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Republic of the Philippines

Commission On Audit National Government Sector CLUSTER C Social Services OFFICE OF THE AUDITOR Department of Health Sta. Cruz, Manila AOM No.: 11- DRAFT (Global Fund) Date : February 03, 2011

AUDIT OBSERVATION MEMORANDUM (AOM)

For:

Hon. ENRIQUE T. ONA, MD, FPCS, FACS Secretary Department of Health Sta. Cruz, Manila

Attention: DIR. MAYLENE M. BELTRAN Bureau of International Health Cooperation DR. JENNIFER C. FELICIANO Project Coordinator, Global Fund Projects

We have audited the financial statements of the Global Fund Round 6 HIV as of December 31, 2010 and observe the following deficiencies: The weak internal control on Inventory recording and lack of proper documentation as to receipts and issuances of various Inventory items totaling to P 7,553,418.36 as well as Poor procurement planning, handling, monitoring and non-preparation of a well-defined plans and targets which resulted to unutilized, overstocked and expired/about to expire drugs and medicines amounting to P 8,078,619.79 . Section 428 of the Government Accounting and Auditing Manual, volume 1, states that except as otherwise provided in the General Appropriation Act, the stock on hand of supplies, materials, equipment and spare parts acquired through ordinary and emergency purchase, shall at no time exceed the normal three-month requirements, subject to pertinent rules and regulations issued by competent authority. Responsible procurement of supplies with limited shelf lives should be properly planned such that the life, necessity, past consumption data, and the three-months requirements prescribed under existing regulations are given due considerations. The Property Office should accept only drugs and medicines with expiry dates of more than a year. Meanwhile, the ultimate

custodian of merchandise inventory should observe the first-in-first-out (FIFO) system of dispensing drugs and medicines to avoid expired items in their inventory. As of February 2, 2011 we conduct actual physical inventory count at Material Management Division (MMD) and after further observation, we found out that there were expired and about-to-expire drugs and medicine still in their custody, as follows:
Description Azithromycin 500mg Metronidazole 500mg Red top tube blood collection Cefixime (Tergecef) 200 mg Lamivudine Oral Solution Tenofovir Zidovudine Indinavir Expiry date February 2009 January 2009 January 2010 March 2011 June/Oct 2010 August 2010 Nov./ Dec. 2010 January 2011 TOTAL Stock on Hand 159 packs 80 packs 4000 tubes 1,271capsules 737 bottles 23 bottles 23bottles 101 bottles Amount in Peso 8,547.84 6,400.00 15,000.00 147,902.15 88,218.90 10,204.64 3,480.82 269,064.00

548,818.35

In addition, our audit disclosed that the Stock status report and/or Consumption report of commodities distributed to different recipients showed sample incidence of overstocking of drugs and medicines. Some inventory items were not properly planned and monitored for distribution which resulted to overstocking and expired. Table below shows an example of drugs and medicines distributed to various recipients:
Total Quantities Commodity name/ Distributed to: Received 2009 2010 Present Stock on Hand Expiry date Amount in Pesos

1. 2. 3. 4.

Azithromycin Puerto Princesa SHC Butuan City SHC Cefixime Project 7, QC Bernardo Metronidazole Puerto Princesa SHC Zamboanga SHC Condom Tuguegarao City SHC Puerto Princesa SHC

2,181 2,720 1080 1080 26,600 48,200 103,680 42,048

1,887 2,464 1,080 1,080 26,600 48,200 3,744 22,874

Dec. 2011 Dec. 2011 Nov. 2011 Nov. 2011 Sept. 2011 Sept. 2011 Sept. 2010 Sept/Nov. 2010 Nov. 2010 Oct/Nov 2010

1,132,200.00 1,478,400.00 126,176.40 126,176.40 1,995,000.00 3,615,000.00 10,408.32 63,589.72

5. HIV Rapid Test Project 7, QC General Santos City SHC

300 200

200

261 930

25,212.60 89,838.00

TOTAL AMOUNT

7,529,801.44

Upon verification we also found out that the Internal Control for Inventory recording and documentation is very weak. Data below shows an example of Inventories given to various recipients without proper documentation. No distribution list, no Acknowledgement Receipt for Equipment (ARE), records are not updated and no Invoice Receipt for Property (IRP) and some IRP has no signatories from various Invoicing Accountable Officers.

Item Description A. Hospital Equipment

Quantity

Total Cost of Issuance Unit Cost Amount

Remarks

Refrigerator 8cu ft upright B. Office/IT Equipment

20

16,388.88

327,777.60

IRP has no signatories from Recipient

Computer Notebook, Branded Computer Desktop, Branded Computer Desktop, Branded w/UPS Lightweight Projector

37 40 10 18

84,969.00 57,134.00 57,134.00 23,000.00

3,143,853.00 2,285,360.00 571,340.00 414,000.00

No IRP, No Distribution list No IRP, No Distribution list No IRP, No Distribution list IRP has no signatories from Recipient

C.

Office Supplies 70 466.00 32,620.00 No IRP, No Distribution list

USB Flash Drive 2GB

Drugs and Medicines Fluconazole Oral: 200mg cap,28 cap per pack offer: Fluzocan Medical, Dental Lab. Equipment Examining Light (Gooseneck Lamp) Stethoscope, 3M, Classic II USA Microscope, Rax Vision (model XS901N) E.

D.

168

3,288.32

552,437.76

IRP has no signatories from Recipient

2 22 4

21,000.00 4,365.00 22,000.00

42,000.00 96,030.00 88,000.00

IRP has no signatories from Recipient IRP has no signatories from Recipient No ARE, No IRP

TOTAL

P 7,553,418.36

We further noted that the Material Management Division (MMD) Supply Management Staff Inventory records also shows items listed as stock on hand but were already issued to various recipients and were not at the MMD storage/premises anymore. Interviewed with the in charge person of recording, Mr. Mosende John Karachi, Inventory items such as office and IT equipment were still accounted as stock on hand because of lack of Acknowledgement Receipt for Equipment (ARE) which accounting requires for recording purposes, thus it affects to unreconciled recording of inventory items between the two books. We recommend that the management of drugs and medicines inventory should be improved by properly planning, managing, and monitoring of stocks by:

a. Observing the prescribed three-month volume requirement in the procurement of drugs and medicines; b. Considering the necessity of shelf life and prescription acceptability of drugs and medicines to be procured; c. Rejecting deliveries of drugs and medicines that are expiring within a year; d. Monitoring the stock level and expiry dates of drugs and medicines inventories. We also recommend that the accounting division give preferential attention in collecting all documents for receipts and issuances of Drugs and Medicines, Medical, Dental and Laboratory Supplies Inventory, etc. as of December 31, 2010 to facilitate update recording of transactions pertaining to such inventory items in the book of accounts. Moreover, proper assistance should be given to employee concerned so that the major accounts mentioned above may be given periodic updating of accounting records and appropriate remedies could be immediately undertaken to address such problems. May we have your comments on the above audit observation within three (3) calendar days from receipt hereof.

NATIVIDAD V. CANLAS Audit Team Leader

MA. CORAZON S. GOMEZ Supervising Auditor Proof of Receipt of AOM:

Sec. Enrique T. Ona Date:_______________

Dir. Maylene M. Beltran Date: _______________

Dr. Jennifer C. Feliciano Date: _______________