DBM 2011 COA OBSERVATION RECOMMENDATOIN

8/15/2019 DBM 2011 COA OBSERVATION RECOMMENDATOIN

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PART II – OBSERVATIONS AND RECOMMENDATIONS

Non-consolidation of the four operating systems of budget releases into oneapplication system

1. In CO, the use of four operating systems by the agency in the releasing andmonitoring of allotments totaling P1,942,286,355,788.38 resulted in somesystems errors affecting its effectiveness and rendering the application systemsdifficult to manage and uneconomical to maintain.

Management maintained four application systems used in the releasing andmonitoring of allotments and cash programs, namely:

Electronic Budget System (eBudget) P1,408,500,914,359.00Foreign Assisted Projects (FAPs)

Database System 3,768,315,901.35

Electronic Transparency and AccountabilityInitiatives for Lump-Sum Funds (eTAILS) 20,542,194,816.00Manually-Prepared System (MPS) 509,474,930,712.03

Total P 1,942,286,355,788.38

On January 24, 2011, Management decided to outsource the softwaremaintenance of the agency’s application systems, including the eBudget, FAPs andeTAILs Database Systems for FY 2011-2012 to Incuventure Partners Corporationfor P16,694,441.07.

The Information and Communications Technology Systems Service

(ICTSS) informed us that the said four application systems had differentfunctionalities. As an example, FAPs Database System applies to the releasing of funds for FAPs.

We examined the submitted Agency Budget Matrix (ABM)/SpecialAllotment Release Order (SARO) listings under different application systems andwe noted that all listings contained mixed fund sources, purposes and fund codeswhich did not reflect the purposes for which each application system wascreated/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 released2,353 SAROs with the total amount of P509,474,930,712.03 under this system.

SARO Listings submitted under MPS, FAPs database and some eBudgetentries 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 thebudget releases for government agencies, in order to avoid or minimizesystems errors, enhance effectiveness and economy in systems operation andmaintenance that will redound to a more transparent government operations.

Management commented that the possibility of integrating all of theAgency’s 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 numberseries resulting to 3,158 unaccounted SAROs.

For FY 2011, we received SARO listings from the DBM-Budget TechnicalService indicating that 42,193 SAROs were released under various applicationsystems.

We verified as to the completeness of submitted SARO listings, includingthe 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 SAROReleased Unaccounted

eBudget 34,239 679FAPs Database System 122 2,410eTAILS 5,479 69MPS 2,353 ___ -

Total 42,193 3,158

We also noted that Management released two SAROs with the samenumber, 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 theSARO in the system was only made when the agency-recipient had received thecopy of the SARO, hence, additional listings of SARO for FY 2011 were onlysubmitted to us on February 20, 2012.

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We previously observed that SAROs were not chronologically issued inaccordance with the date of the SAROs.

It is a must requirement for the Management to account for every SARO itreleases. A single unaccounted/missing SARO may mean under/overpayment of the

total government allotments.

We recommended that Management in CO submit immediately all the3,158 unaccounted SAROs for verification. Likewise, Management shouldrevisit the process of assigning SARO numbering and install control measuresto ensure complete accounting of SARO releases.

Management commented that for FY 2011, it had issued a total of 42,218SAROs, however, still excluded from the total was the SARO that would cover the4th quarter Interest Payments as well as the Principal Amortization for foreign anddomestic 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 necessarySARO.

Per agency’s Report, total allotment releases for FY 2011 amounted toP1,656,768,000,000.00, 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 madeas “DUMMY” only. These were referred to as Adjustment SAROs, hence,“Dummy” SAROs were not cancelled nor unaccounted SAROs but done only in thesystem. They were not printed nor released to agencies. Thus, for FY 2011, theDBM 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 1,946unaccounted numbers instead of 2,410, the 464 numbers covered NCA/Advise of

NCA releases. The Information Technology (IT) Consultant promised to explainthe 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 releasedthrough a Manually-Prepared SARO.

The processing of PDAF releases was done through the eTails databasesystem which was connected to DBM website publishing the PDAF releasesalready 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” shalltrigger the posting of said release in the website.

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Management stressed that due to voluminous releases, there were SAROsalready released but inadvertently not tagged. This “late tagging” of SAROs wasthe 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 wererequests already approved for release but found incomplete of some documentaryrequirements, instead of canceling said previous approval, Management had to waitfor compliance from the agency concerned, hence, the delay in the release of saidSARO. Subsequent SAROs, which were processed/approved for release withoutany documentation problem, shall be released ahead of the first previouslyapproved SARO.

The 6,055 cancelled SARO numbers in 2010 had been considerablyreduced 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 SAROnumbers due to systems error.

The Management’s report of total allotments did not reconcile with our figure due to the following:

a. There were still unsubmitted SARO releases under the eTailsDatabase system;

b. Listing of SAROs used as “Dummy” were submitted after audit report was completed. Only SARO number wasindicated, the purposes and the amount of adjustments werenot stated; and

c. The agency did not include principal amortization for foreignand domestic borrowings as well as interest payments,although, corresponding SAROs were already prepared.

Moreover, Management should make a policy to process only SARO withcomplete requirements/documentation. Thus, assignment of SARO number willnot 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 databeing 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 exposesthe agency to risk of wastage of expensive IT resources.

b. Absence of Disaster Recovery and Business Continuity Plansmay result in the failure to recover IT systems and services in atimely 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 tapemedia storage may not recover the system files when needed.

Absence of an approved ISSPThe ISSP is an overall strategic plan for development and implementation of

the information systems, including the corresponding resource requirements, over afixed, long-time period. It would map out its information and communicationtechnology direction.

The Information and Communications Technology Systems Service(ICTSS) officials informed us that the ISSP was not approved by the NationalComputer Center (NCC). Management’s ISSP was submitted to the NCC in CY2008 but was later withdrawn for revision. However, until now, it was not yetfinalized and re-submitted to the NCC for approval.

If there was no approved ISSP, Management runs the risk of investing intechnology that increases costs and may not be in line with the IT plan of thegovernment.

Absence of Disaster Recovery and Business Continuity Plans

We noted that the IT systems had no Disaster Recovery and BusinessContinuity Plans. The said Plans were important to an agency like DBM whichhandles very important functions for the whole government. The Plan will preventand manage the consequences of a disaster, such as, fire, earthquake, key equipmentfailure, resignation or illness of key IT personnel, etc., limiting it to the extent thatan 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 controlmeasures to be installed, the responsibilities and accountabilities of those in-chargein 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 whenthe need arises. Management should have a well-developed and maintained ITSystems to secure the integrity and availability of the budget data at any time.

We recommended that Management in CO prepare the necessary ISSPfor approval of the NCC. The NCC is in-charge of the implementation of Government Information System Plan (GISP) that warrants the technologycompatibility, security and connectivity to enhance resource sharing andinformation exchange between and among government offices. It is alsoresponsible for providing the benchmarks and standards for InformationCommunication Technology (ICT) procurement and outsourcing .

We further recommended that Management create disaster recoveryand business continuity plan as well as a policy on system’s back up andrestoration to enable the agency to secure its operations in case of disruption inthe information systems support activities and to survive even if a disastrousevent occurs.

Management commented that in the 2011 approved budget, it hadappropriated P1,500,000.00 to engage the services of a technical writer with thesole output of having an updated DBM-ISSP for FY 2012-2014.

Management further stated that it had engaged a service provider onDisaster 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 contractwith 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 BusinessContinuity 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 totalingP522,425,020.74, P 8,149,115.65 and P5,142,736.71, respectively, as of December 31, 2011 could not be validated due to the failure of Management toconduct physical inventory taking of PPE contrary to Section 66 of the Manualon the New Government Accounting System (MNGAS), Volume II, thus theaccuracy, 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 notupdated 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 cardand per count and shortage/overage, if any.

Section 56, MNGAS, Volume II, provides that the ARE shall be used toacknowledge the receipt of property and equipment for official use from theProperty Officer. The ARE shall be:

a. prepared in two copies, the original copy to be maintained at the Supplyand 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 inaccountability.

Likewise, Section 42 of the same manual provides that the PC shall be keptfor each class of PPE to record the description, acquisition, transfer/disposal andother information about the asset. The transactions shall be posted promptly fromthe source documents; and the physical inventory of PPE shall be reconciled withthe PCs every year and any discrepancies shall be immediately verified andadjusted.

In CO, we gathered in the course of audit that the agency failed to conductthe annual physical inventory-taking of its PPE because personnel previouslystationed at Buildings I, III and Arcache and the Property and Supply Section (PSS)were preoccupied with the transfer to the newly constructed Building II sometimein April 2010, after which the PSS personnel then attended to the disposal/donationof the various office equipment stored/left at the vacated buildings until July of CY2011. In spite of this, the annual inventory taking of properties and equipmentshould have been conducted as of December 31, 2011.

In NCR and Region III, no physical inventory count was conducted on thetotal PPE of P 8,149,115.65 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 requiredwas not maintained, hence, property accountability could not be readily identifiedand PPE accounts could not be reconciled to determine its accuracy.

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In CAR, the agency uses a Memorandum Receipt for Equipment, Semi-Expendable and Non-Expendable as tool to record PPE issued to personnel. Weverified the documents and we noted that the latest update of the record was on June20, 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 weredisposed after the last update were still appearing in the MR. Based onManagement’s record, various unserviceable PPE costing P322,699.65 andP816,208.37 were disposed in August 2008 and January 2009, respectively, andwere correspondingly dropped in the agency’s books of accounts. In 2010 and2011, 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 wherethe 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 anasset.

In order to validate the existence and completeness of the reported PPE account balances an actual physical count was conducted by the Region IIIinventory committee on February 3, 6-7, 2012 which was witnessed by the auditteam covering the following PPE accounts: (a) Land Improvements , (b) Office

Building s, (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 theother recorded PPE accounts totaling P5,142,736.71 due to other urgent duties andresponsibilities, thus, the audit team was not able to validate its existence andcompleteness.

We recommended that the Management in CO, NCR and Region IIIconduct the required physical inventory of PPE as of December 31, 2011 andconsequently prepare and submit reconciled RPCPPE with the accountingrecords to ensure the accuracy, reliability and integrity of the PPE accounts atyear-end.

We also recommended that respective Managements require the Supplyand Property Officer to maintain PCs which should be periodically reconciledwith the schedule of PPE maintained by the Accountant, and comply with therequirements 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 fromDBM Buildings I, III and Arcache to Building II in 2010 and the subsequentdeployment 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, thedesignated Supply Officer started updating the ARE when this deficiency wasverbally communicated. With the issuance of the AOM, Management assured usthat 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/understateddue to erroneous recording in the books: a) the IT Equipment and Software and

Other Supplies Inventory accounts were overstated by P1,220,995.39 andP202,691.80, respectively; b) the Due from NGAs account was understated byP138,928.32, 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 therecording 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 byP1,220,995.39 due to the following accounting errors:

a. IT equipment already disposed thru transfer without cost to other agencies in 2008 and 2010not dropped from the books, thus overstating theGovernment Equity P184,431.20

b. IT software installed on computer units alreadytransferred to other agencies were not droppedfrom the books nor disclosed in the InvoiceReceipt of Property, thus overstating theGovernment Equity

c. Unserviceable IT equipment and software were notreclassified to Other Assets account, thusunderstating the said account

137,222.16

899,342.03

Total P 1,220,995.39

We also noted that the Other Supplies Inventory account balance of P202,691.80 disclosed various accounting errors that rendered the reportedinventory 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

Overstatement

(Understatement)

Office Building (P P8,533.50)Furniture and Fixtures (128,559.55)IT Equipment (31,983.50)Medical, Dental and Lab Equipment (2,530.00)Other PPE (20,046.00)Communication Equipment (2,165.00)

Total ( P 193,817.55)

b. small tangible items with serviceable life of more than one year werestill recorded as inventory although already issued, thus overstating theinventory balance by P8,874.25. Inventory Custodian Slips (ICS) werenot yet prepared .

Accounts AffectedOverstatement

(Understatement )

Supplies Expense (P8,874.25) Total P 202,691.80

In Region V, items procured from the PS were recorded under Items inTransit account contrary to the provisions of Annex A (Illustrative AccountingEntries) of the MNGAS, Volume 1, which shows the following pro-forma entry for advance payment to PS:

Due from NGAs xxCash – National Treasury, MDS xx

Upon receipt of the items from the PS, the receivable account shall then becredited and the pertinent supplies or property account shall be debited.

We verified the submitted Agency Procurement Requests (APRs) whichshowed 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 inTransit account showed a balance of P 839,046.00 pertaining to items purchasedwhich 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 wascredited 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 accountconsidering that it was a receivable from the PS. Upon receipt of the items, theAccountant 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 thatServiceable assets no longer used shall be reclassified to Other Assets account andshall not be subject to depreciation.

Section 64 of the MNGAS, Volume II, provides that the IIRUP shall be usedas 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 861,305.68Accumulated Depreciation 773,522.80

Property, Plant & Equipment 861,305.68Prior Years’ Adjustments 773,522.80

The above entry disclosed that the reclassified PPE were transferred toOther Asse ts account at cost instead of the net book value, P87,782.88, inconsonance 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 Assets–Unserviceable Properties with the lateSupply Officer Julius Espina was evaluated.

The erroneous entry overstated the Other Assets and Prior Year’s Adjustment accounts by P773,522.80.

We recommended that Management in Regions III, V and VII requirethe Accountants to prepare necessary adjusting entry to correct the foregoingaccounting errors, and the Property Officer of Region III to prepare and issuethe required ICS to concerned personnel.

In Region V the Accountant committed to prepare the necessary accountingentries in the succeeding month and in Region VII, Management already effectedthe necessary adjusting entry.

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Non-observance of rules and regulations on the granting, utilization and liquidationof 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 assoon as the purpose for which it was given had been served and additional CAswere granted to officers and employees despite of non-settlement of theirprevious 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 andliquidated 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 andregulations on the granting, utilization and liquidation of CAs, provides thefollowing 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 hasbeen 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 themonth pay period.

5.1.2 Petty Operating Expenses and Field Operating Expenses – within 20days after the end of the year; subject to replenishment as frequentlyas necessary during the year.

5.1.3 Official travel – within 60 days after return to the Philippines in thecase 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 anyamount due him”.

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The rules explicitly provide that no additional CA shall be allowed to anyofficial 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 thirtydays after return to his official station.

Also, COA Circular No. 2009-002 dated May 18, 2009, particularlyParagraph 4.1.3(ix) thereof, provides that a CA for special time-boundundertaking shall be liquidated within one month from the date the purpose of theCA was accomplished.

We verified the CA account and noted that CA totaling P2,950,070.77remained 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 P 647,000.00 and P371,000.00, respectively.

The non-liquidation of outstanding CA at year-end exposed to risk of lossthru 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 andemployees and we noted that Management tolerated the practice of allowing theliquidation of CAs for time-bound undertakings beyond one month after the

purposes for which they were given had been served. We Analyzed the liquidationof CAs which showed that some CAs were liquidated after 30 days ranging from 32to 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 thatadditional CAs were allowed despite the fact that previous CA were not yet settledor a proper accounting thereof had been made. This practice is in violation of theafore-cited provisions of Section 89 of P.D. No. 1445, and Paragraph 4.1.2 of COACircular 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 governmentfunds to risk of misuse. It might also cause the accumulation of unliquidated CAs inlarge amount as of a given date.

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We recommended that Management a) in CO enjoin all AOs toliquidate all CAs at year-end, and instruct the Chief Accountant to make surethat 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 onemonth after the purposes for which CAs were given had been accomplished

forestall exposure of government funds to possible misuse and to avoid theaccumulation of unliquidated CAs to large amount. We also recommendedthat upon receipt of the liquidation documents the Accountant shouldimmediately review the liquidation papers of CAs and submit them to theAuditor for post audit. Likewise, additional CA should not be given unless theprevious CA was first liquidated or a proper accounting thereof was made.

Management commented that out of the P2,950,070.77 balance of CAsrecorded 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 CY2011 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 datedDecember 9, 2011.

Management further commented that out of the P2,950,070.77 unliquidatedCAs 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. Onthe other hand, the remaining balance of CA amounting to P14,017.76 in the nameof Ms. Ferlyn O. Moralde was liquidated and booked up in February, 2012 only, onaccount 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-endactivities was required to be liquidated immediately, hence, no additional bond was

provided. Henceforth, granting of CA shall be within the maximum cashaccountability of the SDO.

In Region II, Management commented that there were some CAs whichwere not liquidated within the reglementary period prescribed under existingregulations, but this was partly attributed to the Accountant’s practice of recordingthe liquidations in the books of accounts only on the last working day of the monthand not on the actual date of submission and/or receipt of the liquidation reports.

Management further commented that there was no CA granted withoutsettlement of the previous ones. Records showed that there were additional CAsgranted but this observation was due to the practice of the Accountant in recordingliquidation only at the end of the month.

As a rejoinder, a CA could only be considered as settled when it wasrecorded in the books of accounts as liquidated. Although liquidation reports werealready 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 therewere additional CAs granted to officers and employees despite of the non-liquidation of their previous cash advances. As mentioned earlier, a CA isconsidered 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 thebooks of accounts, contrary to Section 63 of P.D. No. 1445 and Section 6 of theMNGAS, 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 propertyofficially received by a public officer in any capacity or upon any occasion must beaccounted for as government funds and government property. Government property

shall be taken up in the books of the agency concerned at acquisition cost or anappraised 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 monthfor the RA book. The source of entries are the Journal Entry Voucher (JEVs) whichshall be prepared based on the Reports of Collections and Deposits (RCDs)submitted by the Cashier or Collecting Officers to the Accounting Unit or theOfficial Receipts (ORs) acknowledging collections.

We examined the transactions for collections and deposits and we notedseveral unrecorded ORs and deposit slips, as shown below:

Date No. of ORs

Amount Date No. of DepositSlips

Amount

Jan /11 1 80.00 Jan /11 1 80.00Feb /11 1 1,070.00 Feb /11 1 1,070.00Mar /11 2 602.82Apr /11 10 12,999.9

0Apr /11 2 13,60

2.82Jun /11 8 3,665.50 June /11 1 3,665.50July /11 4 1,075.00 July /11 1 1,075.00

Sept /11 2 780.00 Sept /11 2 780.00Oct /11 1 37.00 Oct /11 1 37.00Total 29 20,310.2

29 20,310.32

The Accountant recorded the agency’s 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 P 602.82 as of March 31, 2011 was not reflectedin the financial reports/statements such as the Balance Sheet for the same period.

We recommended and Management in Region VI agreed to require theAccountant 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 Section6 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-userswere not recorded in the books of accounts, thus overstating the Office

Supplies Inventory account and understating the Office Supplies Expensesaccount. As a result, the account Office Supplies Inventory of the said regionstotaling P1,630,531.98, P606,804.14 and P243,771.39, respectively, could not befairly presented in the Financial Statement as of December 31, 2011.

Section 62 of the MNGAS, Volume II, states that “the Report of Suppliesand Materials Issued (RSMI) shall be prepared by the Supply Officer and shall beused by the Accounting Unit as a basis in preparing the JEV to record the suppliesand materials issued”.

As reported in the previous years’ audit report of NCR, the RSMI whichshowed the issuance of the office supplies remained unsubmitted to the audit teamas of audit date. In Region VI, RSMI for supplies issued for CY 2011was not

prepared and submitted. Thus, issuances of supplies and materials were notrecorded in the books of accounts which resulted in the understatement of theOffice Supplies Expenses account and the overstatement of the Office Supplies

Inventory account.

In NCR, we noted that the Office Supplies Inventory account amounted toP1,630,531.98 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 theOffice Supplies Expenses amounted to only P53,202.67 which represents suppliesand materials used as reflected in the replenishment of the PCF. Thus, the abovestated accounts were not fairly presented in the financial statements.

In Region XII, record of this Office showed that the designated SupplyOfficer failed to submit the RSMI totaling P212,878.85, thus the balance of OfficeSupplies Inventory account of P243,771.39 as of December 31, 2011 could not berelied upon, considering that there were no Requisition and Issue Slip (RIS) tosupport the issuances. This was not in conformity to management of supplies or inventory account/s.

We recommended that Management of NCR, Regions VI and XIIrequire 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 thebooks for the issuances of supplies and materials as provided in Section 62 of the MNGAS, Volume II. Also, the NCR Accountant should immediately recordthe issuances of office supplies based on the partially submitted RSMI by theActing Property Officer. Require close coordination between the respective

Accountant and the designated Supply Officer to ensure reconciliation of theirinventory records.

Region XII Management admitted that they were remiss in submitting theRSMI 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 andwas 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 therecommended action.

Non-issuance of Inventory Custodian Slips

9. In CO, several tangible items purchased through the PCF totaling P33,483.87were not issued the necessary ICS as required under Section 2.3 of COACircular No. 2005-002 dated April 5, 2005, and were not supported withcomplete documentation in support of PCF replenishment, thus resulting todifficulty 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 itemswere purchased through the PCF totaling P33,483.87. We also verified that the ICSwere 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 vitalsupporting 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 notdated properly and did not indicate the nature of repair to be done;and

c. Quantity of the items purchased that appeared in the RIS andInspection and Acceptance Report (IAR) was not at all times the

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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. 0145dated May 17, 2011. We verified that the previous purchase from Rapide AutoService Experts was made on November 3, 2009 per Sales Invoice No. 4645 with 2years warranty. Thus, the gap of one year and six months between the previous andcurrent 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 thenecessary ICS for small tangible items for easy monitoring, control andaccountability. Advise all SDOs to always attach complete and properdocuments in the replenishment of PCF to avoid suspensions and/or

disallowances in post audit.

Also advise PSS to always utilize and monitor valid warranties. Furnishevery end user of purchased items a copy of the warranty for their informationand guidance in making future purchases of similar items.

Management commented that the required ICS were prepared and issuedduring the time of purchase, however, these were not attached to the DisbursementVoucher (DV). Henceforth, copies of ICS will be attached to the DV.

The recommendations of the audit team were duly noted and the SDOs wereinstructed to comply with all the requirements

Unsettled Disallowances/Charges

10. In Region XII, receivables from audit disallowances totalling P4,531,285.90remained unsettled as of December 31, 2011 contrary to Section 7.1.1 of COARules and Regulations on the Settlement of Accounts (RRSA) as prescribedunder COA Circular No. 2009-006 dated September 15, 2009 to thedisadvantage 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 tohis 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 theP4,544,310.70 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

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persons liable failed to settle the disallowances/charges as required under the aforecited provision of the RRSA.

We reiterated our recommendation that Management in Region XII

exert extra efforts to collect the amount of P 4,531,285.90 and enjoin thepersons liable to comply with the afore quoted provisions of the RRSA on theimmediate 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. 2010-005dated January 19, 2010 issued by the Office of General Counsel, Legal ServicesSector, COA, Quezon City, which upheld the liability of the concerned DBMemployees 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 assertingthat Management in RO XII will be forced to resort to appropriate remedies in caserespondents 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 paiddirectly to Island Adventure Travel and Tours and recorded in the books of accounts as traveling expenses contrary to COA Circular No. 2003-001 datedJune 17, 2003 and COA Circular No. 96-004 dated April 19, 1996. Moreover,several claims for travels outside the region were not supported with officeorder and/or corresponding travel authority from the CO contrary to Section28 of the MNGAS, Volume I .

COA Circular No. 2003-001 dated June 17, 2003 dated June 17, 2003 wasissued revising the Chart of Accounts under the NGAS as part of the continuingeffort to simplify government accounting and to ensure proper accounting of allfinancial 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 appropriationsor allotments. The Accountant shall obligate all CAs granted.”

Section 28 of the MNGAS, Volume I, provides for the basic requirementsapplicable to all types of disbursements made by the national government agenciesas:

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a. Existence of a lawful and sufficient allotment certified as available bythe Budget Officer;

b. Existence of a valid obligation certified by the Chief Accountant/Headof 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 authorizedrepresentative; and

e. Submission of proper evidence to establish the claim.

We analyzed the travelling expenses and we noted that payments for planefares were paid directly to a travel agency and taken up in the books under theaccount “ Traveling Expenses-Local ” when all these travels were yet to beundertaken. Hence, treatment of these disbursements were different from CA of

personnel which were recorded under account Advances to Officers and Employeesfor per diems and other transportation expenses. The plane fares were all paid to

Island Adventure Travel and Tours, as follows:Date Check No. Plane Fare Employee Destination

12-13-11 379561 23,677.00 S. Superticioso, MD.Gallego,

Manila

ML. Gayomali & H. Libres12-08-11 379549 9,376.00 A. Bedonia Manila12-01-11 379529 2,981.00 A. Bedonia Cebu11-18-11 379508 6,648.00 A. Bedonia & M. Chua Cebu11-10-11 379492 6,587.00 E. Albaracin Manila11-10-11 379490 5,136.00 A. Bedonia Manila10-24-11 379470 8,255.00 A. Bedonia Manila10-11-11 379451 8,717.00 A. Bedonia Manila

09-07-11 379396 7,829.00 A. Bedonia Manila09-01-11 379388 7,802.00 E. Javison Manila & Palawan08-16-11 379359 4,955.00 MD. Gallego Manila08-09-11 379339 6,232.00 L. Jalbuna Manila06-16-11 361045 4,263.00 E. Javison Manila06-10-11 361042 3,172.00 A. Bedonia Manila06-10-11 361039 8,525.00 For 2 MFL Engineers Manila06-10-11 361038 2,140.00 A. Bedonia Manila05-17-11 361001 4,710.00 E. Javison Manila05-10-11 360995 5,046.56 A. Bedonia Manila05-05-11 360989 16,328.00 MD. Gallego Cagayan de Oro City05-02-11 360986 9,985.00 E. Javison Manila04-25-11 360966 20,285.00 M. Chua & ML. Gayomali Manila04-19-11 360956 17,710.00 E. Javison & L. Jalbuna Manila04-15-11 360950 14,237.00 E. Javison & L. Jalbuna Manila04-11-11 360933 5,907.00 M. Chua Manila04-05-11 360930 5,336.00 A. Bedonia Manila

Total 215,839.56

The air fares should form part of the CA of the concerned personnel andshould 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 toother 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 transactionswithout supporting office order and/or travel authority are shown below:

Date Check No. Amount Employee Particulars

4-05-11 360930 5,336.00 For A.Bedonia

Payee: Island Adventure T&T re: plane fares

4-05-11 360932 3,560.00 M. Chua Cash advance (CA) re: Business PlanCascading Workshop 4/7-9/11

4-11-11 360942 3,560.00 A. Bedonia Reimbursement, re: Business Plan CascadingWorkshop 4/7-8/11

4-11-11 360933 5,907.00 For M. Chua Payee: Island Adventure T&T re: plane fares4-15-11 360953 3,840.00 A. Bedonia Reimbursement, re: 15 th PHILBO National

Convention5-02-11 360986 9,985.00 For E.

JavisonPayee: Island Adventure T&T re: plane fares

5-05-11 360988 3,340.00 E. Javison Reimbursement, re: Special Board Meetingof SME-DBM, Inc.

5-17-11 361002 4,060.00 E. Javison Cash advance (CA) re: Plenary session onERB and Budget Review

6-16-11 361046 4,380.00 E. Javison CA re: Final ERB Meeting FY 2012 National Budget

6-16-11 361045 4,263.00 For E.Javison


8-09-11 379340 4,800.00 L. Jalbuna CA re: Seminar/W-shop on Public ServiceEthics & Accountability

9-01-11 379390 7,930.00 E. Javison CA re: LGU PFM & Regional CoordinationMeeting

11-10-11 379489 2,720.00 A. Bedonia Reimbursement, re: Forum on theImplementation of NBM No. 109

11-10-11 379490 5,136.00 For A.Bedonia


11-14-11 379501 9,282.00 L. Baban Reimbursement, re: Seminar/W-shop onGMIS Web-based Application

Total 78,099.00

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 fromprocessing plane fares in behalf of the personnel. Likewise, all disbursementsmade in advance for official travel should be recorded as CAs of the concernedpersonnel 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 fromprocessing travel claims without the necessary office order and/or travelauthority from CO for travels outside the region and to other places within thecountry in conformity with Section 28 of the MNGAS, Volume I.

Management commented that they will discontinue the practice of payingairfares directly to Island Adventure Travel & Tours. They also asked for consideration for the payment of airfares of selective DBM Directors to be paiddirectly to the said agent after the completion of the travel so as not to bother theconcerned Regional Director in paying his plane fares. An Office Order was issuedto serve as guide in the granting of travelling expenses to all personnel.

Understatement of Current Year’s Depreciation/Accumulated Depreciation

12. In Region II, the Depreciation Expenses on PPE during the year wereunderstated by P209,727.46 due to the failure in providing the required and

correct depreciation on some depreciable properties. This resulted to theunderstatement of the accumulated depreciation of said properties as of December 31, 2011 and the overstatement of the net income for the year thenended.

Under COA Circular No. 2003-007 dated December 11, 2003, it was provided, among others, that depreciation of government PPE shall be computedand 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 incurredand reported in the Financial Statements in the period to which they relate.

We reviewed the depreciation expense of PPE as of December 31, 2011 andwe noted that there were understatements in the total amount of P209,727.46, towit:

Particulars Books Per Audit PerUnderstatement

Reason

Office Building P249,284.80 P299,141.76 P49,856.96 No Depreciationfor February andMarch 2011

Other Structures 14,480.70 17,376.84 2,896.14 No Depreciationfor February andMarch 2011

OfficeEquipment

314,250.11 364,775.67 50,525.56 No Depreciationfor February andMarch 2011

Furniture andFixtures

42,648.29 48,797.83 6,149.54 No depreciation for February andMarch, 2011, anddue to errors incomputation

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Particulars Books Per Audit PerUnderstatement

Reason

IT Equipment 285,526.06 356,845.84 71,319.78 No depreciation for February andMarch, 2011, anddue to errors in

computationCommunicationEquipment

5,869.60 6,823.08 953.48 No Depreciationfor February andMarch 2011

SportsEquipment

1,089.80 1,307.76 217.96 No Depreciationfor February andMarch 2011

Motor Vehicles 135,985.70 163,182.84 27,197.14 No depreciation for February andMarch, 2011, anddue to errors incomputation

Other PPEs 3,054.50 3,665.40 610.90 No Depreciationfor February andMarch 2011

TOTAL P 1,052,189.56 P 1,261,917.02 P 209,727.46

The understatement in the depreciation expenses was primarily caused bythe failure of Management in providing the required depreciation on all of theabove-listed PPE for the months of February to March 2011 and the erroneouscomputations of depreciation on Furniture and Fixtures, and IT Equipment . Thesedeficiencies 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 theoverstatement in the net book values of these properties due to the understatementsof their respective Accumulated Depreciations at year-end.

We recommended that Management in Region II require theAccountant to exercise utmost care in the keeping of accounts of the agency toensure accurate recording in the books of accounts.

We also recommended that appropriate adjustments should be effectedin the books of accounts to record the understated Accumulated Depreciationfor 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 toeffect 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 andmaterials amounting to P1,912,359.65 for the period January 1 to December31, 2011 from the PS contrary to the provisions of R.A. No. 9184 and itsImplementing Rules and Regulations (IRR), as well as AdministrativeOrder 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 GovernmentElectronic Procurement System (PhilGEPS) in procurement activities.

Sec. 53 of RA 9184 Government Procurement Reform Act, provides for thedifferent 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 commonlyuse 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 NegotiatedProcurement:

“53.5 Agen cy-to- Agency . Procurement of infrastructure projects,consulting services, and goods from another agency of theGovernment of the Philippines (GOP), such as the PS-DBM, whichis 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 toimplement 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 referringto those supplies, materials, and equipment included in the price list of the PSwhich are necessary in the transaction of the official business of the procuring entityand 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 DBMCircular 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 theyear for the purchase of supplies and materials needed in the day- to- day operationof the agency since January 1 to December 31, 2011. However, of these purchasesthe amount of P 855,683.05 were not bought from the PS contrary theaforementioned regulations.

We recommended that Management in Region IX ensure procurementof 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 datedAugust 25, 2011. This way, the agency is supportive of the government policyon transparency, competitiveness, streamlined procurement process, system of

accountability, and public monitoring.

Management commented that they did not procure commonly use suppliesfrom PS because there was no PS Depot in Zamboanga City. They said that it wasimpractical to buy from PS Manila since it procured in small quantities of commonly used supplies. Also, delay in the delivery of ordered items wasexperienced on purchases made from the PS. The agency could not afford suchdelays because it only maintained relatively small amount of inventories in itsstockroom. Large purchases on supplies and materials could not be made due tofunding constraints. However, it was very fortunate that a PS Depot was opened inZamboanga City on May 25, 2012. Henceforth, they will procure said items fromthe PS.

Advance payments for services not yet rendered

14. In Region VI, disbursements for three security guards for security services andtwo general manpower for janitorial services totalling P 684,800.49 for theperiod from January to November 2011 were paid in advance contrary toSection 88 (1) of P.D. No. 1445.

Section 88 (1) of P.D. No.1445 provides that except with the prior approvalof the President (Prime Minister) the government shall not be obliged to make anadvance payment for services not yet rendered or for supplies and materials not yetdelivered under any contract therefor. No payment, partial or final, shall be madeon any such contract except upon certification by the head of the agency concernedto 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 inspectedand accepted.

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We analyzed the agency’s transactions and we noted that for the currentyear advance payments for the period January to November 2011 totallingP684,800.49 for security services for three personnel and janitorial services for twogeneral manpower were made to Globe General Services and Security Corporation,as follows:

Date of Bill/

Statementof

Account

DateReceived by DBM

ApplicablePeriod of Payment

SECURITYPayment Made

JANITORIALPayment Made

Date Check No. Amount DateCheck No. Amount

1-11-11 01-12-11 Jan ‘11 Jan 21 092991 40,461.49 Jan 21 092992 21,793.101-21-11 02-21-11 Feb ‘11 Feb 23 360833 40,461.49 Feb 23 360834 21,793.103-21-11 03-08-11 Mar ‘11 Mar 8 360873 40,461.49 Mar 8 360872 21,793.104-25-11 04-13-11 Apr ‘11 Apr 15 360946 40,461.49 Apr 15 360944 21,793.105-25-11 05-19-11 May ‘11 May 20 361005 40,461.49 May 20 361004 21,793.106-24-11 06-21-11 June ‘11 June 22 361061 40,461.49 June 22 361062 21,793.10

7-20-11 07-14-11 July ‘11 July 18 379309 40,461.49 July 18 379310 21,793.108-25-11 08-11-11 Aug ‘11 Aug 15 379349 40,461.49 Aug 15 379348 21,793.109-16-11 09-13-11 Sept ‘11 Sept 20 379414 40,461.49 Sept 20 379413 21,793.10

10-25-11 Oct ‘11 Oct 26 379477 40,461.49 Oct 26 379476 21,793.1011-10-11 11-14-11 Nov ‘11 Nov 18 379504 40,461.49 Nov 18 379503 21,793.10

Total 445,076.39 239,724.10

Receipt of billing from supplier did not necessarily mean that the agencyhad 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 endof the month.

Audit Observation Memorandum (AOM) No. 2012-005 dated February 3,2012 was issued to Management regarding this deficiency. Managementcommented 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, maywe 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 agencywhich will be reflected in our quarterly performance reports submitted to the Officeof the President.”

We recommended that Management in Region VI refrain from makingadvance payments to Globe General Services and Security Corporation forsecurity 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 JobOrders (JOs)

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15. In CO, CAR and Regions VI and XII, copies of government contracts, POs andJOs together with the supporting documents, entered into by the agency werenot furnished the Auditor within the reglementary period of five days whichwas 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 reviewthereof, with the end-in-view of determining compliance of the contract withapplicable laws, rules and regulations, so that deficiencies or defects noted, if any, could be communicated to management for adoption of correctivemeasures.

Section 3.1.1 of COA Circular No. 2009-001 dated February 12, 2009which 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, acopy of said contract and each of all the documents forming part thereof by

reference or incorporation shall be furnished to the Auditor of the agencyconcerned.”

Section 3.1.2 of the same Circular specifically provides the copies of thedocuments 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 theabove-cited regulation, thus, its timely review and evaluation as well as inspectionof reported accomplishments and deliveries could not be effected. There wereinstances that purchases of goods and services will only come to our attention uponreceipt 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 weresubmitted 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 thePOs was not in accordance with the procedure presented in Appendix 52 of theMNGAS, 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, 2011despite verbal instructions, reminding management that POs should be submitted tothe Audit Team within five working days form perfection thereof.

In CAR, we reviewed the payments for the completed projects and we notedthat various documents were not attached and submitted to the audit team. Saiddocuments were vital in the determination of the reasonableness of the project costsand compliance with the specifications of the contracts. Such documents includethe following:

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• 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 variationorder(s)

• Technical specifications for the original contract and for all variationorders, if any

• Copy of the approved detailed breakdown of the original contractamount and for all the variation orders, if any

• Copy of the approved Statement of Work Accomplished/ProgressReport 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 XIIsubmit copies of perfected government contracts, POs and JOs to the auditteam within the prescribed period together with the supporting documentsstated in Section 3.1.2 of COA Circular No. 2009-001 dated February 12, 2009and number the POs in accordance with Appendix 52 of the MNGAS, VolumeII.

Management commented that copies of Contracts and POs entered into byagency 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 fileof POs intended for the audit team but was not able to submit the said documentswithin the required period. Henceforth, respective Managements committed thatthe afore-cited documents will be forwarded to the audit team within five workingdays from the date of execution of the contract.

CAR Management commented that it exerted its best efforts to complete allthe documents before submission, however, the preparation/completion of somedocuments, such as the built-in plans and the technical drawings required was

beyond their control despite frequent coordination with the contractor andDepartment of Public Works and Highways (DPWH), considering that their technical services/advice were being sought on these projects, and that theAccounting Section shall ensure compliance of the noted documentary requirements

pertaining to transactions/projects of similar nature in the future.

Delayed submission of financial reports

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16. In Region XII, timely verification of the accounts could have been done had theagency 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 areimmediately recorded in the books of accounts and submitted to the Auditor withinthe first ten (10) days of the ensuing month”.

Reports are one of the means on how the agency could convey to theCommission, the manner it manages its financial affairs. The absence and/or non-submission of these reports would show the auditee’s non-compliance with existinglaws, rules and regulations.

We noted that financial reports were not submitted to the Office of theAuditor within the reglementary period. The time lag in submitting the DVs andReport of Checks Issued (RCI) ranges from 20 to 112 days while the trial balancesand financial statements ranges from 21 to 143 days. Further, DVs, RCI, trial

balances and financial reports for the period September to November 2011 were notsubmitted as of December 31, 2011.

We verbally reminded the designated Acting Accountant on the submissionof 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 withthe timely submission of reports in accordance with the provision of theaforementioned regulation.

In a written response, Management justified that as regard the financialreports 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 copywhich 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 theAccountant failed to forward the signed hard copies on time.

Further, for the period May to November 2011 , while the Accountant wason study leave, the person acting in her place made sure that financial statementswere regularly and timely submitted, except for the trial balance which the ActingAccountant had difficulty generating since she was not well-versed with theElectronic New Government Accounting System (e-NGAS).

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Moreover, with respect to the DVs, the Cashier after processing the dailytransaction 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 lenientin 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 beevaluated due to the failure of the Official Driver/Management to submit theMonthly Report of Fuel Consumption and Monthly Report of Official Travelsto the audit team as required under Section 361 (g) of Government Accountingand 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 effectivelycontrol 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 Auditfor Fuel Consumption of Government Motor Vehicles to minimize wasteful,excessive and unnecessary expenditures on fuel consumption and ensure theeffective conservation of energy and proper utilization of government motor transportation.

We verified the DVs submitted for CY 2011 and we noted that only theDriver’s Trip Tickets were attached to the vouchers. The Monthly Report of Fuel

Consumption for each motor vehicle was not attached nor submitted to the auditteam which would help us to review and verify whether fuel consumption isreasonable 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 approvedDriver’s 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 andMonthly Report of Official Travels together with the attachments within the

prescribed period not only violates rules and regulations but deprived the audit teamto review and evaluate the reasonableness of fuel consumption and determinewhether resources have been utilized economically.

We recommended that Management in Region XII, particularlyauthorized drivers of government vehicles, submit regularly to the audit teamwithin the first ten days of the following month the Monthly Report of FuelConsumption and Monthly Report of Official Travels in accordance withexisting 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 andhad not exceeded the allocation for gasoline. However, Management gaveassurance 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 andfunded 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 theMNGAS, Volume I. Thus, the validity/propriety of the transactions involvedremained doubtful.

Section 28, Chapter 3 of the MNGAS, Volume I, provides, among others,that documents required to support a liquidation or disbursement must be dulysigned 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 totalingP177,565.06 for the period October 1 to December 31, 2011 were not properlysigned by the OIC of the Cash Division, contrary to the provisions of the above-cited 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 subsequentdisbursements we noted that the said deficiency had remained uncorrected/unactedupon by concerned Management official.

We recommended that Management in CO require the OIC of the CashDivision, to sign the certification at the lower portion of the payroll to ensurethe 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 documentsattached to the claims were properly signed by concerned agency officialsbefore 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 werealready 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 byall officials/employees concerned.

Non-compliance with DBM Circular Letter No. 2006

19. In Region III, personnel used the Agency Procurement Request (APR) in thepurchase of common-use items from the PS Depot 3 instead of the Employees

Procurement Request (EPR), contrary to DBM Circular Letter No. 2006-6dated 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 representativeauthorizing their employees’ cooperatives/associations to

purchase low-priced common use items from PS for subsequent distribution/sale to government employees.x x x x

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 threeco pies.”

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 toP299,341.70, of which P249,151.70 of common use items was procured from thePS Depot 3.

Likewise, we reviewed the Subsidiary Ledger(SL) record which showed thatP566,677.31 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 PSSL) P566,677.31 and we noted a difference of P317,525.61 as unrecordedtransactions 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 III’s practice of supporting all its purchases from PS Depot 3 (for official and for its employee’s personal use) with an APR was not in conformitywith 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 requiredunder DBM Circular Letter No. 2006-6 dated April 25, 2006 to distinguish officialuse from personal use of personnel.

Thus, Region III, failed to implement the prescribed guidelines issued by theDBM itself.

We recommended and Management in Region III agreed to observe theguidelines it issued for the procurement of common-use items by employeesfrom 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 progressamounting to P865,300.00 contrary to DBM Circular Letters 2004-2 and 2005-2 dated January 26, 2004 and January 28, 2005, respectively, hence,unnecessarily overstating the pertinent Property, Plant and Equipment accountsby the same amount and the corresponding Prepayment – Advances toContractors and Repair and Maintenance – Office Building) accounts debitedfor the purpose.

Section 1.2 of DBM Circular Letter 2004-2 dated January 26, 2004 statesthat commitments/obligations shall be recognized as Accounts Payable (A/Ps) onlyupon receipt by the agency of the suppliers/creditor’s 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/completedand accepted”.

Section 3.2.3 of the same Circular Letter also provides thatcommitments/obligations, for which no goods/services/projects have been

delivered/rendered/completed and accepted, shall not be treated as A/Ps at the endof the year. However, these commitments or obligations shall remain valid and binding up to the time the goods/services/projects shall have beendelivered/rendered/completed and accepted by the concerned agency. This is areiteration 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 tosupport the Financial Statements, as of December 31, 2011 and we noted thefollowing:

Name of Creditor - FJM Const. Supply& Gen. Mdse.

Amount Remarks

a) 202 b) 211c) 811

402,050.00378,250.00

85,000.00

75%cost for rehabilitation of perimeter fence75% cost of renovation of CR (ground floor)85% cost of renovation of CR (back portion)

TOTAL 865,300.00

The foregoing table did not include the Agency’s Due and DemandableAccounts Payables.

We analyzed the nature of the foregoing payables and we noted that theProjects listed in letters a and b were only 25 percent complete and letter c, 15

percent were still on going. Thus, the amount of P 865,300.00 could not be taken-upas 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 toP780,300.00 was Advances to Contractors, thus, giving the impression that theagency already paid in advance the contractor with said amount. This resulted in theoverstatement 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 theprovisions of DBM Circular Letters 2004-2 and 2005-2 dated January 26, 2004and January 28, 2005, respectively, regarding the treatment of certaintransactions as Accounts Payable . Only Accounts Payable with valid and legalobligations/commitments for which goods/services/projects have beendelivered/rendered/completed and accepted shall be booked-up.

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We were assured by Management that the necessary adjusting andcorrecting 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 fortheir office building and other structures against fire contrary to Section 489 of GAAM Volume I, thus resulting to lack of protection for governmentproperties 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 governmentsconcerned except municipal governments below first class, government-ownedand/or controlled corporations, subsidiaries and acquired asset corporations shallsecure from the General Insurance Fund directly all insurances or bonds covering

properties, contracts, rights of action and other insurable risks of their respectiveoffices, including all those in which they have an insurable risk and all those inwhich they have an insurable interest only. For this purpose, no insurance agent or general agent shall hereafter be appointed or maintained to represent the GeneralInsurance 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 respectthereof, of such nature that a contemplated peril might directly damnify the insured.

The office building was initially constructed in 2008 and completed in 2009in the total amount of P34,296,101.36. The cost of the building was high whichneeded insurance for protection against loss in the event that the structure isdamaged or destroyed by fire. Fire insurance is important because a disaster canoccur at any time. There could be many factors behind a fire, for example arson,natural elements or faulty wiring. Fire insurance provides protection for theestimated value of the physical building.

The Accountant, informed us that the office building and dormitory werenot covered by a fire insurance with the GSIS as required under Sec. 489 of GAAMsince 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 fromfire.

We recommended that Management in Region XIII immediately securefire insurance coverage from the GIF of the GSIS to protect governmentproperties 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 constructionin CY 2009, no insurance coverage was secured from the GSIS General InsuranceFund 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 andreliable protection against any damage to or loss of the office building in the eventof any peril to the said property, however, the Management was not able to securesuch insurance due to budgetary constraints. Per inquiry with the GSIS, theestimated 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 thefire insurance of office building was allocated by the CO under the FY 2009 to FY2011 budget of RO XIII. Insurance coverage under our budget then was only goodfor the motor vehicles. It was only this year, CY 2012, after prior consultation withthe CO that allotment for such insurance coverage was included in our budget due

to its necessity.It wa

DBM 2011 COA OBSERVATION RECOMMENDATOIN

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