Unreverted and unutilized LGSEF
17. The Local Government Service Equalization Fund (LGSEF), amounting to
₱338,170.29, has remained unused for over ten years due to the absence of necessary
documents and records, which contradicts Section 2 of Presidential Decree (P.D.)
No. 1445, thereby depriving the constituents of the benefits they could have received
had the funds been utilized for additional projects.
17.1 Section 2 of PD No. 1445 states that it is the declared policy of the State that all
government resources must be managed, expended, or utilized in accordance with
law and regulations, and safeguarded against loss or wastage through illegal or
improper disposition, with a view to ensuring efficiency, economy, and
effectiveness in government operations. The responsibility to ensure that this
policy is faithfully adhered to rests directly with the chief or head of the
government agency concerned.
17.2 The LGSEF was part of the Local Government Unit’s (LGU’s) Internal Revenue
Allotment (IRA), which was withheld by the national government pursuant to the
provisions in the General Appropriations Act (GAA) of 1999, 2000, and 2001. Its
release to LGUs was subject to guidelines issued by the Oversight Committee on
Devolution (OCD) created under Executive Order No. 48 issued by then-
President Joseph Estrada in 1998.
17.3 Following the guidelines set by the OCD, LGUs are required to submit project
proposals and necessary documentation to the Department of Interior and Local
Government (DILG) for review prior to sending them to the OCD for approval
and fund release by the Department of Budget and Management (DBM).
17.4 Our review of the Statement of Financial Position for the Special Account in the
General Fund-LGSEF showed that as of December 31, 2024, Cash and Cash
Equivalents amounting to ₱338,170.29 had remained outstanding for more than
10 years.
17.5 An interview with the Municipal Accountant revealed that the funds had
remained idle for over 10 years because they could no longer locate the
documents and records associated with the fund.
17.6 It is also important to note that the Supreme Court, in G.R. No. 152774 dated May
27, 2004, declared the release of the LGSEF unconstitutional. The Court ruled
that the LGSEF, being part of the IRA, should have been automatically released
to LGUs, and that subjecting it to additional guidelines from the OCD was in
violation of the Constitution. The decision stated:
“To the Court’s mind, the entire process involving the distribution and
release of the LGSEF is constitutionally impermissible. The LGSEF is
part of the IRA or just share of the LGUs in the national taxes. To
subject its distribution and release to the vagaries of the implementing
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