12.3 Local Disaster Risk Reduction Management Fund (LDRRMF) and PFM Oversight

12.3 Local Disaster Risk Reduction Management Fund (LDRRMF) and PFM Oversight

Quick Answer: Republic Act No. 10121 (The Philippine Disaster Risk Reduction and Management Act of 2010) mandates that every LGU allocate not less than five percent (5%) of its estimated revenue from regular sources to the Local Disaster Risk Reduction and Management Fund (LDRRMF). The fund is strictly divided into 70% for disaster prevention, mitigation, preparedness, and response, and 30% for the Quick Response Fund (QRF). The QRF acts as a standby fund that can only be disbursed following an official declaration of a State of Calamity by the Sanggunian. Crucially, unexpended balances do not revert to the General Fund at year-end; they must be transferred to a Special Trust Fund (STF) available for disaster activities for the next five (5) fiscal years, after which any remaining balance reverts to the General Fund surplus for social services. Treasury management of these funds is evaluated through the PFM Assessment Tool (PFMAT).

---

1. Legal Mandate and Revenue Base of the LDRRMF

The Philippine archipelago is among the most disaster-prone regions globally, routinely exposed to typhoons, storm surges, seismic activity, volcanic eruptions, and flooding. Prior to 2010, local disaster funding was governed by Presidential Decree No. 1566 (1978), which established a reactive "Calamity Fund" utilized primarily for post-disaster relief and reconstruction.

To institutionalize a comprehensive, proactive disaster risk reduction and climate change adaptation regime, Congress enacted Republic Act No. 10121 (The Philippine Disaster Risk Reduction and Management Act of 2010). Section 21 of RA 10121 transformed local disaster finance by establishing the Local Disaster Risk Reduction and Management Fund (LDRRMF).

The Mandatory 5% Statutory Floor

Under Section 21 of RA 10121:

"The present Local Calamity Fund shall henceforth be known as the Local Disaster Risk Reduction and Management Fund (LDRRMF). Not less than five percent (5%) of the estimated revenue from regular sources shall be set aside as the LDRRMF..."

Key statutory features of this provision include:

1. A Mandatory Minimum Floor: The 5% threshold is a statutory minimum, not a ceiling. Sanggunians are empowered to allocate higher percentages if local hazard exposure and fiscal capacity warrant.
2. The "Regular Sources" Revenue Base: The 5% is calculated strictly on estimated revenue from regular sources. Pursuant to DBM-DILG-NDRRMC Joint Memorandum Circular No. 2013-1, regular sources comprise recurring, predictable income streams:
   • Local Tax Revenues: Real Property Tax (Basic RPT), Special Education Fund (SEF), and Local Business Taxes (LBT);
   • Regulatory fees, service user charges, and receipts from Local Economic Enterprises (LEEs);
   • The National Tax Allotment (NTA).
3. Explicit Exclusions: Non-recurring windfalls, loan proceeds, public borrowing, external development grants, proceeds from the sale of fixed assets, and prior years' unappropriated surplus are strictly excluded when calculating the 5% baseline.
4. Role of the Local Treasurer: As an ex-officio member of the Local Finance Committee (LFC), the Local Treasurer prepares the certified forecast of regular revenue. This figure establishes the mandatory 5% LDRRMF appropriation floor in the Executive Budget submitted by the Local Chief Executive to the Sanggunian.

---

2. Statutory Breakdown: The 70/30 Rule

Section 21 of RA 10121 enforces a strict statutory bifurcation of the total 5% LDRRMF allocation:

Total 5% LDRRMF Allocation (100%)
├── Disaster Prevention, Mitigation, Preparedness & Response: 70%
└── Quick Response Fund (QRF):                               30%

The 70% Preparedness and Mitigation Allocation

Seventy percent (70%) of the LDRRMF is programmed across four comprehensive disaster thematic pillars codified in the National DRRM Framework:

1. Disaster Prevention and Mitigation: Constructing flood mitigation barriers, retaining walls, clearing drainage waterways, engineering seismic retrofits on public buildings, and hazard mapping.
2. Disaster Preparedness: Procuring search and rescue equipment (rescue boats, extraction saws, generators, drones), establishing multi-hazard early warning systems, conducting community earthquake and typhoon drills, stockpiling non-perishable relief goods, and constructing permanent evacuation centers.
3. Disaster Response: Activating incident command systems, deploying emergency search, rescue, and retrieval units, and operating field soup kitchens during localized calamities.
4. Disaster Rehabilitation and Recovery: Reconstructing damaged local roads, repairing municipal water distribution pipes, and providing livelihood restoration packages.

These expenditures must be detailed in the Local Disaster Risk Reduction and Management Plan (LDRRMP) prepared by the LDRRM Officer and approved by the Sanggunian.

The 30% Quick Response Fund (QRF)

Thirty percent (30%) of the LDRRMF is allocated as a standby fund called the Quick Response Fund (QRF).

• Operational Purpose: The QRF serves as a relief and recovery reserve fund to normalize living conditions in areas hit by unexpected disasters.
• The State of Calamity Prerequisite: The QRF cannot be spent, drawn upon, or disbursed during normal operations. Disbursing monies from the QRF strictly requires an official declaration of a State of Calamity enacted through a formal resolution by the local legislative body (Sanggunian Panlalawigan, Sangguniang Panlungsod, or Sangguniang Bayan), upon the formal technical recommendation of the local DRRM Council.
• NDRRMC Calamity Criteria: A State of Calamity can only be declared when established empirical damage thresholds are met (e.g., at least 20% of the population is displaced or severely affected, at least 40% of agricultural crops or means of livelihood are destroyed, or major lifelines and road networks are paralyzed).

---

3. Accounting Treatment: The 5-Year Special Trust Fund Rollover

In standard Philippine government accounting under Commission on Audit (COA) rules, annual budget authorizations follow the annual appropriation rule: any unexpended balance in the General Fund lapses at the close of the fiscal year on December 31 and automatically reverts to the unappropriated surplus.

The Unique Section 21 Exception

Section 21 of RA 10121 creates an extraordinary statutory exception to the annual lapsing rule:

"The unexpended LDRRMF shall accrue to a special trust fund solely for the purpose of supporting disaster risk reduction and management activities of the LDRRMC within the next five (5) years..."

Treasury and Accounting Procedures at Year-End

Pursuant to COA Circular No. 2012-002, the year-end processing of unexpended LDRRMF balances follows a strict operational sequence:

1. Determination of Unexpended Balance: On December 31, the Local Accountant and Local Treasurer calculate the exact unexpended cash balances of both the 70% preparedness fund and the 30% QRF.
2. Transfer to Special Trust Fund: The unexpended amount is transferred from the General Fund to a dedicated Special Trust Fund (STF) account. The cash is deposited in a separate, interest-bearing bank account maintained with an Authorized Government Depository Bank (AGDB).
3. Five (5) Year Retention Period: The money transferred to the Special Trust Fund remains available exclusively for disaster risk reduction and management projects for the next five (5) consecutive fiscal years.
4. Reversion After Five Years: Any portion of the Special Trust Fund that remains unexpended after the lapse of five (5) years is officially closed. However, it does not lapse into general overhead; it reverts to the unappropriated surplus of the General Fund, where it may be re-appropriated by the Sanggunian solely for social services (public healthcare, education, social welfare).

---

4. Public Financial Management (PFM) Oversight and the PFMAT

Sound local treasury operations cannot function in administrative isolation. Intergovernmental transfers, national wealth royalties, and statutory reserves (such as the 20% Development Fund and 5% LDRRMF) require transparent public financial management (PFM).

To institutionalize fiscal discipline, the Department of Budget and Management (DBM), the Bureau of Local Government Finance (BLGF), and the Department of the Interior and Local Government (DILG) implemented the Public Financial Management Assessment Tool (PFMAT) for LGUs.

The Core PFM Dimensions Evaluated

The PFMAT evaluates an LGU's fiscal governance across seven critical structural pillars:

PFMAT Core Assessment Dimensions
├── 1. Policy-Based Budgeting (CDP, LDIP, AIP coordination)
├── 2. Treasury Cash & Debt Management (Cash Flow Forecasting, AGDB Rules)
├── 3. Accounting & Financial Reporting (eSRE, PPSAS, Bank Reconciliations)
├── 4. Internal Controls & Audit Compliance (COA AOM, Fidelity Bonding)
├── 5. Procurement Integrity (RA 12009 Procurement Controls)
├── 6. Predictability in Resource Mobilization (Tax Collection Efficiency)
└── 7. Transparency & Citizen Participation (Full Disclosure Policy)

Treasury-Specific PFM Benchmarks

Within the PFMAT framework, the Local Treasurer is evaluated on several non-negotiable operational benchmarks:

1. Cash Flow Forecasting: The treasury office must maintain monthly and quarterly cash flow projections to prevent liquidity shortfalls and ensure that earmarked trust funds (LDRRMF, SEF) remain solvent and fully backed by liquid cash deposits.
2. Daily Deposit of Collections Intact: Pursuant to Section 307 of RA 7160 and COA regulations, all cash collections received by tellers and collecting officers must be deposited intact with AGDBs (Land Bank or DBP) daily or on the next business day. Retaining collections in vault safe-keeping to cover petty cash disbursements is an illegal practice.
3. Timely Bank Reconciliation: Bank reconciliation statements must be prepared and reconciled jointly with the accounting department within fifteen (15) days following receipt of the monthly bank statements.
4. Compliance with the Debt Service Ceiling: Under Section 324(b) of RA 7160, total debt service appropriations for principal and interest on loans cannot exceed twenty percent (20%) of regular income, verified through BLGF certifications.
5. Audit Compliance: Immediate resolution of Audit Observation Memoranda (AOM) and Notices of Suspension or Disallowance issued by COA auditors, ensuring zero unaccounted cash shortages.