assistant Commissioner Gloria Cornejo, the COA’s Local Government Sector has yet to develop specific auditing procedures for ILCs that seek to provide a corporate identity separate from the LGUs. ILCs are unlike local enterprises which may take on a corporate identity but whose main incorporator or owner would be still be a singular LGU.

The mingling of funds sourced from contributions of member-LGUs and revenue generated from fees, charges or penalties that are later used for alliance activities and projects offers a complex track for accountability. But COA maintains that for as long as public funds are used by non-government organizations or by ambiguous entities by corporatized ILCs, government rules on accounting should still apply because the nature of the recipient organization does not change the nature of the public funds and should therefore follow DBM procedure and government rules on allocation, transfer and disbursement (COA 2007).

The DILG’s Bureau of Local Government Development (GIZ-German Development Cooperation Decentralization Program 2012) now contemplates on a possible law for LGU alliances/ILCs. This potential law should address issues surrounding the ambiguous corporate status of LGU alliances as well appropriate transparency mechanisms which will govern their operations and finances of alliances.

Relevance. To finally connect to accountability, current transparency mechanisms for LGUs should be linked to the different citizen feedback tools already in place in some LGUs—like citizens’ report cards or scorecards (Romero 2011). The DILG is developing a Citizen Satisfaction Index System (CSIS) for all LGUs. While the CSIS is a validation tool for LGPMS, many aspects of a citizen report card like it often include transparency as an indicator. The CSIS and the Stakeholders’ Survey in the IDR for LGUs can be harmonized to reflect feedback from citizens. In this light, relevant metrics must be harmonized in order to provide a unequivocal picture of the situation.

While social audit tools help LGUs identify the gaps between their targets and actual performance, citizens must also gain insights from the result of these tools that will compel them to take action by demanding that the gaps be bridged or arrive at a decision on whether to renew the mandate of the incumbent or to replace him/her in the next elections.

Social accountability truly works if citizens are able to embed disclosed data into their decision making (Fung, Graham & Weil 2007). This could be within the context of whether public funds are used to deliver services to the widest number of constituents and that fair and rational criteria are used to target beneficiaries; or whether every citizen transacting with the LGU can expect the same level of efficient service; or that they do not have to use bribery or personal connections to be able to transact with government. Conversely, disclosers must be able to use the feedback from citizens and civil society into their planning for development projects, systems improvement and integrity development.


The Code was able to provide the basic infrastructure for transparency in local governments. But because it has largely remained without major amendments since its enactment in 1991, it is obvious that recent executive issuances as well as laws (like the ARTA) had to cover for some of the loopholes that lent themselves to non-compliance of the basic transparency requirements. There have been several versions of the compiled amendments to the Code which have been filed and re-filed in subsequent Congresses.

But this strategy of wholesale amendment seems to be elusive. Adding the penal provisions to violations of the transparency requirements in the Code through a separate bill (as Angara intends) seems to be a more feasible option at the moment. An improved version of the bill could include new concerns that have arisen from the evolution of local governance practices—as encouraged by the Code.

The reality of the stalled amendments to the Code points out the political environment of policy reform for local governments. The push and pull dynamics of centralization and decentralization are at work. Most of the amendments move towards more empowerment of LGUs. Power sharing is always a difficult process.

Adding to this context, local governments, through their associations or leagues, are very vigilant in guarding their autonomy. They respond quickly when there is any indication that national government is trying to put conditions or parameters in fiscal management. Fiscal regulations are always controversial and are often challenged at the constitutional level like DILG Memorandum Circular 2010-138 (regulating the use of 20 percent component of the IRA). The demise of the Local Government Service Equalization Fund (LGSEF) –though a worthy initiative in 1998—reminds us that jurisprudence also defends LGUs against national government efforts to control LGU spending.

The best option for policy improvements and permanence would be through a law and not national executive issuances. Nevertheless, whatever the policy reform, it must carefully find the balance between central control and autonomy.

But law-making is not equivalent to enforcement. As emphasized earlier, implementers should be able to monitor the disclosures effectively by triangulating between compliance, citizen feedback and independent analysis. Engaging the vast network of experts in Philippine academia (i.e. the Association of Schools of Public Administration in the Philippines [ASPAP], Local Government Training and Research Institutes [LOGOTRI]-PhilNet etc.) may help in developing a single tool for analysis as well as providing the analysts to do a reliable and independent interpretation of disclosed data.

Furthermore, implementers and monitors should always be on their toes. It is also an expected outcome that some disclosers will try to find ways towards a loophole in the law. Sustainability of transparency mechanism depends on constant filling of loopholes discovered by reluctant information disclosers (Fung, Graham and Weil 2007).

Finally, citizen outreach will determine the relevance of transparency policies. The current structure of LGU transparency still points to upward accountability. Ideally, transparency should encourage downward accountability that uses a different set of indicators reflecting social standards.

Citizens would like to know whether the government has spent more on roads and bridges or skills training or on salaries of personnel. Citizens are interested whether projects were located in rural areas or near the population centers; or whether the local taxes that they pay gets the garbage collected, cleans the streets or makes medicines available at the health centers. The perspectives are very different, but the bases are the same. These eventually feed into their decisions on involvement in local governance (as encouraged by the Code) or in elections.

The requirements of the law only take care of one part of the equation. Even if all LGUs reach a point of being forthright about their reports and could communicate these better than what is being done today, the ultimate test of the effectiveness of transparency mechanisms is how the end-users would make use of these information. Taking interest in these things cannot be legislated, even if the interpretation of the data is aided by independent analysis. This may no longer be a function of policy but of education and civic duty. Citizen Action Network for Accountability 

(The author is a University Researcher at the Center for Local and Regional Governance (CLRG) of the University of the Philippines’ National College of Public Administration and Governance (UP NCPAG).)

References and further reading

Calugay, Zita, Elyzabeth Cureg and Raphael Montes Jr. (2012). Learning Modules on Critical Ingredients in Building and Sustaining Inter-Local Cooperation. Manila, Decentralization Program-Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH. [Electronic version also available at www.decentralization.org.ph/Editor/assets/GIZILCLearningModules.pdf]

Center for Local and Regional Governance (2011). Executive Summary: Final Report – Integrity Development Review Assessment for Local Government Units. Submitted to the United States Agency for International Development and the Office of the Ombudsman. (unpublished)

Civil Service Commission, 2010. ARTA Report Card Survey Report of Findings (Phase 1), Quezon City; Civil Service Commission.

Fung, Archon, Mary Graham and David Weil (2007). Full Disclosure: The Perils and Promise of Transparency. New York, Cambridge University Press.

Department of the Interior and Local Government-Republic of the Philippines (2012a). DILG: Continuing the Good Governance Journey in 2011. [Website: http://www.dilg.gov.ph/PDF_File/reports/DILG-Reports-201236-457293b149.pdf]

(2012b). Memorandum Circular 2012-78: Scaled-up Seal of Good Housekeeping.

(2011). Memorandum Circular 2011-08: Strict Adherence to Section 90 of Republic Act 10147 – General Appropriations Act Fiscal Year 2011.

_________________________ (2010). Memorandum Circular 2010-83: Full Disclosure of Local Budget and Finances and Bids and Public Offerings.

Department of Finance-Republic of the Philippines (2012). Local Finance Circular 1-2012, Subject: Certificates of Maximum Borrowing and Debt Service Capacities of Local Government Units.

___________________ (2009). The Statement of Receipts and Expenditures: Systems, Concepts, Input Preparation And Reporting (SRE Manual).

Development Academy of the Philippines (2007). Making a Citizen's Charter: Quality Service, Transparency and Accountability in Local Governance. Pasig: Development Academy of the Philippines.

GIZ German Development Cooperation – Decentralization Program (2012). Political Decentralization: Advocating Participatory Governance. [www.decentralization.org.ph/Editor/assests/GIZ_DP_Political_Factsheet.pdf]

Government of the Republic of the Philippines (1987). Constitution of the Republic of the Philippines.

_________________________ (1991). Republic Act 7160 - The Local Government Code of the Philippines
_________________________ (2007). Republic Act 9485. Anti-Red Tape Act.

House of Representatives-Republic of the Philippines (2012). House Bill No. 607 – An Act requiring Governors, City and Municipal Mayors and Punong Barangay to post and publish within the territorial jurisdiction of their local government units a summary of all income and revenue from both public and private sources as well as a listing of all disbursements, expenditures and utilization of funds for other purposes.

National Statistical Coordination Board (2012). One barangay established and three municipalities converted to cities in the Third Quarter of 2012. http://www.nscb.gov.ph/pressreleases/2012/PR-201211-PP2-02_PSGC.asp

Saguin, Kidjie Ian (2012). Implementing the Citizens Charter in the Philippines: Insights from Selected Local Government Units. Cooperation and Development Center, Ecole Polytechnique Federale de Lausanne. Lausanne, Switzerland.

Stapenhurst Rick et al (2008). Legislative Oversight and Government Accountability. Washington DC, The World Bank.

Romero, Segundo (2011). Social Audit Toolbox for Philippine Civil Society Organizations. Transparency and Accountability Network (TAN). [http://fdpp.blgs.gov.ph/uploads/templates/SAT-1.pdf]

World Bank (2013a). “Arriving at a Common Understanding of Governance.” What is Governance. [http://go.worldbank.org/G2CHLXX0Q0]

__________(2013b). “What, Why and Where?” Decentralization and Subnational Regional Economics. [www1.worldbank.org/publicsector/decentralization/what.htm]

World Bank Social Development Department (2009). Local Government Discretion and Accountability: Application of a Local Government Framework. Report 49059-GLB. Washington DC, The World Bank.

Yilmaz, Serdar, Yakup Beris and Rodrigo Serrano-Berthet (2008). Local Government Discretion and Accountability: A Diagnostic Framework for Local Governance. Social Development Working Papers: Local Governance and Accountability Series, Paper No. 113, July 2008. Washington DC; The World Bank.