PART II OBSERVATIONS AND RECOMMENDATIONS

Non-consolidation of the four operating systems of budget releases into one application system 1. In CO, the use of four operating systems by the agency in the releasing and monitoring of allotments totaling P1,942,286,355,788.38 resulted in some systems errors affecting its effectiveness and rendering the application systems difficult to manage and uneconomical to maintain. Management maintained four application systems used in the releasing and monitoring of allotments and cash programs, namely: Electronic Budget System (eBudget) Foreign Assisted Projects (FAPs) Database System Electronic Transparency and Accountability Initiatives for Lump-Sum Funds (eTAILS) Manually-Prepared System (MPS) Total P1,408,500,914,359.00 3,768,315,901.35 20,542,194,816.00 509,474,930,712.03 P1,942,286,355,788.38

On January 24, 2011, Management decided to outsource the software maintenance of the agencys application systems, including the eBudget, FAPs and eTAILs Database Systems for FY 2011-2012 to Incuventure Partners Corporation for P16,694,441.07. The Information and Communications Technology Systems Service (ICTSS) informed us that the said four application systems had different functionalities. As an example, FAPs Database System applies to the releasing of funds for FAPs. We examined the submitted Agency Budget Matrix (ABM)/Special Allotment Release Order (SARO) listings under different application systems and we noted that all listings contained mixed fund sources, purposes and fund codes which did not reflect the purposes for which each application system was created/maintained. Last year, the Management informed us that the use of the MPS will be gradually eliminated, however, it was found out that Management still released 2,353 SAROs with the total amount of P509,474,930,712.03 under this system. SARO Listings submitted under MPS, FAPs database and some eBudget entries did not indicate the purpose of the released SAROs, the fund codes and other important data.

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Repetition of errors, like skipping of the SARO numbering and issuance of same number in two SAROs were likewise observed. Several unaccounted or missing SAROs for FY 2011 were also noted. We recommended that Management in CO give priority to the adoption of one reliable application system in the releasing and monitoring of the budget releases for government agencies, in order to avoid or minimize systems errors, enhance effectiveness and economy in systems operation and maintenance that will redound to a more transparent government operations. Management commented that the possibility of integrating all of the Agencys operating systems into one system is currently being studied. Failure to account all SARO Releases 2. In CO, the validity of the 42,193 SAROs issued to government agencies totaling P1,942,286,355,788.38 remained doubtful due to gaps in the SARO number series resulting to 3,158 unaccounted SAROs. For FY 2011, we received SARO listings from the DBM-Budget Technical Service indicating that 42,193 SAROs were released under various application systems. We verified as to the completeness of submitted SARO listings, including the cancelled SAROs and we noted that there were 3,158 SAROs (see Annex D) that remained unaccounted for as of December 31, 2011, as shown below: Number of SARO Released Unaccounted eBudget FAPs Database System eTAILS MPS Total 34,239 122 5,479 2,353 42,193 679 2,410 69 ___ 3,158

We also noted that Management released two SAROs with the same number, G-11-00893 dated May 6, 2011 and with same amount of P30,000,000.00, both recorded under the eTails Database system and MPS. We were also informed that under the eTails database, tagging of the SARO in the system was only made when the agency-recipient had received the copy of the SARO, hence, additional listings of SARO for FY 2011 were only submitted to us on February 20, 2012.

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We previously observed that SAROs were not chronologically issued in accordance with the date of the SAROs. It is a must requirement for the Management to account for every SARO it releases. A single unaccounted/missing SARO may mean under/overpayment of the total government allotments. We recommended that Management in CO submit immediately all the 3,158 unaccounted SAROs for verification. Likewise, Management should revisit the process of assigning SARO numbering and install control measures to ensure complete accounting of SARO releases. Management commented that for FY 2011, it had issued a total of 42,218 SAROs, however, still excluded from the total was the SARO that would cover the 4th quarter Interest Payments as well as the Principal Amortization for foreign and domestic borrowings, since up to this time the Bureau of the Treasury (BTr) had not submitted any request for it, therefore, the agency could not yet issue said necessary SARO. Per agencys Report, total allotment releases for FY 2011 amounted to P1,656,768,000,000.00, inclusive of the total Interest Payments/Net Lending for 2011 of P358,406,000,000.00 per Cash Operation Report of the BTr. The total number of cancelled SAROs was 858, excluding the SAROs made as DUMMY only. These were referred to as Adjustment SAROs, hence, Dummy SAROs were not cancelled nor unaccounted SAROs but done only in the system. They were not printed nor released to agencies. Thus, for FY 2011, the DBM had a total of 83 Dummy SAROs. Under the FAPs Database System, there were only two cancelled SAROs, however, based on the chronological numbering system, there were 1,946 unaccounted numbers instead of 2,410, the 464 numbers covered NCA/Advise of NCA releases. The Information Technology (IT) Consultant promised to explain the features of the FAPs Database System the soonest time possible. The SARO No. G-11-00893 dated May 6, 2011 was only a Dummy SARO in the amount of P30,000,000.00 for Priority Development Assistance Fund (PDAF) releases under the eTails system, since this was previously released through a Manually-Prepared SARO. The processing of PDAF releases was done through the eTails database system which was connected to DBM website publishing the PDAF releases already made to every Congressman/Senator. Thus, it was necessary that the tagging of the SARO covering PDAF releases shall be made only upon release of said SARO to the recipient implementing agency (IA) since such tagging shall trigger the posting of said release in the website.

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Management stressed that due to voluminous releases, there were SAROs already released but inadvertently not tagged. This late tagging of SAROs was the reason behind the late submission of the agency of additional listing of SAROs. Under the eBudget System, the assignment of SARO number was done sequentially once the transaction was approved for release. However, there were requests already approved for release but found incomplete of some documentary requirements, instead of canceling said previous approval, Management had to wait for compliance from the agency concerned, hence, the delay in the release of said SARO. Subsequent SAROs, which were processed/approved for release without any documentation problem, shall be released ahead of the first previously approved SARO. The 6,055 cancelled SARO numbers in 2010 had been considerably reduced to 858 in 2011. Out of 6,055, 67 percent or 4,079 were due to system error while out of 858 in 2011, 646 accounted for system error. As the management IT systems improved, Management was optimistic to eliminate these cancelled SARO numbers due to systems error. The Managements report of total allotments did not reconcile with our figure due to the following: a. There were still unsubmitted SARO releases under the eTails Database system; b. Listing of SAROs used as Dummy were submitted after audit report was completed. Only SARO number was indicated, the purposes and the amount of adjustments were not stated; and c. The agency did not include principal amortization for foreign and domestic borrowings as well as interest payments, although, corresponding SAROs were already prepared. Moreover, Management should make a policy to process only SARO with complete requirements/documentation. Thus, assignment of SARO number will not be disturbed and more importantly, the SARO releases will not be delayed. Absence of general controls in the IT systems 3. In CO, the IT Systems were found deficient of the necessary general controls, thus, affecting the effectiveness, integrity and availability of systems and data being used in the issuance of budget releases and other IT requirements.

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We observed the absence of some general controls in the IT systems, discussed as follows: a. Absence of an approved Information Systems Strategic Plan (ISSP) may result in the difficulty of securing management commitment to effectively implement the plan which exposes the agency to risk of wastage of expensive IT resources. b. Absence of Disaster Recovery and Business Continuity Plans may result in the failure to recover IT systems and services in a timely manner in case management is confronted with disaster or fortuitous events that will disrupt its normal operations. c. Absence of Back up Facility and policy guidelines on tape media storage may not recover the system files when needed. Absence of an approved ISSP The ISSP is an overall strategic plan for development and implementation of the information systems, including the corresponding resource requirements, over a fixed, long-time period. It would map out its information and communication technology direction. The Information and Communications Technology Systems Service (ICTSS) officials informed us that the ISSP was not approved by the National Computer Center (NCC). Managements ISSP was submitted to the NCC in CY 2008 but was later withdrawn for revision. However, until now, it was not yet finalized and re-submitted to the NCC for approval. If there was no approved ISSP, Management runs the risk of investing in technology that increases costs and may not be in line with the IT plan of the government. Absence of Disaster Recovery and Business Continuity Plans We noted that the IT systems had no Disaster Recovery and Business Continuity Plans. The said Plans were important to an agency like DBM which handles very important functions for the whole government. The Plan will prevent and manage the consequences of a disaster, such as, fire, earthquake, key equipment failure, resignation or illness of key IT personnel, etc., limiting it to the extent that an agency can afford. Absence of policy guidelines on tape media storage and Back up facility At present, we noted that there were no back up facility or off-site facility. The back up data files were just kept in the Office of the Director of ICTSS. Policy

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guidelines on data storage were not given much attention to spell out the control measures to be installed, the responsibilities and accountabilities of those in-charge in the storage of systems data of the agency. Adequate physical controls should be put in place so as not to expose Management to the risks of loss or damage of data files and related databases when the need arises. Management should have a well-developed and maintained IT Systems to secure the integrity and availability of the budget data at any time. We recommended that Management in CO prepare the necessary ISSP for approval of the NCC. The NCC is in-charge of the implementation of Government Information System Plan (GISP) that warrants the technology compatibility, security and connectivity to enhance resource sharing and information exchange between and among government offices. It is also responsible for providing the benchmarks and standards for Information Communication Technology (ICT) procurement and outsourcing. We further recommended that Management create disaster recovery and business continuity plan as well as a policy on systems back up and restoration to enable the agency to secure its operations in case of disruption in the information systems support activities and to survive even if a disastrous event occurs. Management commented that in the 2011 approved budget, it had appropriated P1,500,000.00 to engage the services of a technical writer with the sole output of having an updated DBM-ISSP for FY 2012-2014. Management further stated that it had engaged a service provider on Disaster Recovery and Business Continuity plan for FY 2009-2010. Unfortunately, after the termination of the engagement, it was not able to enter into a new contract with a service provider. However, it had appropriated P15,000,000.00 for this project while the Terms of Reference were being finalized. Back up activities and procedures were project component of the Disaster Recovery and Business Continuity Plan. Once the Disaster Recovery Plan is implemented, the backup procedures are likewise activated. Physical inventory taking of Property, Plant and Equipment (PPE) not conducted, ARE not updated and PCs not maintained 4. In CO, National Capital Region (NCR) and Region III, PPE totaling P522,425,020.74, P8,149,115.65 and P5,142,736.71, respectively, as of December 31, 2011 could not be validated due to the failure of Management to conduct physical inventory taking of PPE contrary to Section 66 of the Manual on the New Government Accounting System (MNGAS), Volume II, thus the accuracy, reliability and integrity of the PPE accounts in the trial balance

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could not be ascertained. Moreover, in Cordillera Autonomous Region (CAR) and Region III, Acknowledgement Receipts for Equipment (ARE) were not updated and Property Cards (PCs) were not maintained. Section 66 of the MNGAS, Volume II provides that the Report on the Physical Count of PPE (RPCPPE) shall be used to report the physical count of PPE by types as of given date. It shows the balance of property and equipment per card and per count and shortage/overage, if any. Section 56, MNGAS, Volume II, provides that the ARE shall be used to acknowledge the receipt of property and equipment for official use from the Property Officer. The ARE shall be: a. prepared in two copies, the original copy to be maintained at the Supply and Property Unit and the duplicate copy to be given to the recipient or user of the property; b. signed and dated by the designated Property Officer and the recipient or user of the property shall acknowledge receipt of property; and c. renewed every three years or every time there is a change in accountability. Likewise, Section 42 of the same manual provides that the PC shall be kept for each class of PPE to record the description, acquisition, transfer/disposal and other information about the asset. The transactions shall be posted promptly from the source documents; and the physical inventory of PPE shall be reconciled with the PCs every year and any discrepancies shall be immediately verified and adjusted. In CO, we gathered in the course of audit that the agency failed to conduct the annual physical inventory-taking of its PPE because personnel previously stationed at Buildings I, III and Arcache and the Property and Supply Section (PSS) were preoccupied with the transfer to the newly constructed Building II sometime in April 2010, after which the PSS personnel then attended to the disposal/donation of the various office equipment stored/left at the vacated buildings until July of CY 2011. In spite of this, the annual inventory taking of properties and equipment should have been conducted as of December 31, 2011. In NCR and Region III, no physical inventory count was conducted on the total PPE of P8,149,115.65 and P29,647,035.97, respectively, as of December 31, 2011. Further, in Region III, ARE was not available for review and there was no proper turn-over of accountability to the newly designated supply officer/custodian; while in CAR, the ARE was not updated and PCs for each class of PPE as required was not maintained, hence, property accountability could not be readily identified and PPE accounts could not be reconciled to determine its accuracy.

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In CAR, the agency uses a Memorandum Receipt for Equipment, SemiExpendable and Non-Expendable as tool to record PPE issued to personnel. We verified the documents and we noted that the latest update of the record was on June 20, 2008 and as such, PPE purchased and issued to employees after June 20, 2008 were not included in the Memorandum Receipt (MR). Similarly, items that were disposed after the last update were still appearing in the MR. Based on Managements record, various unserviceable PPE costing P322,699.65 and P816,208.37 were disposed in August 2008 and January 2009, respectively, and were correspondingly dropped in the agencys books of accounts. In 2010 and 2011, total unserviceable PPE disposed amounted to P64,592.36. For these reasons, accountability of property could not be readily identified. Management conducted physical inventory of its PPE on December 29, 2011, however, there was no PC maintained by the supply and property unit where the inventory of the PPE could be reconciled to determine its accuracy, thus, discrepancies, if any, could not be determined for necessary adjustments. Maintenance of this ledger is very essential as it records the detail information of an asset. In order to validate the existence and completeness of the reported PPE account balances an actual physical count was conducted by the Region III inventory committee on February 3, 6-7, 2012 which was witnessed by the audit team covering the following PPE accounts: (a) Land Improvements, (b) Office Buildings, (c) IT Equipment and Software, (d) Library Books and e)Motor Vehicles . However, the inventory committee was not able to finish the physical count of the other recorded PPE accounts totaling P5,142,736.71 due to other urgent duties and responsibilities, thus, the audit team was not able to validate its existence and completeness. We recommended that the Management in CO, NCR and Region III conduct the required physical inventory of PPE as of December 31, 2011 and consequently prepare and submit reconciled RPCPPE with the accounting records to ensure the accuracy, reliability and integrity of the PPE accounts at year-end. We also recommended that respective Managements require the Supply and Property Officer to maintain PCs which should be periodically reconciled with the schedule of PPE maintained by the Accountant, and comply with the requirements in the maintenance of the ARE as prescribed in Appendix 53 of the same Manual to readily identify the Accountable Officers (AOs) of acquired government property. Management of CO commented that due to the transfer of personnel from DBM Buildings I, III and Arcache to Building II in 2010 and the subsequent deployment of new IT Equipment, Office Equipment and Furniture and Fixtures to

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the personnel concerned, as well as the disposition of unserviceable items in 2011, there was a need to update the individual PCs of personnel prior to the conduct of physical inventory to facilitate such activity. The PSS was currently updating the PCs. Thereafter, the physical inventory of PPE shall be immediately conducted and the RPCPPE will be submitted to COA. Management of CAR took note of the recommendation. In fact, the designated Supply Officer started updating the ARE when this deficiency was verbally communicated. With the issuance of the AOM, Management assured us that the prescribed ARE form and PC shall be maintained by the Supply Officer. Overstatement of accounts due to accounting errors 5. In Region III, V and VII, the following accounts were overstated/understated due to erroneous recording in the books: a) the IT Equipment and Software and Other Supplies Inventory accounts were overstated by P1,220,995.39 and P202,691.80, respectively; b) the Due from NGAs account was understated by P138,928.32, thus overstating the Items in Transit account by the same amount; and c) the Other Assets account was overstated by P773,522.80 due to the recording of unserviceable PPE at cost instead of book value. In Region III, it was observed that the reported IT Equipment and Software balance of P3,779,167.28 as of December 31, 2011 was overstated by P1,220,995.39 due to the following accounting errors: a. IT equipment already disposed thru transfer without cost to other agencies in 2008 and 2010 not dropped from the books, thus overstating the Government Equity b. IT software installed on computer units already transferred to other agencies were not dropped from the books nor disclosed in the Invoice Receipt of Property, thus overstating the Government Equity c. Unserviceable IT equipment and software were not reclassified to Other Assets account, thus understating the said account Total

P184,431.20

137,222.16

899,342.03 P1,220,995.39

We also noted that the Other Supplies Inventory account balance of P202,691.80 disclosed various accounting errors that rendered the reported inventory balance unreliable, to wit:

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a. PPE erroneously recorded as inventory overstated the reported Other Supplies Inventory balance by P193,817.55 and understated the affected PPE accounts. Accounts Affected Office Building Furniture and Fixtures IT Equipment Medical, Dental and Lab Equipment Other PPE Communication Equipment Total Overstatement (Understatement) (P P8,533.50) (128,559.55) (31,983.50) (2,530.00) (20,046.00) (2,165.00) (P193,817.55)

b. small tangible items with serviceable life of more than one year were still recorded as inventory although already issued, thus overstating the inventory balance by P8,874.25. Inventory Custodian Slips (ICS) were not yet prepared . Accounts Affected Supplies Expense Total Overstatement (Understatement) (P8,874.25) P202,691.80

In Region V, items procured from the PS were recorded under Items in Transit account contrary to the provisions of Annex A (Illustrative Accounting Entries) of the MNGAS, Volume 1, which shows the following pro-forma entry for advance payment to PS: Due from NGAs Cash National Treasury, MDS xx xx

Upon receipt of the items from the PS, the receivable account shall then be credited and the pertinent supplies or property account shall be debited. We verified the submitted Agency Procurement Requests (APRs) which showed that Management had an advance payment of P138,928.32 allotted for undelivered furniture as of December 31, 2011. At the start of the year, the Items in Transit account showed a balance of P839,046.00 pertaining to items purchased which were not yet delivered by the PS. During the month of August, modular partitions and furniture costing P700,117.68 were delivered and the amount was credited to the account and debited to the appropriate PPE account, leaving a balance of P138,928.32.

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The advance payment should have been debited to Due from NGAs account considering that it was a receivable from the PS. Upon receipt of the items, the Accountant shall then debit the items to the pertinent supplies or property account, as shown in the illustrative entry. The erroneous entry for the procurement resulted in the understatement of the Receivable account balance and overstatement of the Items in Transit account. In Region VII, unserviceable PPE were recorded at cost instead of book value contrary to Section 4(p) of the MNGAS, Volume I, which provides that Serviceable assets no longer used shall be reclassified to Other Assets account and shall not be subject to depreciation. Section 64 of the MNGAS, Volume II, provides that the IIRUP shall be used as basis to record dropping from the books the unserviceable properties carried in the PPE. On October 1, 2007, a reclassification entry for unserviceable PPE was made per JEV-2007-10-000349, to wit: Other Assets Accumulated Depreciation Property, Plant & Equipment Prior Years Adjustments 861,305.68 773,522.80 861,305.68 773,522.80

The above entry disclosed that the reclassified PPE were transferred to Other Assets account at cost instead of the net book value, P87,782.88, in consonance with Section 4(p) of the MNGAS, Volume I. This erroneous entry was discovered last June, 2011 when the Request for Relief from Accountability of Other AssetsUnserviceable Properties with the late Supply Officer Julius Espina was evaluated. The erroneous entry overstated the Other Assets and Prior Years Adjustment accounts by P773,522.80. We recommended that Management in Regions III, V and VII require the Accountants to prepare necessary adjusting entry to correct the foregoing accounting errors, and the Property Officer of Region III to prepare and issue the required ICS to concerned personnel. In Region V the Accountant committed to prepare the necessary accounting entries in the succeeding month and in Region VII, Management already effected the necessary adjusting entry.

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Non-observance of rules and regulations on the granting, utilization and liquidation of cash advances 6. In CO, CAs totaling P2,950,070.77 remained unliquidated as of December 31, 2011 and in Region II, some CAs given to personnel were not liquidated as soon as the purpose for which it was given had been served and additional CAs were granted to officers and employees despite of non-settlement of their previous CAs contrary to Section 89 of Presidential Decree (P.D.) No. 1445, COA Circular No. 97-002 dated February 10, 1997, and COA Circular No. 2009-002 dated May 18, 2009. Section 89 of P.D. No. 1445 requires that CAs should be accounted for and liquidated as soon as the purpose for which it was given has been served. COA Circular No. 97-002 dated February 10, 1997 relative to the rules and regulations on the granting, utilization and liquidation of CAs, provides the following provisions: No additional CA shall be granted to any official or employee unless the previous CA given to him is first settled or a proper accounting thereof is made. (Section 4.1.0) A CA shall be reported as soon as the purpose for which it was given has been served. (Section 4.1.3) The accountable officer (AO) shall liquidate his CA as follows (Section 5): 5.1.1 Salaries, wages, etc. within 5 days after each 15 day/end of the month pay period. 5.1.2 Petty Operating Expenses and Field Operating Expenses within 20 days after the end of the year; subject to replenishment as frequently as necessary during the year. 5.1.3 Official travel within 60 days after return to the Philippines in the case of foreign travel or within 30 days after return to his permanent official station in the case of local travel, xxx Failure of the AO to liquidate his cash advance within the prescribed period shall constitute a valid cause for the withholding of his salary and any amount due him.

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The rules explicitly provide that no additional CA shall be allowed to any official or employee unless the previous CA given is first settled or a proper accounting thereof is made. Further, Paragraph 5.1.3 of COA Circular No. 97-002 dated February 10, 1997 also provides that the AO shall liquidate his CA for local travel within thirty days after return to his official station. Also, COA Circular No. 2009-002 dated May 18, 2009, particularly Paragraph 4.1.3(ix) thereof, provides that a CA for special time-bound undertaking shall be liquidated within one month from the date the purpose of the CA was accomplished. We verified the CA account and noted that CA totaling P2,950,070.77 remained unliquidated as of December 31, 2011 We also noted that the bond of Ms. Nora Plan, SDO, in the amount of P75,000.00 was not sufficient to cover her cash accountability for CA granted for the year-end activities per Check Nos. 816031 and 816043, both dated December 14, 2011 amounting to P647,000.00 and P371,000.00, respectively. The non-liquidation of outstanding CA at year-end exposed to risk of loss thru theft or robbery such huge amount of cash in the custody of the AO. In Region II, we reviewed the liquidations of CAs given to officers and employees and we noted that Management tolerated the practice of allowing the liquidation of CAs for time-bound undertakings beyond one month after the purposes for which they were given had been served. We Analyzed the liquidation of CAs which showed that some CAs were liquidated after 30 days ranging from 32 to 89 days after the purposes of the CAs were accomplished. In CAs for Traveling Expenses, the count of 30 days started from the date of completion of travel per approved itinerary of travel attached to the liquidation report, and in CAs for Gasoline, Oil and Lubricant, it started from the date of the latest Invoice/OR evidencing payment from the CA. We reviewed the CAs given to officers and employees and we noted that additional CAs were allowed despite the fact that previous CA were not yet settled or a proper accounting thereof had been made. This practice is in violation of the afore-cited provisions of Section 89 of P.D. No. 1445, and Paragraph 4.1.2 of COA Circular No. 97-002 dated February 10, 1997. . Allowing additional CAs to officers and employees even if their previous CAs had not yet been liquidated may unnecessarily expose limited government funds to risk of misuse. It might also cause the accumulation of unliquidated CAs in large amount as of a given date.

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We recommended that Management a) in CO enjoin all AOs to liquidate all CAs at year-end, and instruct the Chief Accountant to make sure that granting of CA is within the maximum cash accountability of the AO; b) in Region II stop the practice of allowing the liquidation of CAs beyond one month after the purposes for which CAs were given had been accomplished forestall exposure of government funds to possible misuse and to avoid the accumulation of unliquidated CAs to large amount. We also recommended that upon receipt of the liquidation documents the Accountant should immediately review the liquidation papers of CAs and submit them to the Auditor for post audit. Likewise, additional CA should not be given unless the previous CA was first liquidated or a proper accounting thereof was made. Management commented that out of the P2,950,070.77 balance of CAs recorded in the books of accounts in CO as of December 31, 2011, the amount of P2,860,000.00 was granted to SDOs on December 14, 2011, for the conduct of CY 2011 Year-end activities with instructions that the CA shall be liquidated not later than January 31, 2012, in accordance with Office Order No. 2011-490 dated December 9, 2011. Management further commented that out of the P2,950,070.77 unliquidated CAs as of December 31, 2011, P2,936,053.01 had been liquidated as of January 31, 2012, and the corresponding adjustment/liquidation were properly recorded in the books of accounts, consistent with the provision of the afore cited Office Order. On the other hand, the remaining balance of CA amounting to P14,017.76 in the name of Ms. Ferlyn O. Moralde was liquidated and booked up in February, 2012 only, on account of her sick leave from December 7, 2011 to February 6, 2012. The one-time CA granted to SDOs for the conduct of CY 2011 year-end activities was required to be liquidated immediately, hence, no additional bond was provided. Henceforth, granting of CA shall be within the maximum cash accountability of the SDO. In Region II, Management commented that there were some CAs which were not liquidated within the reglementary period prescribed under existing regulations, but this was partly attributed to the Accountants practice of recording the liquidations in the books of accounts only on the last working day of the month and not on the actual date of submission and/or receipt of the liquidation reports. Management further commented that there was no CA granted without settlement of the previous ones. Records showed that there were additional CAs granted but this observation was due to the practice of the Accountant in recording liquidation only at the end of the month. As a rejoinder, a CA could only be considered as settled when it was recorded in the books of accounts as liquidated. Although liquidation reports were already submitted to the Accountant but the liquidations had not yet been recorded

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in the books, the CA shall remain unsettled. Evidence at hand showed that there were additional CAs granted to officers and employees despite of the nonliquidation of their previous cash advances. As mentioned earlier, a CA is considered settled if it is already recorded in the books as liquidated. Non-recording of collections and deposits 7. In Region VI, collections and deposits totaling P20,310.22 and P20,310.32, respectively, for the period January to October 2011 were not recorded in the books of accounts, contrary to Section 63 of P.D. No. 1445 and Section 6 of the MNGAS, Volume II. Section 63 of P.D. No. 1445 provides that, Except as may otherwise be specifically provided by law or competent authority all moneys and property officially received by a public officer in any capacity or upon any occasion must be accounted for as government funds and government property. Government property shall be taken up in the books of the agency concerned at acquisition cost or an appraised value. Section 6 of the MNGAS, Volume II, prescribes the Journal (Appendix 2) which shall be used to record all collections and deposits reported during the month for the RA book. The source of entries are the Journal Entry Voucher (JEVs) which shall be prepared based on the Reports of Collections and Deposits (RCDs) submitted by the Cashier or Collecting Officers to the Accounting Unit or the Official Receipts (ORs) acknowledging collections. We examined the transactions for collections and deposits and we noted several unrecorded ORs and deposit slips, as shown below: Date Jan /11 Feb /11 Mar /11 Apr /11 Jun /11 July /11 Sept /11 Oct /11 Total No. of ORs 1 1 2 10 8 4 2 1 29 Amount 80.00 1,070.00 602.82 12,999.9 0 3,665.50 1,075.00 780.00 37.00 20,310.2 2 Date Jan /11 Feb /11 Apr /11 June /11 July /11 Sept /11 Oct /11 No. of Deposit Slips 1 1 2 1 1 2 1 9 Amount 80.00 1,070.00 13,60 2.82 3,665.50 1,075.00 780.00 37.00 20,310.32

The Accountant recorded the agencys transactions in the General Journal, however, the above mentioned transactions were not recorded in the General

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Ledger, thus the ending balance of P602.82 as of March 31, 2011 was not reflected in the financial reports/statements such as the Balance Sheet for the same period. We recommended and Management in Region VI agreed to require the Accountant to prepare and submit the Cash Receipts Journal for CY 2011 and henceforth, to strictly comply with Section 63 of P.D. No. 1445 and Section 6 of the MNGAS, Volume II. Non-recording of office supplies used in operation 8. In NCR and Regions VI and XII, various office supplies issued to end-users were not recorded in the books of accounts, thus overstating the Office Supplies Inventory account and understating the Office Supplies Expenses account. As a result, the account Office Supplies Inventory of the said regions totaling P1,630,531.98, P606,804.14 and P243,771.39, respectively, could not be fairly presented in the Financial Statement as of December 31, 2011. Section 62 of the MNGAS, Volume II, states that the Report of Supplies and Materials Issued (RSMI) shall be prepared by the Supply Officer and shall be used by the Accounting Unit as a basis in preparing the JEV to record the supplies and materials issued. As reported in the previous years audit report of NCR, the RSMI which showed the issuance of the office supplies remained unsubmitted to the audit team as of audit date. In Region VI, RSMI for supplies issued for CY 2011was not prepared and submitted. Thus, issuances of supplies and materials were not recorded in the books of accounts which resulted in the understatement of the Office Supplies Expenses account and the overstatement of the Office Supplies Inventory account. In NCR, we noted that the Office Supplies Inventory account amounted to P1,630,531.98 as of December 31, 2011 or an increase of P325,506.18 or 25 percent of the ending balance as of December 31, 2010 of P1,305,025.80; while the Office Supplies Expenses amounted to only P53,202.67 which represents supplies and materials used as reflected in the replenishment of the PCF. Thus, the above stated accounts were not fairly presented in the financial statements. In Region XII, record of this Office showed that the designated Supply Officer failed to submit the RSMI totaling P212,878.85, thus the balance of Office Supplies Inventory account of P243,771.39 as of December 31, 2011 could not be relied upon, considering that there were no Requisition and Issue Slip (RIS) to support the issuances. This was not in conformity to management of supplies or inventory account/s. We recommended that Management of NCR, Regions VI and XII require the Property Officer to expedite the preparation and submission of the

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RSMI with supporting RIS to the Accounting Unit to facilitate recording in the books for the issuances of supplies and materials as provided in Section 62 of the MNGAS, Volume II. Also, the NCR Accountant should immediately record the issuances of office supplies based on the partially submitted RSMI by the Acting Property Officer. Require close coordination between the respective Accountant and the designated Supply Officer to ensure reconciliation of their inventory records. Region XII Management admitted that they were remiss in submitting the RSMI due to work overload of the designated Supply Officer. Further, Management justified that the balance shown in the record had basis considering that every purchase of inventory supplies for stock was accurately entered in the e-NGAS and was taken up as expense at the end of the month based only on the Summary of Supplies and Materials issued for the month prepared by the Supply Officer. However, Management assured the audit team that they will comply with the recommended action. Non-issuance of Inventory Custodian Slips 9. In CO, several tangible items purchased through the PCF totaling P33,483.87 were not issued the necessary ICS as required under Section 2.3 of COA Circular No. 2005-002 dated April 5, 2005, and were not supported with complete documentation in support of PCF replenishment, thus resulting to difficulty in monitoring accountability. Section 2.3 of COA Circular 2005-002 dated April 5, 2005 specifically provides that For monitoring, control and accountability, an ICS, shall be prepared upon issuance of small tangible items covered by approved RIS. We audited the PCF of various SDOs, we noted that several tangible items were purchased through the PCF totaling P33,483.87. We also verified that the ICS were not issued for these tangible assets that were small enough to be classified as PPE. We also observed in our audit that some petty cash vouchers lacked vital supporting documents/information, to wit: a. Job requests for Emergency repair of motor vehicles were not attached and dates were not consistent; b. Some Vehicle Repair and Maintenance Reports (VRMR) were not dated properly and did not indicate the nature of repair to be done; and c. Quantity of the items purchased that appeared in the RIS and Inspection and Acceptance Report (IAR) was not at all times the

44

same, yet the inspector and the recipient of the goods affixed their signatures to the IAR. Based on the PPE ledger card for repairs and maintenance of one motor vehicle, we observed that warranty for the purchased car battery was not being utilized. A car battery was purchased from Matcar Battery Center per OR No. 0145 dated May 17, 2011. We verified that the previous purchase from Rapide Auto Service Experts was made on November 3, 2009 per Sales Invoice No. 4645 with 2 years warranty. Thus, the gap of one year and six months between the previous and current purchase of such item was way within the warranty period and should had been availed of and utilized. We recommended that Management in CO prepare and issue the necessary ICS for small tangible items for easy monitoring, control and accountability. Advise all SDOs to always attach complete and proper documents in the replenishment of PCF to avoid suspensions and/or disallowances in post audit. Also advise PSS to always utilize and monitor valid warranties. Furnish every end user of purchased items a copy of the warranty for their information and guidance in making future purchases of similar items. Management commented that the required ICS were prepared and issued during the time of purchase, however, these were not attached to the Disbursement Voucher (DV). Henceforth, copies of ICS will be attached to the DV. The recommendations of the audit team were duly noted and the SDOs were instructed to comply with all the requirements Unsettled Disallowances/Charges 10. In Region XII, receivables from audit disallowances totalling P4,531,285.90 remained unsettled as of December 31, 2011 contrary to Section 7.1.1 of COA Rules and Regulations on the Settlement of Accounts (RRSA) as prescribed under COA Circular No. 2009-006 dated September 15, 2009 to the disadvantage of the government. Section 7.1.1 of the COA RRSA provides that, The head of the agency, who is primarily responsible for all government funds and property pertaining to his agency, shall ensure that: (a) xxx; (b) the settlement of disallowances and charges is made within the prescribed period; xxxx. We verified the Financial Statements for CY 2011 and we noted that the P4,544,310.70 audit disallowances/charges, only P13,024.80 was settled thus, P4,531,285.90 remained outstanding in the books at the year-end because the

45

persons liable failed to settle the disallowances/charges as required under the afore cited provision of the RRSA. We reiterated our recommendation that Management in Region XII exert extra efforts to collect the amount of P4,531,285.90 and enjoin the persons liable to comply with the afore quoted provisions of the RRSA on the immediate settlement of audit disallowances/charges. During the exit conference, Management informed us that demand letter were already issued to respondents in compliance to COA Opinion No. 2010-005 dated January 19, 2010 issued by the Office of General Counsel, Legal Services Sector, COA, Quezon City, which upheld the liability of the concerned DBM employees under CSB 92-06-100. Further, Management informed us that respondent Ms. Nolan A. Alluden settled the amount of P13,024.80 per OR No. 0059580 dated March 25, 2011. Moreover, Management assured us that they will be sending another demand letters to respondents Ms. Emma Naga and Mr. Cecilio Garciano asserting that Management in RO XII will be forced to resort to appropriate remedies in case respondents continue to ignore the demand letters. Payment of air fares paid directly to travel agency and without travel authority 11. In Region VI, CAs on travel for air fares totaling P215,839.56 were paid directly to Island Adventure Travel and Tours and recorded in the books of accounts as traveling expenses contrary to COA Circular No. 2003-001 dated June 17, 2003 and COA Circular No. 96-004 dated April 19, 1996. Moreover, several claims for travels outside the region were not supported with office order and/or corresponding travel authority from the CO contrary to Section 28 of the MNGAS, Volume I. COA Circular No. 2003-001 dated June 17, 2003 dated June 17, 2003 was issued revising the Chart of Accounts under the NGAS as part of the continuing effort to simplify government accounting and to ensure proper accounting of all financial transactions of the National Government Agencies (NGA) and LGUs. Section 2.1 of COA Circular No. 96-004 dated April 19, 1996 states that : Both official local and foreign travels shall be treated and accounted for as CAs. Official local travel shall no longer be treated as direct charges to appropriations or allotments. The Accountant shall obligate all CAs granted. Section 28 of the MNGAS, Volume I, provides for the basic requirements applicable to all types of disbursements made by the national government agencies as:

46

a. Existence of a lawful and sufficient allotment certified as available by the Budget Officer; b. Existence of a valid obligation certified by the Chief Accountant/Head of Accounting Unit; c. Legality of transactions and conformity with laws, rules and regulation; d. Approval of the expense by the Chief of Office or by his duly authorized representative; and e. Submission of proper evidence to establish the claim. We analyzed the travelling expenses and we noted that payments for plane fares were paid directly to a travel agency and taken up in the books under the account Traveling Expenses-Local when all these travels were yet to be undertaken. Hence, treatment of these disbursements were different from CA of personnel which were recorded under account Advances to Officers and Employees for per diems and other transportation expenses. The plane fares were all paid to Island Adventure Travel and Tours, as follows:
Date 12-13-11 12-08-11 12-01-11 11-18-11 11-10-11 11-10-11 10-24-11 10-11-11 09-07-11 09-01-11 08-16-11 08-09-11 06-16-11 06-10-11 06-10-11 06-10-11 05-17-11 05-10-11 05-05-11 05-02-11 04-25-11 04-19-11 04-15-11 04-11-11 04-05-11 Total Check No. 379561 379549 379529 379508 379492 379490 379470 379451 379396 379388 379359 379339 361045 361042 361039 361038 361001 360995 360989 360986 360966 360956 360950 360933 360930 Plane Fare 23,677.00 9,376.00 2,981.00 6,648.00 6,587.00 5,136.00 8,255.00 8,717.00 7,829.00 7,802.00 4,955.00 6,232.00 4,263.00 3,172.00 8,525.00 2,140.00 4,710.00 5,046.56 16,328.00 9,985.00 20,285.00 17,710.00 14,237.00 5,907.00 5,336.00 215,839.56 Employee S. Superticioso, MD. Gallego, ML. Gayomali & H. Libres A. Bedonia A. Bedonia A. Bedonia & M. Chua E. Albaracin A. Bedonia A. Bedonia A. Bedonia A. Bedonia E. Javison MD. Gallego L. Jalbuna E. Javison A. Bedonia For 2 MFL Engineers A. Bedonia E. Javison A. Bedonia MD. Gallego E. Javison M. Chua & ML. Gayomali E. Javison & L. Jalbuna E. Javison & L. Jalbuna M. Chua A. Bedonia Destination Manila Manila Cebu Cebu Manila Manila Manila Manila Manila Manila & Palawan Manila Manila Manila Manila Manila Manila Manila Manila Cagayan de Oro City Manila Manila Manila Manila Manila Manila

The air fares should form part of the CA of the concerned personnel and should be his personal accountability.

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We found out that several payments for either CAs for travel expenses or reimbursement of the same outside Region VI specifically for travels to CO and to other places within the country were not supported with office order and/or corresponding travel authority from CO. The office order and/or travel authority from CO should form part of the supporting documents. The details of transactions without supporting office order and/or travel authority are shown below:
Date 4-05-11 4-05-11 4-11-11 4-11-11 4-15-11 5-02-11 5-05-11 5-17-11 6-16-11 6-16-11 8-09-11 9-01-11 11-10-11 11-10-11 11-14-11 Check No. 360930 360932 360942 360933 360953 360986 360988 361002 361046 361045 379340 379390 379489 379490 379501 Total Amount 5,336.00 3,560.00 3,560.00 5,907.00 3,840.00 9,985.00 3,340.00 4,060.00 4,380.00 4,263.00 4,800.00 7,930.00 2,720.00 5,136.00 9,282.00 78,099.0 0 Employee For A. Bedonia M. Chua A. Bedonia For M. Chua A. Bedonia For E. Javison E. Javison E. Javison E. Javison For E. Javison L. Jalbuna E. Javison A. Bedonia For A. Bedonia L. Baban Particulars Payee: Island Adventure T&T re: plane fares Cash advance (CA) re: Business Plan Cascading Workshop 4/7-9/11 Reimbursement, re: Business Plan Cascading Workshop 4/7-8/11 Payee: Island Adventure T&T re: plane fares Reimbursement, re: 15th PHILBO National Convention Payee: Island Adventure T&T re: plane fares Reimbursement, re: Special Board Meeting of SME-DBM, Inc. Cash advance (CA) re: Plenary session on ERB and Budget Review CA re: Final ERB Meeting FY 2012 National Budget Payee: Island Adventure T&T re: plane fares CA re: Seminar/W-shop on Public Service Ethics & Accountability CA re: LGU PFM & Regional Coordination Meeting Reimbursement, re: Forum on the Implementation of NBM No. 109 Payee: Island Adventure T&T re: plane fares Reimbursement, re: Seminar/W-shop on GMIS Web-based Application

The above-mentioned disbursements were supported with local office order signed by the Regional Director, among other documentary evidence. We recommended that Management in Region VI stop the practice of paying air fares directly to Island Adventure Travel & Tours and refrain from processing plane fares in behalf of the personnel. Likewise, all disbursements made in advance for official travel should be recorded as CAs of the concerned personnel and should be taken up under account Advances to Officers and Employees, pursuant to COA Circular No. 2003-001 dated June 17, 2003 and

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Section 2.1 of COA Circular No. 96-004 dated April 19, 1996 and refrain from processing travel claims without the necessary office order and/or travel authority from CO for travels outside the region and to other places within the country in conformity with Section 28 of the MNGAS, Volume I. Management commented that they will discontinue the practice of paying airfares directly to Island Adventure Travel & Tours. They also asked for consideration for the payment of airfares of selective DBM Directors to be paid directly to the said agent after the completion of the travel so as not to bother the concerned Regional Director in paying his plane fares. An Office Order was issued to serve as guide in the granting of travelling expenses to all personnel. Understatement of Current Years Depreciation/Accumulated Depreciation 12. In Region II, the Depreciation Expenses on PPE during the year were understated by P209,727.46 due to the failure in providing the required and correct depreciation on some depreciable properties. This resulted to the understatement of the accumulated depreciation of said properties as of December 31, 2011 and the overstatement of the net income for the year then ended. Under COA Circular No. 2003-007 dated December 11, 2003, it was provided, among others, that depreciation of government PPE shall be computed and allocated over their useful life for fair presentation of the Financial Statements. Sec. 4 of the MNGAS, Volume I, provides that a modified accrual basis of accounting shall be used wherein all expenses shall be recognized when incurred and reported in the Financial Statements in the period to which they relate. We reviewed the depreciation expense of PPE as of December 31, 2011 and we noted that there were understatements in the total amount of P209,727.46, to wit:
Particulars Office Building Other Structures Books P249,284.80 14,480.70 Per Audit P299,141.76 17,376.84 Per Understatement P49,856.96 2,896.14 Reason No Depreciation for February and March 2011 No Depreciation for February and March 2011 No Depreciation for February and March 2011 No depreciation for February and March, 2011, and due to errors in computation

Office Equipment Furniture Fixtures and

314,250.11 42,648.29

364,775.67 48,797.83

50,525.56 6,149.54

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Particulars IT Equipment

Books 285,526.06

Per Audit 356,845.84

Per Understatement 71,319.78

Reason No depreciation for February and March, 2011, and due to errors in computation No Depreciation for February and March 2011 No Depreciation for February and March 2011 No depreciation for February and March, 2011, and due to errors in computation No Depreciation for February and March 2011

Communication Equipment Sports Equipment Motor Vehicles

5,869.60

6,823.08

953.48

1,089.80 135,985.70

1,307.76 163,182.84

217.96 27,197.14

Other PPEs TOTAL

3,054.50 P1,052,189.56

3,665.40 P1,261,917.02

610.90 P209,727.46

The understatement in the depreciation expenses was primarily caused by the failure of Management in providing the required depreciation on all of the above-listed PPE for the months of February to March 2011 and the erroneous computations of depreciation on Furniture and Fixtures, and IT Equipment. These deficiencies resulted not only to the overstatement of the net income for the year ended December 31, 2011 or the Government Equity at year-end, but also to the overstatement in the net book values of these properties due to the understatements of their respective Accumulated Depreciations at year-end. We recommended that Management in Region II require the Accountant to exercise utmost care in the keeping of accounts of the agency to ensure accurate recording in the books of accounts. We also recommended that appropriate adjustments should be effected in the books of accounts to record the understated Accumulated Depreciation for the Office Building, Other Structures, Office Equipment, Furniture and Fixtures, IT Equipment, Communication Equipment, Sports Equipment, Motor Vehicles and Other PPE. During the exit conference, the Accountant acknowledged the existence of the understated depreciation of PPE in CY 2011, and she made a commitment to effect the necessary and appropriate adjustment in CY 2012. Purchase of commonly use supplies not from PS

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13.

In Region IX, the agency did not procure all their common-use supplies and materials amounting to P1,912,359.65 for the period January 1 to December 31, 2011 from the PS contrary to the provisions of R.A. No. 9184 and its Implementing Rules and Regulations (IRR), as well as Administrative Order No. 17 dated July 28, 2011 and DBM Circular Letter No. 2011-6 dated August 25, 2011, directing the use of the PS and the Philippine Government Electronic Procurement System (PhilGEPS) in procurement activities. Sec. 53 of RA 9184 Government Procurement Reform Act, provides for the different modes of procurement classified under Negotiated Procurement; specifically, under (e) thereof which provides the following specific provision: e. Subject to the guidelines specified in the IRR, purchases of Goods from another agency of the government, such as the PS of the DBM, which is tasked with a centralized procurement of commonly use Goods for the government in accordance with Letter of Instruction No. 755 and Executive Order No. 359, series of 1989." Corollary thereto, the IRR of R.A. No. 9184 also states the following provision as among the modes of procurement classified under Negotiated Procurement: 53.5 Agency-to-Agency. Procurement of infrastructure projects, consulting services, and goods from another agency of the Government of the Philippines (GOP), such as the PS-DBM, which is tasked with a centralized procurement of Common-Use Supplies for the GOP in accordance with Letter of Instruction No. 755 and Executive Order No. 359, series of 1989. X x x. The Government Procurement Policy Board (GPPB) shall issue guidelines to implement this provision. Along this line, Administrative Order No. 17 dated July 28, 2011 provides basically the same requirement, as quoted hereunder: Section 1. Reiteration of Policy. X x x In line with this, all agencies shall procure their common-use supplies from the PS and use the PhilGEPS in all their procurement activities, x x x". For this purpose, Sec. 3a thereof defines Common-use supplies as referring to those supplies, materials, and equipment included in the price list of the PS which are necessary in the transaction of the official business of the procuring entity and consumed in its day-to-day operations. In addition, Section 4 thereof provides that: Common-use supplies shall be procured directly from the PS or its depots without need of public bidding as provided in Section 53.5 of the IRRS of R.A. No. 9184.

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To further emphasize the above-listed provisions, Paragraph 1.1 of DBM Circular Letter No. 2011-6 dated August 25, 2011 requires that all procurement of common-use supplies without need for public bidding shall be made from the PS. We gathered that the agency disbursed a total of P1,912,359.65 during the year for the purchase of supplies and materials needed in the day- to- day operation of the agency since January 1 to December 31, 2011. However, of these purchases the amount of P855,683.05 were not bought from the PS contrary the aforementioned regulations. We recommended that Management in Region IX ensure procurement of common use supplies directly from the PS in compliance with R.A. No. 9184, Administrative Order No. 17 and DBM Circular Letter No. 2011-6 dated August 25, 2011. This way, the agency is supportive of the government policy on transparency, competitiveness, streamlined procurement process, system of accountability, and public monitoring. Management commented that they did not procure commonly use supplies from PS because there was no PS Depot in Zamboanga City. They said that it was impractical to buy from PS Manila since it procured in small quantities of commonly used supplies. Also, delay in the delivery of ordered items was experienced on purchases made from the PS. The agency could not afford such delays because it only maintained relatively small amount of inventories in its stockroom. Large purchases on supplies and materials could not be made due to funding constraints. However, it was very fortunate that a PS Depot was opened in Zamboanga City on May 25, 2012. Henceforth, they will procure said items from the PS. Advance payments for services not yet rendered 14. In Region VI, disbursements for three security guards for security services and two general manpower for janitorial services totalling P684,800.49 for the period from January to November 2011 were paid in advance contrary to Section 88 (1) of P.D. No. 1445. Section 88 (1) of P.D. No.1445 provides that except with the prior approval of the President (Prime Minister) the government shall not be obliged to make an advance payment for services not yet rendered or for supplies and materials not yet delivered under any contract therefor. No payment, partial or final, shall be made on any such contract except upon certification by the head of the agency concerned to the effect that the services or supplies and materials have been rendered or delivered in accordance with the terms of the contract and have been duly inspected and accepted.

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We analyzed the agencys transactions and we noted that for the current year advance payments for the period January to November 2011 totalling P684,800.49 for security services for three personnel and janitorial services for two general manpower were made to Globe General Services and Security Corporation, as follows:
Date of Bill/ Statement of Account 1-11-11 1-21-11 3-21-11 4-25-11 5-25-11 6-24-11 7-20-11 8-25-11 9-16-11 10-25-11 11-10-11 Total SECURITY Payment Made Date Jan 21 Feb 23 Mar 8 Apr 15 May 20 June 22 July 18 Aug 15 Sept 20 Oct 26 Nov 18 Check No. 092991 360833 360873 360946 361005 361061 379309 379349 379414 379477 379504 Amount 40,461.49 40,461.49 40,461.49 40,461.49 40,461.49 40,461.49 40,461.49 40,461.49 40,461.49 40,461.49 40,461.49 445,076.39 Date Jan 21 Feb 23 Mar 8 Apr 15 May 20 June 22 July 18 Aug 15 Sept 20 Oct 26 Nov 18 JANITORIAL Payment Made Check No. 092992 360834 360872 360944 361004 361062 379310 379348 379413 379476 379503 Amount 21,793.10 21,793.10 21,793.10 21,793.10 21,793.10 21,793.10 21,793.10 21,793.10 21,793.10 21,793.10 21,793.10 239,724.10

Date Applicable Received Period of by DBM Payment 01-12-11 02-21-11 03-08-11 04-13-11 05-19-11 06-21-11 07-14-11 08-11-11 09-13-11 11-14-11 Jan 11 Feb 11 Mar 11 Apr 11 May 11 June 11 July 11 Aug 11 Sept 11 Oct 11 Nov 11

Receipt of billing from supplier did not necessarily mean that the agency had to readily pay the bill without scrutiny of the claims. If the services sought to be paid were fully rendered, the same could be paid on the first day following the end of the month. Audit Observation Memorandum (AOM) No. 2012-005 dated February 3, 2012 was issued to Management regarding this deficiency. Management commented the following: Based on the NCA received from the DBM Bureau-C we had programmed that payment of security and janitorial services for the current month will be charged against the NCA for the said month. In view thereof, may we request consideration that payments for the security and janitorial services will be made on the last working day of the month to avoid lapsing of the previously programmed NCAs and subsequently affect out absorptive capacity as an agency which will be reflected in our quarterly performance reports submitted to the Office of the President. We recommended that Management in Region VI refrain from making advance payments to Globe General Services and Security Corporation for security and janitorial services not yet fully rendered pursuant to Section 88 (1) of P.D. No. 1445. Non-submission of copies of government contracts, purchase orders (POs) and Job Orders (JOs) 53

15.

In CO, CAR and Regions VI and XII, copies of government contracts, POs and JOs together with the supporting documents, entered into by the agency were not furnished the Auditor within the reglementary period of five days which was not in accordance with Section 3.1.1 of COA Circular No. 2009-001 dated February 12, 2009, thus, hampering the timely auditorial and legal review thereof, with the end-in-view of determining compliance of the contract with applicable laws, rules and regulations, so that deficiencies or defects noted, if any, could be communicated to management for adoption of corrective measures. Section 3.1.1 of COA Circular No. 2009-001 dated February 12, 2009 which states that within five (5) working days from the execution of the contract by the government or any of its subdivisions, agencies or instrumentalities, including government-owned and controlled corporations, and their subsidiaries, a copy of said contract and each of all the documents forming part thereof by reference or incorporation shall be furnished to the Auditor of the agency concerned. Section 3.1.2 of the same Circular specifically provides the copies of the documents required to be submitted as attachments of a perfected contract. In CO, we noted in the course of audit that copies of government contracts, POs and JOs were not submitted to the Auditor in the manner prescribed by the above-cited regulation, thus, its timely review and evaluation as well as inspection of reported accomplishments and deliveries could not be effected. There were instances that purchases of goods and services will only come to our attention upon receipt of requests for inspection of corresponding deliveries by the agency. While in Region VI, out of the 35 POs submitted, 26 or 74.29 percent were submitted beyond the reglementary period, such delay ranges from 3 to 82 days. Further we verified that 13 POs did not bear the date of acceptance by the suppliers. We also noted that four POs were not submitted and that the numbering of all the POs was not in accordance with the procedure presented in Appendix 52 of the MNGAS, Volume II. In Region XII, we noted that the POs for the period January 1, 2011 to November 30, 2011 were not submitted to the audit team as of December 22, 2011 despite verbal instructions, reminding management that POs should be submitted to the Audit Team within five working days form perfection thereof. In CAR, we reviewed the payments for the completed projects and we noted that various documents were not attached and submitted to the audit team. Said documents were vital in the determination of the reasonableness of the project costs and compliance with the specifications of the contracts. Such documents include the following:

54

Copy of the Approved Contract Copy of Approved Change Order and/or Extra Work Order, if any Copy of the complete set of Approved Plans/Drawings for the original contract and the Approved Revised Plans/Drawings for the variation order(s) Technical specifications for the original contract and for all variation orders, if any Copy of the approved detailed breakdown of the original contract amount and for all the variation orders, if any Copy of the approved Statement of Work Accomplished/Progress Report or Accomplishment Report Copy of Certificate of Completion and Certificate of Acceptance, if any, for 100% Accomplishment As build-plans (for completed projects only)

We recommended that Management in CO, CAR, Regions VI and XII submit copies of perfected government contracts, POs and JOs to the audit team within the prescribed period together with the supporting documents stated in Section 3.1.2 of COA Circular No. 2009-001 dated February 12, 2009 and number the POs in accordance with Appendix 52 of the MNGAS, Volume II. Management commented that copies of Contracts and POs entered into by agency together with pertinent procurement documents were recently submitted. While Region XII, Management explained that the POs were attached to the DVs as supporting document and that the Acting Supply Officer maintained a separate file of POs intended for the audit team but was not able to submit the said documents within the required period. Henceforth, respective Managements committed that the afore-cited documents will be forwarded to the audit team within five working days from the date of execution of the contract. CAR Management commented that it exerted its best efforts to complete all the documents before submission, however, the preparation/completion of some documents, such as the built-in plans and the technical drawings required was beyond their control despite frequent coordination with the contractor and Department of Public Works and Highways (DPWH), considering that their technical services/advice were being sought on these projects, and that the Accounting Section shall ensure compliance of the noted documentary requirements pertaining to transactions/projects of similar nature in the future. Delayed submission of financial reports

55

16.

In Region XII, timely verification of the accounts could have been done had the agency prepared and submitted the reports in accordance with Section 7.2.1 (a) of COA Circular No. 2009-006 dated September 15, 2009. Section 7.2.1 (a) of COA Circular No. 2009-006 dated September 15, 2009, RSSA, provides that: The Chief Accountant, Bookkeeper or other authorized official performing accounting and/or bookkeeping functions of the agency shall ensure that: (a) the reports and supporting documents submitted by the AOs are immediately recorded in the books of accounts and submitted to the Auditor within the first ten (10) days of the ensuing month. Reports are one of the means on how the agency could convey to the Commission, the manner it manages its financial affairs. The absence and/or nonsubmission of these reports would show the auditees non-compliance with existing laws, rules and regulations. We noted that financial reports were not submitted to the Office of the Auditor within the reglementary period. The time lag in submitting the DVs and Report of Checks Issued (RCI) ranges from 20 to 112 days while the trial balances and financial statements ranges from 21 to 143 days. Further, DVs, RCI, trial balances and financial reports for the period September to November 2011 were not submitted as of December 31, 2011. We verbally reminded the designated Acting Accountant on the submission of accounts and financial reports, however, the personnel concerned requested for extension of time within which to submit the required reports. We recommended that Management in Region XII comply strictly with the timely submission of reports in accordance with the provision of the aforementioned regulation. In a written response, Management justified that as regard the financial reports for the period January to April 2011, the Accountant regularly prepared four copies at the end of each operating month. Three copies were submitted to the CO before the tenth day of the following month. The fourth originally signed copy which is the COA file was retained for awhile to have it copied for DBM file. A soft copy of said reports was also e-mailed to the Auditor, but due to oversight the Accountant failed to forward the signed hard copies on time. Further, for the period May to November 2011 , while the Accountant was on study leave, the person acting in her place made sure that financial statements were regularly and timely submitted, except for the trial balance which the Acting Accountant had difficulty generating since she was not well-versed with the Electronic New Government Accounting System (e-NGAS). 56

Moreover, with respect to the DVs, the Cashier after processing the daily transaction with the bank kept the same with all the supporting documents in her files. But as a matter of practice, the Cashier and the Accountant had been lenient in forwarding the said vouchers to the Auditor.

Non-submission of Monthly Report of Fuel Consumption / Monthly Report of Official Travel 17. In Region XII, reasonableness on fuel consumption for CY 2011 could not be evaluated due to the failure of the Official Driver/Management to submit the Monthly Report of Fuel Consumption and Monthly Report of Official Travels to the audit team as required under Section 361 (g) of Government Accounting and Auditing Manual (GAAM), Volume I and COA Circular No. 77-61. To conserve energy and ensure the maximum utilization and operation of government vehicles, regulations and guidelines were developed to effectively control expenditures for fuel products and the use of government vehicles. Section 361, paragraph (g) of GAAM Volume I, provides that: Monthly Report of Fuel Consumption of government motor transportation shall be submitted to the Auditor within the first ten (10) days of the succeeding month by the Chief, General Services Division or equivalent. In the determination of the quantity of the gasoline required for each motor vehicle for each trip, all personnel concerned shall be guided by the average minimum and maximum gasoline and oil consumption of the different types of motor vehicles. An allowance of 10 percent may be tolerated (COA Cir. 77-61, supra). Further, COA Circular No. 77-61 prescribes the use of the Manual on Audit for Fuel Consumption of Government Motor Vehicles to minimize wasteful, excessive and unnecessary expenditures on fuel consumption and ensure the effective conservation of energy and proper utilization of government motor transportation. We verified the DVs submitted for CY 2011 and we noted that only the Drivers Trip Tickets were attached to the vouchers. The Monthly Report of Fuel Consumption for each motor vehicle was not attached nor submitted to the audit team which would help us to review and verify whether fuel consumption is reasonable and used economically. We also verified that the Monthly Report of Official Travels, which should be accomplished in triplicate, the original thereof supported by duly approved Drivers Trip Tickets and which should be submitted in a separate folder per vehicle

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within the first ten (10) days of the succeeding month to the audit team for proper review, verification and evaluation, was not complied with by Management. The non-submission of the Monthly Report of Fuel Consumption and Monthly Report of Official Travels together with the attachments within the prescribed period not only violates rules and regulations but deprived the audit team to review and evaluate the reasonableness of fuel consumption and determine whether resources have been utilized economically. We recommended that Management in Region XII, particularly authorized drivers of government vehicles, submit regularly to the audit team within the first ten days of the following month the Monthly Report of Fuel Consumption and Monthly Report of Official Travels in accordance with existing rules and regulations. Management justified that the fuel consumption of the RO XII in CY 2011 and even in the previous years were within the approved budget of the Office and had not exceeded the allocation for gasoline. However, Management gave assurance that the above-mentioned reports will be submitted as required. Failure to sign the certification portion of the payroll 18. In CO, paid payrolls of JO employees for CY 2011 totaling P177,565.06 and funded from foreign grants were not properly signed by the Officer-in-Charge (OIC) of the Cash Division, contrary to the provisions of Section 28 of the MNGAS, Volume I. Thus, the validity/propriety of the transactions involved remained doubtful. Section 28, Chapter 3 of the MNGAS, Volume I, provides, among others, that documents required to support a liquidation or disbursement must be duly signed by authorized agency officials. We audited the foreign grants (Fund 171) for CY 2011 and we noted that payrolls covering the payment of salaries and wages for the JO employees totaling P177,565.06 for the period October 1 to December 31, 2011 were not properly signed by the OIC of the Cash Division, contrary to the provisions of the abovecited regulations. We brought this observation to the attention of Management in our AOM No. 2011-03 dated March 7, 2011, however, in the post-audit of subsequent disbursements we noted that the said deficiency had remained uncorrected/unacted upon by concerned Management official. We recommended that Management in CO require the OIC of the Cash Division, to sign the certification at the lower portion of the payroll to ensure the correctness of the amount paid to each of the names appearing in the

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approved payroll. The Chief Accountant is also enjoined to see to it that all documents attached to the claims were properly signed by concerned agency officials before recording in the books of accounts, to ensure the propriety, validity and legality of the transactions involved. Management commented that the payrolls subjected to post-audit were already signed by the Chief Administrative Officer V, Cash Division. Henceforth, they shall see to it that all documents attached to the claims were properly signed by all officials/employees concerned. Non-compliance with DBM Circular Letter No. 2006 19. In Region III, personnel used the Agency Procurement Request (APR) in the purchase of common-use items from the PS Depot 3 instead of the Employees Procurement Request (EPR), contrary to DBM Circular Letter No. 2006-6 dated April 25, 2006. DBM Circular Letter No. 2006-6 dated April 25, 2006, subject of which is Commissary Assistance to be extended by the PS provides, the following pertinent guidelines, to wit: xxx 3.3 Certificate of Endorsement (COE) refers to a document issued by the Agency Head or his authorized representative authorizing their employees cooperatives/associations to purchase low-priced common use items from PS for subsequent distribution/sale to government employees. xxxx 4.10 PS shall sell items to government cooperatives/employees Associations on a strictly cash basis only. When ordering from PS, they are required to accomplish the EPR, in three copies. We audited the Office Supplies Inventory account for the period January 1, 2011 to September 30, 2011 and we found out that total purchases amounted to P299,341.70, of which P249,151.70 of common use items was procured from the PS Depot 3. Likewise, we reviewed the Subsidiary Ledger(SL) record which showed that P566,677.31 sale of common use items for the period January 1, 2011 to September 30, 2011.

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We compared the two figures (Per DBM record) P249,151.70 and (Per PS SL) P566,677.31 and we noted a difference of P317,525.61 as unrecorded transactions in the books of account. The recorded purchases from PS Depot 3 were supported by APR so that the processing and recording of the sale by PS to Region 3 was made in the name of DBM Regional Office No. III. Region IIIs practice of supporting all its purchases from PS Depot 3 (for official and for its employees personal use) with an APR was not in conformity with the guidelines under DBM Circular Letter No. 2006-6 dated April 25, 2006. Management were required to use the EPR supported with the COE for the purchase of common use items for the personal use of its personnel as required under DBM Circular Letter No. 2006-6 dated April 25, 2006 to distinguish official use from personal use of personnel. Thus, Region III, failed to implement the prescribed guidelines issued by the DBM itself. We recommended and Management in Region III agreed to observe the guidelines it issued for the procurement of common-use items by employees from the PS Depot as required. Erroneous accounting entry 20. In Region V, Payables as of December 31, 2011, included obligations for the repair/rehabilitation of its office building and equipment still in progress amounting to P865,300.00 contrary to DBM Circular Letters 2004-2 and 20052 dated January 26, 2004 and January 28, 2005, respectively, hence, unnecessarily overstating the pertinent Property, Plant and Equipment accounts by the same amount and the corresponding Prepayment Advances to Contractors and Repair and Maintenance Office Building) accounts debited for the purpose. Section 1.2 of DBM Circular Letter 2004-2 dated January 26, 2004 states that commitments/obligations shall be recognized as Accounts Payable (A/Ps) only upon receipt by the agency of the suppliers/creditors bills, for goods/services delivered/rendered and projects accepted. Moreover, Section 2.1.1 of DBM Circular Letter No. 2005-2 dated January 28, 2005, states that: Accounts Payable refers to valid and legal obligations/ commitments of national government agencies, for which,

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goods/services/projects have been delivered/rendered/completed and accepted. Section 3.2.3 of the same Circular Letter also provides that commitments/obligations, for which no goods/services/projects have been delivered/rendered/completed and accepted, shall not be treated as A/Ps at the end of the year. However, these commitments or obligations shall remain valid and binding up to the time the goods/services/projects shall have been delivered/rendered/completed and accepted by the concerned agency. This is a reiteration of Section 1.3 of DBM Circular Letter No. 2004-2 dated January 26, 2004. We reviewed the List of Accounts Payable submitted for Fund 101 to support the Financial Statements, as of December 31, 2011 and we noted the following:
Name of Creditor FJM Const. Supply & Gen. Mdse. a) 202 b) 211 c) 811 TOTAL Amount Remarks

402,050.00 75%cost for rehabilitation of perimeter fence 378,250.00 75% cost of renovation of CR (ground floor) 85,000.00 85% cost of renovation of CR (back portion) 865,300.00

The foregoing table did not include the Agencys Due and Demandable Accounts Payables. We analyzed the nature of the foregoing payables and we noted that the Projects listed in letters a and b were only 25 percent complete and letter c, 15 percent were still on going. Thus, the amount of P865,300.00 could not be taken-up as Accounts Payable as at year-end. It was clearly stated in the Circular Letter that projects which had not been completed and accepted shall not be treated as Accounts Payable. We also noted that the account used in setting up the Payable amounting to P780,300.00 was Advances to Contractors, thus, giving the impression that the agency already paid in advance the contractor with said amount. This resulted in the overstatement of the account by the same amount. On the other hand, the amount of P85,000.00 for repair of CR (back portion) was debited to Repairs & Maintenance Office Building. We recommended that Management in Region V strictly adhere to the provisions of DBM Circular Letters 2004-2 and 2005-2 dated January 26, 2004 and January 28, 2005, respectively, regarding the treatment of certain transactions as Accounts Payable. Only Accounts Payable with valid and legal obligations/commitments for which goods/services/projects have been delivered/rendered/completed and accepted shall be booked-up. 61

We were assured by Management that the necessary adjusting and correcting entries will be effected immediately. No fire insurance coverage for the DBM office building 21. In Region XIII, Management failed to secure a fire insurance coverage for their office building and other structures against fire contrary to Section 489 of GAAM Volume I, thus resulting to lack of protection for government properties against risk of loss, damage or liability arising from fire. Section 489 of the GAAM, Volume I, states that all heads of departments, commissions, boards, bureaus, offices of the national and local governments concerned except municipal governments below first class, government-owned and/or controlled corporations, subsidiaries and acquired asset corporations shall secure from the General Insurance Fund directly all insurances or bonds covering properties, contracts, rights of action and other insurable risks of their respective offices, including all those in which they have an insurable risk and all those in which they have an insurable interest only. For this purpose, no insurance agent or general agent shall hereafter be appointed or maintained to represent the General Insurance Fund (GIF) and/or the Government Service Insurance System (GSIS). As used in this Section, insurable interest means every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. The office building was initially constructed in 2008 and completed in 2009 in the total amount of P34,296,101.36. The cost of the building was high which needed insurance for protection against loss in the event that the structure is damaged or destroyed by fire. Fire insurance is important because a disaster can occur at any time. There could be many factors behind a fire, for example arson, natural elements or faulty wiring. Fire insurance provides protection for the estimated value of the physical building. The Accountant, informed us that the office building and dormitory were not covered by a fire insurance with the GSIS as required under Sec. 489 of GAAM since the construction was completed in CY 2009 up to the present. Failure to insure the office building and other structures resulted to lack of protection for government properties against loss, damage or liability arising from fire. We recommended that Management in Region XIII immediately secure fire insurance coverage from the GIF of the GSIS to protect government properties against risk of loss and damage to property in the event of fire.

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In reply to our audit observation, Management commented and we quoted: From the time the DBM RO XIII office building completed its construction in CY 2009, no insurance coverage was secured from the GSIS General Insurance Fund for its protection against fire and other natural disaster. While it is true that the lack of appropriate insurance would deprive Management with an adequate and reliable protection against any damage to or loss of the office building in the event of any peril to the said property, however, the Management was not able to secure such insurance due to budgetary constraints. Per inquiry with the GSIS, the estimated insurance premium for our office building valued at P34,296,101.36 for Fire and Lightning is about P84,286.09 (0.24576 percent) and for the Allied Perils is around P51,444.15 for a total cost of P135,730.24. No provision for the fire insurance of office building was allocated by the CO under the FY 2009 to FY 2011 budget of RO XIII. Insurance coverage under our budget then was only good for the motor vehicles. It was only this year, CY 2012, after prior consultation with the CO that allotment for such insurance coverage was included in our budget due to its necessity. It was apparent that insurance coverage for government properties was of great importance to protect it from risks, future loss or damage and other liabilities, therefore as recommended by the COA Resident Auditor, the Management of RO XIII is currently in the process of insuring its assets and properties with the GSIS in conformity with Section 489 of the GAAM, Volume 1. Loss of Documents 22. In Region VII, the former designated cashier could no longer locate the 38 DVs for July, 2011 under Fund 101 in the total amount of P1,573,662.51 after the documents were photocopied for office file. Section 100 of P.D. No. 1445 states that disbursing officers in any government agency shall render monthly reports on their transactions pursuant to regulations of the Commission to be submitted not later than the fifth day of the ensuing month to the auditor concerned who shall conduct the necessary examination and audit within thirty days from receipt thereof. We requested Management to submit the July, 2011 paid DVs, however, said DVs remained unsubmitted to date. Later, we requested it in writing. Policies on claims against government funds required complete supporting documentation and compliance with laws and regulations applicable to financial transactions. COA Circular No. 93-404 dated October 18, 1993 provides for the reporting requirement in case of losses of documents evidencing financial transactions and/or records of accountabilities disclosed among others that the records show an

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increasing number of requests for the write-off of accountabilities on the alleged ground of loss of documents evidencing financial transactions and/or records of accountabilities. In most cases, the Heads of the Agencies concerned could not show proof that the losses were reported to the COA Resident Auditor, or that an investigation had been undertaken to determine the circumstances surrounding the losses and to pinpoint the officials responsible therefor. Unless proper safeguards were adopted to protect public interest, the government will continue to suffer similar losses on the same ground of loss of documents or records. Management commented that efforts were made to locate the said missing DVs, however, unfortunately the documents could not be found despite repeated searches. Management further commented that verification was done again together with a COA representative and the AO mentioned that delivery was already made to the Auditors Office but when we verified entries in the logbook, we noted that there were no July, 2011 paid DVs received. We recommended that Management in Region VII submit to the Audit Team within thirty) days from the discovery of the unlocated/missing DVs a report briefly narrating the circumstances thereof. The report should include a detailed inventory of the lost documents or records. We also recommended that Management conduct an investigation to pinpoint the official/s and employee/s liable for the loss, and to institute appropriate action on the basis thereof. Storage Area and/or Bodega not properly kept/maintained 23. In Region VII, the storage area and/or bodega containing documents, records and files classified as non-current including deposited old DVs were not properly kept and maintained. Files in commercial boxes were just placed on the floor unarranged and/or not grouped in accordance with the DBMs records management program, thus exposing the documents to damage and/or destruction due to termites. The rules and regulations governing the management of public records and archives administration were issued under the provision of R.A. 9470 otherwise known as the National Archives of the Philippines (NAP) Act of 2007 and its IRR to effect better coordination in the management of government records and public archives. The storage of public records was among the mandates of the NAP which required the provision of an intermediate repository in which non-current records of

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various government offices are stored until they can be destroyed or transferred to the NAP. All government agencies are also required to establish and maintain an active continuing program directed to the application of efficient and economical record management methods relating to the creation, utilization, maintenance, retention, preservation and disposal of public records. The State shall give utmost priority for the safeguard, protection and preservation of its public documents and records, not only as fundamental instruments for efficient and effective governance but also as essential tools for the preservation of the countrys history and cultural memory. Management informed the audit team that plan was already made for the maintenance of the storage area/bodega including the purchase of corrugated boxes for the keeping of documents. However, the plan did not materialize because there were no bidders for the framework of the wooden or metal bars and suppliers are not registered with the PhilGEPS. The Agency Records Management Manual was already prepared and sent to CO for review together with its suggestions and comments. The agencys plan in the disposal of old records was being deferred because NAP required the segregation and listing of the old files and documents. A canvass from three (3) suppliers to supply racking system for the proper storage of documents, records and files classified as non-current will be made after a failed bidding. On corrugated boxes, the supplier had already submitted the PhilGEPS certificate, however, it still lacked the required tax clearance. On the disposal of old records, personnel were advised to label properly the contents of each box and segregate those records which are for disposal and beyond the life per Records Disposition Schedule. We gathered from CO Records Division that the Records Disposition Schedule is still with the NAP for approval. Once approved, the same will be disseminated and implemented. We recommended that Management in Region VII ensure that the Agency Records Management Manual will be immediately in place, and keep and maintain a storage area or bodega for the documents, records and files. General Provisions GAA for CY 2011not followed

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24.

In Region VIII, some employees had monthly net take home pay of less than P3,000.00, in violation of Section 43 of the General Provisions of General Appropriations Act (GAA) of 2011. Section 43 of the General Provisions of R.A. No. 10147, CY 2011 GAA provides that deduction from salaries, emoluments or other benefits accruing to any government employee chargeable against the appropriations for Personal Services may be allowed for the payment of individual employees contributions or obligations due the following: a) The BIR, GSIS, Home Development Mutual Fund (HDMF) and Philippine Health Insurance Commission (PhilHEALTH); b) Mutual benefits associations, thrift banks and non-stock savings and loan associations duly operating under existing laws which are managed by and/or for the benefit of government employees; c) Associations/cooperatives/provident funds organized and managed by government employees for their benefit and welfare; d) Duly licensed insurance companies accredited by national government agencies; and e) Organizations or companies such as banks, non-bank financial institutions, financing companies and other similar entries that have authority to engage in lending and mutual benefits or mutual aid system as stated in their respective constitutions and by-laws approved by government regulating bodies such as Securities and Exchange Commission (SEC), Insurance Commission (IC), Bangko Sentral ng Pilipinas (BSP) and Cooperative Development Authority (CDA). Provided, that such deductions shall not reduce the employees monthly net take home pay to an amount lower than Three Thousand Pesos (P3,000.00), after all authorized deductions; provided, further, that in the event total authorized deductions shall reduce net take home to less than Three Thousand Pesos (P3,000.00), authorized deductions under item (a) shall enjoy first preference, those under item (b) shall enjoy second preference, and so forth. We audited the payrolls and we noted that there were personnel who received monthly net take home pay of less than P3,000.00. Aside from the regular deductions which comprised of the BIR, GSIS, HDMF and PhilHEALTH, deductions were also made for contributions/loan repayments to their cooperative, loan amortizations to LBP, Development Bank of the Philippines (DBP) and Quedancor. It was clearly stated in the General Provisions that in the event total authorized deductions shall reduce net take home pay to less than Three Thousand Pesos, authorized deductions under item (a) shall enjoy first preference, item (b) as second preference, and so forth.

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We recommended that Management in Region VIII strictly ensure that the net take home pay of all employees is in accordance with the General Provisions in the GAA, which is now P5,000.00 per month for CY 2012 under R.A. No. 10147. Gender and Development (GAD) 25. In Region III, Management allotted P146,000.00 for GAD activities and out of this amount, P96,310.00 was utilized for medical check-up/flu vaccination of employees and for physical fitness exercises of staff as contained in its Work Program. However, it failed to implement its other program for establishment of fitness center because it was disapproved by the CO. Management explained that the amount of P146,000.00 was not equivalent to the 5 percent of the CY 2011 budget amounting to P15.6 millions, 5 percent of which should be at least P781,800.00.

Compliance with tax laws and regulations 26. In CO, withholding taxes and premium contributions of agency personnel in the total amount of P223,450.97 were not remitted to the GSIS, BIR, Pag-IBIG and PhilHEALTH as of December 31, 2011 contrary to existing laws, rules and regulations, thus resulting to possible incurrence of additional cost in the form of penalties and charges, not to mention delay in the receipt of/and enjoyment of employees benefits. Section 6(b) of GSIS Act of 1997 ( RA 8291) states that each employer shall remit directly to the GSIS the employer and employee contributions within the first ten (10) days of the calendar month following the month to which the contribution applies. Section I of Revenue Regulation No. 3-2002 dated March 22, 2002, provides that taxes withheld at source from individual or corporate payee shall be remitted to the Commissioner of Internal Revenue within twenty (20) days following the close of the taxable quarter. Section 20(b) of the IRR of R.A. No. 7875, otherwise known as the National Health Insurance Act prescribes that the monthly contribution of the employed members shall be remitted by the employer on or before the tenth (10 th) calendar day of the month following the applicable month for which the payment is due and applicable. Also under RA 7742, known as the Pag-IBIG Fund, the schedule of remittances for company-members is therein provided. We analyzed the submitted Financial Statements for RA Books as of

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December 31, 2011 and we noted that the following were not remitted by the agency as required by existing laws, rules and regulations, to wit: Due to GSIS Due to BIR P 29,632.00 178,240.72

Due to Pag-IBIG Due to PhilHEALTH Total

8,665.75 6,912.50 P223,450.97

The continued non-remittance of these withheld taxes and premium contributions will result to imposition of additional interest charges and penalties on the part of the defaulting agency. Moreover, the member-employees will be denied enjoyment of their claims for whatever benefits due them. We recommended that Management in CO direct the Chief Accountant to expedite the remittance of all withheld taxes and premium contributions due the GSIS, BIR, Pag-IBIG and PhilHEALTH to avoid incurrence of additional interest charges and penalties that may be imposed by the recipient-agencies for late remittances. The prompt remittance of these trust liabilities will ensure timely receipt of/or enjoyment of member-employees of benefits due them. Management commented that of the total amount of taxes withheld which remained unremitted to BIR in the books of accounts as of December 31, 2011, P153,4653.70 pertains to withholding taxes deducted from the payment of consultancy and catering services charged against the World Bank (WB) IDF Grant for Policy-Based Budgeting in a Medium-Term Framework No. TF092308. The taxes withheld were remitted to the BIR on October 11, 2011, through the Direct Payment facility of the WB chargeable against the IDF Grant No. TF092308 due to the depletion of the Grant Designated Account (DA) being maintained at the LBP with the full recovery by the WB of all funds from the DA since it closed on July 9, 2011. In accordance with DBM, COA and DOF Joint Circular No. 2-97 dated March 21, 1997, the amount remitted to BIR through the Direct Payment facility of the WB was requested by the agency from DBM for the issuance of NCAA on November 3, 2011, to serve as basis in recording the remittance made. However, the NCAA was received only in February 2012, thus, the recording of remittance was made only upon receipt of said document. The remaining unremitted taxes withheld were remitted to BIR in January 2012. On the other hand, considering that the GSIS, Pag-IBIG and PhilHealth require the submission of soft copy of remittances, we had requested the Incuventure Partners Corporation (IPC), service provider for the administration of

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database for the Index of Payment Computerized System (IPCS) of the Accounting Division to provide the updated database to include the 2011 unremitted deductions in the January 2012 remittance. However, the updating was not completed in time for the deadline of payment of the January 2012 remittance, hence, these were remitted in February 2012. The agency committed to always remit all taxes withheld, premium contributions and loan amortizations to BIR, GSIS, Pag-IBIG and PhilHealth within the reglementary period. Fund 103 No policy guidelines on fund transfers 27. In Region V, lack of policy guidelines on the delineation of responsibility/ accountability in the implementation, utilization and monitoring of the PDAF, Agencia Espanola de Cooperacion Internacional Para el Desarollo (AECID) and Calamity Funds transferred by the Agency to various LGUs during the year in the total amount of P204,548,773.00 casted doubt on the propriety, validity and completeness of the LGU-beneficiaries implementation of the programmed projects and the accounting/reporting of the utilization of the subject funds. COA Circular No. 94-013 dated December 13, 1994 states, among others, that fund transfers should be properly taken up in the books of both agencies, used only for the purpose intended and utilization thereof properly accounted and reported. It further requires that the IA shall return to the source agency, any unused balance upon completion of the project. Also, Section 6.0 of National Budget Circular No. 529 dated February 21, 2011, re: Guidelines for the Release of Funds Chargeable Against the PDAF for FY 2011 provides that the IAs shall be accountable for the implementation of the programs/projects, subject to existing budgeting, accounting and auditing rules and regulations. We audited the Agencys release of funds for the PDAF, AECID and Calamity Funds. We noted that the programs and projects under the PDAF covered scholarship programs, medical assistance to indigent patients, livelihood support programs, purchase of IT equipment, rural electrification, water supply and financial assistance to LGUs for their priority programs and projects. It also included infrastructure projects like roads and bridges, flood control, school buildings, hospitals, health facilities, public markets, multi-purpose buildings and pavements.

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The AECID, on the other hand, is a Capacity Development Program funded by the Spanish government through the Spanish Agency for International Cooperation covering LGUs of Regions V and XIII. In Region V, on the basis of the Department of Health (DOH) reviewed Detailed Architectural and Engineering Design (DAED) of the civil works packages of provinces and the BTR Certification for the European Commission (EC) Health Sector Reform Agenda Grant, fixed tranches of AECID grant were released to fund procurement of civil works and implementation of Province-Wide Investment Plan for Health (PIPH) under FOURmula ONE for Health. We reviewed the pertinent reports and we that a total of P204,548,773.00 was transferred to various LGUs in the region from January to December 2011 to fund the programs and projects indicated in the pertinent SAROs, broken down as follows: Particulars PDAF Calamity Fund Total AECID Total Fund Transfers Amount P 119,380,000.00 31,500,000.00 P 150,880,000.00 53,668,773.00 P 204,548,773.00

Fund 103

Fund 171

The transfers were treated as outright expenses and recorded in the books as Subsidy to LGUs. According to Management, a Report of Utilization is being required for Calamity Funds transferred before the balance or succeeding funds could be released. Also, as a member of the Regional Project Monitoring Team of the Regional Development Council under Regional Project Evaluation System, the DBM had monitored a number of projects in CY 2011. However, there were no specific guidelines on the monitoring of its utilization. Under the present set-up, the LGU-beneficiaries responsibility and accountability in ensuring that the funds received were duly taken-up in the books, that these were properly utilized and accounted for, and that implementation of the project was within the approved program of the granting agency and/or fund, as required under COA Circular No. 94-013 dated December 13, 1994, was not clearly defined. Also, the absence of the required reports from the LGU-beneficiaries on the utilization of the funds received made it hard for the Agency to adequately monitor if funds were appropriately and fully utilized or whether there were unused balances which should be returned.

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Management should discuss with its higher officials the issues on the proper monitoring of the utilization of the funds transferred to LGUs and the reports to be prepared/submitted. There should be clear-cut guidelines on the role of the RO on fund transfers. We recommended that Management in Region V make representation with the key officials in the CO on issues regarding fund transfers, the role of the RO and a clear-cut delineation of responsibilities on proper monitoring of the implementation and utilization of funds transferred to the LGUs. Management should require the submission of a Report on the Utilization of the funds transferred to a concerned LGU, duly verified by the Auditor thereat, to ensure its proper utilization and refund of the unused balance, if any. During the exit conference, Management commented that in the absence of specific guidelines for fund transfers of this nature, the Agency can furnish the COA RO and the auditors assigned at the concerned LGUs with the Notices of Funding Checks Issued (NSFIs) to ensure that they are informed of the funds released to their auditees. The Agency had a lean work force of only 21 personnel which are insufficient to monitor the implementation and utilization of the funds transferred, particularly the PDAF, to the LGU-beneficiaries. Management also informed the Audit Team that it will take up with the Accountants of the concerned LGUs that funds received shall be taken up as trust liabilities in their books. It will also discuss with top Management the issues and concerns regarding fund transfers and the proper accounting entries to use in taking up the releases. Unreverted outstanding payables 28. In Region V, the Agencys Payables Due to LGUs that were outstanding for two years and not covered with perfected contracts on record in the total amount of P21,750,000.00 were not reverted to the unappropriated surplus of the National Government (NG), as of December 31, 2011, contrary to Section 98 of P.D. No. 1445 and DBM-COA Joint Circular No. 99-6 dated November 13, 1999. Section 98 of P.D. No. 1445 states that any unliquidated balance of accounts payable in the books of the NG, which has been outstanding for two (2) years or more and against which no actual claim, administrative or judicial, has been filed or which is not covered by perfected contracts on record may be reverted to the unappropriated surplus of the NG. Likewise, DBM-COA Joint Circular No. 99-6 dated November 13, 1999 provides for the reversion of payable accounts which became outstanding for over two years to Retained Operating Surplus of the agency.

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We reviewed the List of Accounts Payables under Fund 103 of the DBM and we noted that a total of P21,750,000.00 which were outstanding for over two years remained in the list, as shown in the next page: Creditor (LGU) CALAMITY Province of Cam.Norte PDAF Polangui, Albay Presentacion, Cam Sur Calsada,Ligao City,Albay Tinago, Ligao City, Albay Barayong, Ligao City, Albay Province of Albay Gumaus, Paracale, Cam Norte Tigaon, Cam Sur Camaligan, Cam Sur Baao, Cam Sur Bagasbas, Daet, Cam Norte Bato, Catanduanes Calderon, Gubat, Sorsogon Manook, Gubat, Sorsogon Gubat, Sorsogon Bahay, Libmanan, Cam Sur Sabang, Naga City, Cam Sur Sub-total Total Payables SARO No. ROV-090006476 ROCS-09-04983 -doROCS-09-05970 -do-do-do-do-do-do-do-do-do-do-do-do-do-doAmount Date 7/9/09 7/10/09 8/4/09 P 5,000,000.00 500,000.00 500,000.00 300,000.00 500,000.00 300,000.00 6,000,000.00 250,000.00 1,000,000.00 2,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 200,000.00 200,000.00 200,000.00 300,000.00 1,500,000.00 P 16,750,000.00 P 21,750,000.00

According to Management, the balance of P5,000,000.00 of the Calamity Fund intended for the Province of Camarines Norte was not yet released pending submission of the Report of Utilization pertaining to the initial release. The Payables for the PDAF were not yet released pending receipt of the pertinent NCAs. We noted that the SARO for the remaining unreleased Calamity Fund intended for the Province of Camarines Norte for the rehabilitation of various provincial road networks damaged by continuous heavy rainfall in CY 2006 was dated July 7, 2009 and PDAF SARO Nos. ROCS-09-04983 and ROCS-09-05970 were dated July 10, 2009 and August 4, 2009, respectively. These SAROs were outstanding for over two years. Existing government laws and rules required that Payables which had been outstanding for over two years and against which no actual claim, administrative or judicial, had been filed or which was not covered by perfected contracts shall be reverted to the unappropriated surplus of the NG. 72

We recommended that Management in Region V revert to the unappropriated surplus of the NG the Payables due to various LGUs in the total amount of P21,750,000.00 which remained outstanding for over two years and which were not covered by perfected contracts and/or valid claims pursuant to DBM-COA Joint Circular No. 99-6 dated November 13, 1999 and Section 98 of P.D. No. 1445. We also recommended that Management strictly monitor its outstanding payables, particularly those for immediate purposes, so as not to hamper the implementation of projects for which those SAROs were intended. Moreover, demand the Report of Utilization of funds previously released immediately after its validity or upon the completion of the project to avoid the expiry of SAROs. During the exit conference, Management in Region V commented that it will coordinate with the key officials of the CO for the possible release of NCAs for the payables in question, particularly those of the PDAF. In case the NCAs could not be released for these payables, the Agency will then revert them to the unappropriated surplus of the NG. For the remaining balance of the Calamity Funds, it will require the LGU of Camarines Norte to submit the required Report of Utilization on the initial release in order for the Agency to release the remaining portion of P5,000,000.00. Non-issuance of ORs for fund transfers 29. In Regions IV-A and B, 57 and 58 fund transfers totaling P760,265,051.00 and P1,319,965,594.00, respectively, released through the PVB were not acknowledged with the Banks OR. The non-issuance of OR may cause problem in the determination of accountability over government funds. Further, fund transfer amounting to P500,000.00 in region IV-B for financial assistance to the indigent patients under SARO No. G-10-09913 dated December 20, 2012 with NCA No. 164916-3 dated February 8, 2011 was not received by the Provincial Government of Oriental Mindoro, thus, depriving the said patients of the needed assistance. Fund transfers for Fund 103 were made through the government depository banks such as LBP, DBP and the PVB. Upon receipt of the fund transfer, the banks shall issue OR to acknowledge the amount received from the Agency. We observed that for the period January to November 2011, there were 57 and 58 fund transfers totaling P760,265,051.00 and P1,319,965,594.00 released by DBM Regions IV- A and B, respectively, through the PVB, Makati City Branch, but corresponding OR were not issued by the Bank, instead, a bank personnel, without indicating his/her name and position, only initialed on the DVs covering the fund transfers in acknowledgement of the receipt.

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While the other government depository banks issued their respective ORs, the practice of the PVB of allowing its personnel to initial only the DV and not to issue the banks OR to acknowledge the fund transfer might pose problem of accountability. Copies of SARO and NCA for funds chargeable against the PDAF of the legislators were given by the DBM-Bureau G to the different ROs for the preparation of DV together with its supporting documents. After the approval of the voucher, the cashier of the RO issued corresponding check to their authorized government depository banks (AGDB), which transferred the funds to the depository bank of the concerned LGUs. Notice of Funding Check Issued (NFCI) was being sent by the region to the recipient LGU to inform the details of the released fund and to acknowledge receipt. During the CY 2011, Region IV-B received from Bureau G, SARO No. G10-09913 dated December 20, 2010 and NCA No. 164916-3 dated February 8, 2011 with corresponding amount of P500,000.00. On February 15, 2011, DV No. 11-02250 was prepared and Check No. 02163180 dated February 16, 2011 was issued to the Provincial Government of Oriental Mindoro for financial assistance to the indigent patients of said province. The check was released to LBP on February 18, 2011 which acknowledged the fund by issuing OR No. 0006300. However, the Supervising Auditor of Oriental Mindoro Province confirmed that the Province did not receive such fund. The Agency should exert extra effort to locate the fund transfer of P500,000.00 which was released as financial assistance to the indigent patients of the province. We recommended that Managements in Regions IV-A and B make representation with the officials of PVB to issue the banks OR for fund transferred from the Agency for proper control of government funds. Meantime, pending compliance with this recommendation, we requested the Managements of Regions IV-A and B to require the concerned bank personnel to indicate his/her full name and signature in the DVs covering the P2,080,230,645.00 to establish accountability, and Management in Region IV-B to coordinate with the Provincial Government of Oriental Mindoro to locate the P500,000.00 fund transfer. Moreover, we suggested that Management request the LGUs to acknowledge the receipt of fund transfer by confirming/replying to the delivered NFCI, as soon as the funds were transferred and/or received by them. The Management of DBM IV-B sent letter to the President of the PVB for clarification of the bank policy on the matter. The Executive Vice President of the PVB explained in his letter dated February 2, 2012 to the Director of Region IV-B that non-issuance of OR was one of the new policies and procedures of the bank.

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He explained that the receipt of funding checks from the agency shall instead be validated through the issuance of Debit Advice (DA). Moreover, the management also required the bank representative to indicate his/her complete name with proper signature whenever he/she received the vouchers for the fund transfers. While the DA served as evidence of the fund transfer had been added to the account of Region IV-B, copies of the DA for CY 2011 together with the monthly bank statements were only submitted sometime in January 2012. The Management of Region IV-A had already sent letter to the Manager of PVB requesting for the issuance of ORs every time the agency transfers fund to their bank. The Head of Region IV-B had already sent letter dated February 2, 2012 to the Provincial Governor of Oriental Mindoro requesting the status of the fund transfer of P500,000.00 to their AGDB in that province. Bank Reconciliation Statements not submitted on time 30. In Regions IV-A and VIII, some Bank Reconciliation Statements (BRS) for the CY 2011 were not submitted on time to the Audit Team contrary to the provision of Section 74 of P.D. No. 1445 and Section 3.2 of COA Circular No. 96-011, hence, accuracy of the account in the books could not be determined as of year-end. Section 74 of P.D. No. 1445 provides that at the close of each month, depositories shall report to the agency head, in such form as he may direct, the condition of the agency account standing in their books. The head of the agency shall see to it that reconciliation is made between the balance shown in the reports and the balance found in the books. Moreover, Section 3.2 of COA Circular No. 96-011 dated October 2, 1996 states, among others, that within 10 days from receipt of the bank statements, the Accountant shall reconcile the same with the General Ledger and prepare the BRS. In Region IV-A, there were some BRS for Funds 101, 171 and 103 for CY 2011 which were submitted only on February, 2012 to the Audit Team. The Accountant said that the LBP, DBP and the PVB were late in the submission of the bank statements, thus she could not prepare the BRS on time. The late submission of the BRS and its negotiated checks affect the prompt determination of the correctness of the condition of the agencys account reflected in the books against the bank balances as provided for in Section 74 of P.D. No. 1445 and Section 3.2 of COA Circular No. 96-011 dated October 2, 1996. In Region VIII, the latest BRS submitted by the agency for CY 2011 were as follows:

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Account No. DBP 2-00038-775-5 DBP 2-00012-775-6 DBP 000-502-775-0 LBP 0182-1112-79 LBP 2018-9010-14 PVB 0250-10010019

Period Covered October 2011 October 2011 September 2011 September 2011 October 2011 August 2010

Date Submitted December 29, 2011 December 9, 2011 December 29, 2011 December 29, 2011 November 25, 2011 November 16, 2011

The lacking BRS were submitted only in the following year 2012, to wit: Account No. DBP 2-00038-775-5 DBP 2-00012-775-6 DBP 000-502-775-0 LBP 0182-1112-79 LBP 2018-9010-14 PVB 0250-10010019 Period Covered Nov. and Dec. 2011 Nov. and Dec. 2011 Oct. and Nov. 2011 Dec. 2011 Oct. 2011 Nov. 2011 Dec. 2011 Nov. and Dec. 2011 Sept., Oct. and Nov. 2011 Date Submitted February 22, 2012 February 22, 2012 January 11, 2012 March 12, 2012 January 27, 2012 February 2, 2012 March 6, 2012 January 20, 2012 January 20, 2012

For PVB Account No. 0250-10010019, the BRS for the month of December 2011 was not submitted yet as of this writing. Clearly, the agency failed to submit the BRS within the reglementary period set by the above-mentioned regulations, thereby causing unnecessary delay in the detection of possible errors and their immediate adjustments/corrections. The statements did not serve the purposes of bank reconciliation, some of which were to prove the integrity of all cash records and to determine the actual balances of agency-bank accounts. Per Bank Confirmation, the agency has still a balance of P1,074,401.18 under DBP Account No. 2-00038-775-5 and P13,951.00 for DBP Account No. 00000502-775-0. For LBP AND PVB accounts, no replies had been received yet to the confirmation made. We recommended that Management in Regions IV-A and VIII follow up with the concerned banks the release of monthly bank statement in order to prepare and submit on time the BRS to the Audit Team. It is imperative that reconciliation of the Cash in Bank accounts per books with the balance per bank every end of each month be made in order to detect errors, in adherence to sound internal control and pertinent provision of P.D. No. 1445. Management of Region IV-A commented that as of February 2012, letters 76

had been sent to the three concerned banks regarding the prompt submission of bank statements to comply with the required timely preparation of submission of BRSs. Fund 151 Fund transfers recorded as Subsidy to LGUs rather than Due from LGUs 31. In CO, accountability over the funds transferred/released to LGUs from the Special Account in the General Fund (SAGF) 151 totaling P2,609,019,064.00 could not be established because these were recorded as Subsidy to LGUs rather than Due from LGUs, thereby, understating the latter account by the same amount. As discussed in the previous years audit report, illustrative accounting entries provided by the Commission on Audit-Government Accountancy Sector for SAGF showed that for transfer of LGU funds to IAs, the accounting entry should be: Due from LGUs xxxx Cash-National Treasury, MDS xxxx

We noted that for CYs 2008 and 2009 releases from Fund 151 of P2,609,019,064.00 were recorded as Subsidy to LGUs rather than Due from LGUs. In effect, the said amount was treated as an outright expense. The recording of the receipt of the said fund transfers to LGUs in their books of accounts as Subsidy to LGUs relieved the latter of their duties and responsibilities to ensure that the a) transfer of fund is properly taken up in the books, b) accounting and reporting of the utilization of the fund are properly made, and c) implementation of the project is within the approved program of the granting agency and/or fund. Management should have required the submission of liquidation reports, RCI and Report of Disbursements (RD), showing the disbursements/ utilization of the funds and have the DVs and supporting documents audited by the COA Auditors assigned in the concerned LGUs. If the submitted liquidation papers are found in order, Management may now record the expenses in its books of accounts. The rules and regulations in the grant, utilization and liquidation of funds transferred to implementing agencies were contained in COA Circular No. 94-013 dated December 13, 1994. Said COA Circular likewise provides that the IA shall issue an OR in acknowledgment of the amount received. We have not seen any ORs among the documents submitted by Management.

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The Circular further requires that the IA shall return to the source agency, in this case, DBM, any unused balance upon completion of the project. During the previous years exit conference, management insisted that the recording should be consistent with the release, that is, if the SARO states that it is a Subsidy to LGUs then it should be recorded in the books as outright expense. We questioned the used of the account Subsidy to LGUs under Allotment/Object/Class in the SARO, when it is not. According to Undersecretary Mario L. Relampagos, as Subsidy to LGUs (financial assistance), the amount may be used as Personal Services, Maintenance and Other Operating Expenses or Capital Outlay. The LGU recorded it as income upon receipt of the fund transfer. It was also subject to the LGUs own budget process. It was also pointed out by Undersecretary Evelyn V. Guerrero that there will be double recording of expenses if liquidation reports will be required from the LGUs for booking up in DBM. We said that there were also double recording of expenses even if the account used was Subsidy to LGUs. When DBM took it upon itself to administer the funds for the LGUs, then it also took the responsibility of ensuring that the funds transferred to the LGUs were being utilized for the intended purposes. We reiterated that Management in CO require the Chief Accountant to prepare adjusting journal entries to record the receivable in its books of accounts, without amendment to the accounting instructions regarding handling, recording and maintenance of separate books of accounts of SAGF. Demand from the LGU-IAs the submission of liquidation reports, ORs for funds received from DBM and the refund of fund balances, if any. Receipt of funding checks by unidentified persons, without authorization 32. In CO, the funding checks issued by Management out of Fund 151 in the total amount of P271,798,337.00 were received by unidentified persons, who have no authorization letter from the payee-government servicing bank. As embodied in the previous years audit report, we reported that examination of paid DVs showed that check payments were ordinarily received by the teller of the government servicing bank, be it LBP, DBP or PVB, and deposited to the account of the concerned LGUs with the same bank, except for seven checks which were received by persons, identified or not, without authorization letter from the bank. Management submitted the authorization letter of one person. Two of the checks were confirmed received by the LGUs. However, the following issues still remained unresolved for releases totaling P271,798,337.00: Check No./ Date 541309 Payee LBPAmount Received by/Date Issues Person who received the

P100,000,000 With

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check not identified; Person has no authorization letter; Receipt of the amount not confirmed by the LGU yet 541310 Person who received the April check not identified; 13, Person has no 2009 authorization letter; Receipt of the amount not confirmed by the LGU yet 16104 Person has no May authorization letter; 22, Receipt of the amount not 2009 confirmed by the LGU yet 541315 LBP71,200,000 Not It is not clear whether it is July 9, Malacaang stamped the bank or a person 2009 for the received by received the check; account of the bank; Receipt not confirmed by Prov. of just LBP the LGU yet Palawan 7/13 is written Total P271,798,33 7 * Per ANCAI dated April 1, 2009 (NCA No. 378176-1), for the First District of Palawan During the previous years exit conference, Management explained that the persons who received the checks were liaison officers of the banks. We replied that, according to the LBP-Malacaang, it had no liaison officer. We reiterated that Management in CO refrain from releasing the funding checks to persons without authorization letter from the payee-bank. The best practice is to have the bank teller stamp Received the DV under Received Payment: in Box C and have his initial to acknowledge the receipt of the check. Require the teller to write the date when he/she received the check. If ever the check is released to the liaison officer/representative of the bank, require him to print his name, signature and date of receipt. Demand an authorization letter from the government servicing bank before releasing the check and include it among the supporting documents to the DV for submission to the Audit Team. Management promised to look into this problem.

Check No./ Date April 13, 2009

Payee Malacaang for the account of Prov. of Palawan* LBPMalacaang for the account of Prov. of Palawan PVB-HO, for the City of Bago

Amount

Received by/Date

Issues

signature but no printed name/April 14, 2009 100,000,000 With signature but no printed name/April 14, 2009 598,337 Carlito Nonato/Ma y 27, 2009

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Use of different Fund Codes for Malampaya Fund 33. In CO, different Fund Codes were used for the release and disbursement of Gas-Malampaya collections and proceeds derived from the development and utilization of geothermal source of energy, which is not in consonance with COA Circular No. 78-81, resulting to difficulty in accounting, recording, reporting and audit of the release and utilization of said funds. As previously presented in CY 2010 audit report, paragraph 4 of the COA Circular No. 78-81 dated April 28, 1978 requires that All income and collections of government agencies for special or fiduciary funds authorized by law, specifically those mentioned in P.D. 1234 shall be taken up in the books of accounts of the agencies as SAGF. Remittances to the BTr of such income and collections shall be evidenced by Remittance Advices that shall clearly indicate that such remittance should be credited to the Special Account of the remitting agency using the Fund Code as prescribed in the Standard Coding System of the Budget Commission. Likewise, the same Fund Code shall be used in the disbursements of funds falling under this special account in the general fund. (underscoring supplied) Section 2 of P.D. No. 1234 dated November 8, 1977 stipulates that such amounts collected and accruing to the Special Fund are considered automatically appropriated for purposes authorized by law creating the said Fund. Section 1.1 of the DBM-DOE-DOF Joint Circular No. 3 dated January 30, 2008 states that Section 8 of P.D. No. 910 dated March 22, 1976, as amended by R.A. No. 7638, provides that: all fees, revenues and receipts from any or all sources including receipts from service contracts and agreements collected by the Department of Energy (DOE) shall form part of a Special Fund to be used to finance energy resource development and exploration programs and projects of the government and for such other purposes as may be hereafter directed by the President, thus, in order to segregate these collections from other funds of the NG, the DOEs SAGF-151 was established for the purpose. Section 2 of Executive Order No. 683 dated December 1, 2007 provides that the IA to whom the DBM released the funds pursuant to Section 1 hereof shall be accountable for the implementation of the projects and the expenditures thereon, subject to applicable laws and existing budgeting, accounting and auditing rules and regulations. For recording purposes, the DBM may authorize the IAs to open and maintain a special account for the amounts released pursuant to this E.O.

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Under Section 3.3.1 of the Joint Circular and Section 2 of EO 683, the DBM shall issue the appropriate fund code for the SAGF of the IA concerned. Accordingly, DBM issued the Fund Code 151 to DBM, as administering agency. However, the COA-GAS reported that different fund codes are being used by DBM in its release documents and the implementing agencies, in accounting and reporting for Malampaya Funds, as shown below: Fund Code Used by DBM

Department/Agency DOE - OSEC

Fund Code Used by Agency NG Books Fund 151 (Collections and Remittance of Income) RA Books Fund 151 NG Books Other Service Income (DOE Malampaya) RA Books SL Code Fund 151 Fund 151 Fund 101 Fund 158 Fund 101 Fund 154 Fund 101 Fund 151 Fund 172 Fund 101 but to be separated and maintained under Fund 151 in CY 2011 Fund 151 Fund 101 Fund 101

Fund 151 DOF - BTr DBM - OSEC DA - OSEC DAR - OSEC DOH - OSEC DPWH - OSEC DILG -PNP DND - PAF DND - GHQ DND - PA DND P MA DOST - PAG-ASA DOTC - PCG Fund 151 Fund 151 Fund 101 Fund 158 Fund 151 Fund 154 Fund 151 Fund 151 Fund 172 Fund 151 Fund 151 Fund 101

The DBM Administered Funds, which were releases intended for the LGUs under the ALGU and Special Purpose Funds (SPFs), and which included Shares in the Utilization and Development of National Wealth, (which included proceeds derived from the development and utilization of hydrothermal, geothermal and other sources of energy), were taken up in the books of accounts under Fund 103. Furthermore, releases of funds to cover shares of various LGUs from the proceeds of the collections from geothermal plant operations of the PNOC-EDC in CYs 2007 and 2008 in the total amount of P495,019,064 were taken up under Fund 151 pursuant to the letter of the DBM Secretary dated May 04, 2009 clarifying the use of SAGF 151 to include such releases.

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According to the Management, DOE failed to include such collections in the certification of LGUs share based on the immediately preceding years collections submitted to DBM because the Philippine National Oil Company-Energy Development Corporation (PNOC-EDC) was privatized in 2007, thus, no appropriation cover was provided for the purpose under the FYs 2008 (R.A. 9498) and 2009 (R.A. 9524) of the GAA. Management further said that pursuant to the verbal instruction of then President Gloria M. Arroyo, the funds to cover LGU shares from geothermal plant operations of PNOC-EDC for the period covering July 2007 to December 2008 collections were released to the LGU-beneficiaries under the DBMs SAGF 151, chargeable against the fund transferred by the BTr from the DOEs SAGF 151, where the amount was earlier deposited. DBM, in its Memorandum for the President dated May 14, 2009, sought confirmation of the same. We noticed, however, that the reply of the President, if there was any, was not among the documents submitted to us. The use of different Fund Codes for collection and remittance, and in releasing, recording and reporting for the same funds was not in consonance with COA Circular No. 78-81 and could result in confusion and erroneous accounting/recording and reporting of the collection, remittance, release and utilization of the funds. Management commented that Fund Codes other than Fund 151 were issued by the DBM and used by other agencies because they already have Fund 151, as in the case of the DPWH, which was issued Fund Code 154 for Proceeds of the Malampaya-Camago Project. We reiterated that Management strictly adhere to COA Circular No. 78-81 and issue the same Fund Code as the SAGF of DOE for Malampaya fund, which is Fund 151, to the IAs and use the same Fund Code for release documents to facilitate accounting, reporting, recording, auditing and consolidation of reports. In case the same Fund Code is being used in the agency for other funds, SLs may be prepared/maintained for the Fund Code to account for the different fund sources recorded under it. We also recommended that Management release, record, and report these under Fund 103 (DBM Administered Funds) to cover shares of various LGUs from the proceeds of the collections from geothermal plant operations, being part of Allocations to Local Government Units (ALGU) which were provided for in the GAA.

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