DEPED COA2011 OBSERVATION RECOMMENDATION

7/22/2019 DEPED COA2011 OBSERVATION RECOMMENDATION

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OBSERVATIONS AND RECOMMENDATIONS

A. FINANCIAL AND COMPLIANCE

Unremitted funds to the National Treasury

1. Unutilized Cash-NT/MDS, refunds of cash advances, fund transfers,

performance bond/bid security posted by contractors and sale of bid

documents in OSEC and four regions totaling P130,747,514.35 were notremitted to the National Treasury, of which P130,247,515.98 or 99.61% was

deposited in the Cash in Bank-LCCA and P499,998.37 or .39% was kept by

the Special Collecting Officer-Designate. This is in violation of DBM and

DepEd Joint Circular No. 2004-1 and pertinent provisions of the 2011 GAA

whereby the government was deprived of the much needed funds to support

priority programs and projects.

Section 4.6 of Joint Circular No. 2004-01 dated January 1, 2004 of theDBM and DepEd states, All existing Cash-in-Bank balances, net of outstanding

checks, shall be remitted to the Bureau of the Treasury (BTR) in accordance with

National Budget Circular (NBC) No. 488 dated May 22, 2003. A maximum of six(6) months from the date of the latest outstanding checks issued shall be allowed

after which the remaining Cash-in-Bank balances shall be closed

The General Provisions of RA No 10147 or the General AppropriationsAct for 2011 provide, among others:

Section 3 - All fees, charges, assessments, and other receipts

or revenues collected by departments, bureaus, offices oragencies in the exercise of their functions, xxx , shall be

deposited with the National Treasury and shall accrue to theGeneral Fund pursuant to Section 44, Chapter 5, Book VI of

EO No 292 and Section 65 of PD No 1445 xxx

Section 7 - Performance Bonds and deposits filed or postedbyprivatepersons or entities with agencies of the government

shall be depositedwith the National Treasury as trust receipts

under the name of the agency concerned in accordance withEO No 338, as implemented by COA-DBM-DOF Joint

Circular No. 1-97 dated January 2, 1997. xxx.

The Cash in Bank-LCCA disclosed unremitted/undeposited amounts to the

National Treasury by the Office of the Secretary (OSEC) and the Regional

Offices (ROs) consisting of accounts as shown in the Table 1.

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Table 1. - Summary of unremitted/undeposited collections/receipts

Name of Office Cash Balance Remarks

OSEC P 99,791,267.57 P79,380,729.30 (80%) pertains to refund of

excess performance enhancement incentivesfor CY 2010.

NCR-ROP 8,151,770.93 P4,573,931.33 (56%) pertains to excess

collection of registration / seminar fees.

NCR- DO

Caloocan City

1,872,746.19 P1,132,615.99 (60%) pertains to other

collections for the year 2010.

NCR- DO

Pasay City

14,514,679.38 represents transfer of funds from Cash-

National Treasury, MDS account to Cash in

Bank-LCCA.

RO V- DOMasbate 13,431.70 collections from canteen rental, petty cashfund and miscellaneous fees.

RO V- DO

Naga City

499,998.37 collections of performance bond.

RO IX- DO

Dapitan City

2,774,722.65 MOOE of the Division in CY 2009 and for the

Palarong Pambansa in CY 2011.

RO XIII- DO

Agusan del Sur

3,128,897.56 P2,195,033.59 (70%) pertains to receipts from

DepED RO, financial assistance from LGUs,

and registration fees.

P130,747,514.35

Management explained that said funds were intended to augment/defray

urgent/relevant expenses not covered by regular MOOE funds. Also, managementasserted that the unutilized Notices of Cash Allocations (NCAs) were deposited in

the current account to avoid lapsing and reversion to the National Treasury as

these NCAs were received towards end of the month and there are still unsettledobligations.

We recommended and Management of concerned Offices agreed to:

remit all unutilized/excess funds to the National Treasury;

stop the practice of depositing the collections received from any sources

and/or transferring unused balances of NCAs to the agencys current

account; and

implement a sound cash management system in strict adherence with the

above-mentioned rules and regulations.

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2. The unauthorized retention in the Cash in Bank-LCCA account for Payroll

Fund of the DepEd NCR ROP of savings from Personal Services (PS)

amounting to P171,618,718.24 to pay for the newly-hired teachers salaries

for FY 2012 is contrary to Section 3.9.1.2 of NBC No. 528. The delayed

remittance thereof to the National Treasury may have also affected the

efficient programming of the cash resources of the national government.

Section 3.9.1.2 of NBC No. 528 provides, Appropriations under FY2011 GAA, R.A. 10147 shall be available for release and obligation up to

December 31, 2012 with exception of PS which shall lapse at the end of 2011.

For CY 2011, the Division Offices (DOs) and Operating Units (OUs)remitted cash to the NCR-Regional Office Proper (ROP) for the salaries and

allowances of teachers, which the latter deposited to the its current accounts for

payroll fund since the payrolls are prepared and paid by the ROP.

Audit disclosed that the Cash-LCCA balance of the DepEd NCR ROP at

year-end includes savings from PS in the amount of P171,618,718.24 withexpired validity of appropriation and, therefore, not anymore allowable for

obligation in FY 2012. The Regional Accountant in NCR explained that the

amount was set aside to pay the newly-hired teachers salaries for FY 2012,

pending receipt of the Special Allotment Release Order (SARO) and NCArequested by the DOs and OUs in the total amount of P191,359,702.46 as of

February 2012.

The unauthorized retention of savings in the current accounts with expiredvalidity of appropriations is contrary to Section 3.9.1.2 of NBC No. 528, hence,

may affect the validity and regularity of the transactions funded out of this

account.Ourverification on the 2012 transactions of the ROP showed, however,

that the amount of P171,618,718.24 and the interests thereon totalingP1,992,689.27 from the 4th quarter of 2011 to 3 rd quarter of 2012 were already

remitted to the BTr as of October 31, 2012.

We recommended that Management stop the practice of retaining savings in

the Cash in BankLCCA, otherwise, this shall constitute neglect of duty and

shall be a ground for administrative disciplinary action, as stated in Section

127 of PD 1445, and ensure that excess funds or savings are remitted

promptly to the National Treasury for proper disposition.

Delayed /non-submission of Bank Reconciliation Statements (BRSs)

3. The accuracy of Cash in Bank-LCCA with an aggregate amount of

P2,796,446,605.29 in eleven offices could not be ascertained due to

delayed/non-submission of BRS, non-maintenance of the necessary

subsidiary ledgers for each bank account, and non-recording of reconciling

items, contrary to Sections 74 of PD 1445.

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Section 74 of PD No. 1445, otherwise known as the Government

Auditing Code of the Philippinesprovides that the head of agency shall see to it

that reconciliation is made between the balance shown in the reports of thedepositories and the balance found in the books of the agency.

Section 2.1.4 of the COA Circular No. 92-125A states that the accountingunits shall submit the original BRSs within 15 days after the end of the month to

the COA Resident Auditor.

The Cash in Bank - LCCA accounts of the following offices and their

balances are shown in Table 2:

Table 2. - Summary of Cash in Bank LCCA account balances

Name of Office Per Books

OSEC P1,118,881,796.50NCR-DO Caloocan City 1,872,746.19

RO I-ROP and DOs Urdaneta and Pangasinan I 104,578,977.65

RO II 216,869,852.69

RO III 6,807,232.59

RO IV A 62,623,757.10

RO V 540,526,446.97

RO VI 566,793,810.44

RO IX-ROP and DO Zamboanga del Norte 177,491,985.16

Total P2,796,446,605.29

For the OSEC alone, the bank balances are deposited in eleven banks, of

which the authority or basis for the opeining of bank accounts have not beenprovided. Interview with the Accounting Section revealed that there were no

information on the authority per their available records on file.

All the above balances were not reconciled with the balances presented inthe bank statements due to:

Delayed/non-preparation and submission of BRSs in OSEC, RO I-ROP

and DOs Urdaneta and Pangasinan I, ROs II, IV-A, V and VI, and RO IX-DO Zamboanga del Norte;

Failure to maintain/update subsidiary ledgers in OSEC, RO II, and RO IX-

DO Zamboanga del Norte;

Unrecorded deposits and cancelled checks in DO Caloocan City;

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Unrecorded book reconciling items and non and/or erroneous recording of

deposits in RO I; and

Long outstanding and unreconciled items in the BRS of RO III.

Interview with the concerned Accountants disclosed that bank statementswere not furnished promptly by the depository banks. Hence, the validity and

correctness of the above cash balances cannot be properly ascertained

We recommended that Management:

require the respective Accountants/Bookkeepers to prepare and submit

regularly and within the prescribed period the BRSs in compliance with

Section 2.1.4 of the COA Circular No. 92-125A;

cause the suspension of payment of salaries for failure on the part of the

officials concerned to submit the required reports pursuant to Section122 of PD 1445; and

coordinate closely with the depository banks by requesting them to

deliver promptly the monthly bank statements so that Accountants can

prepare the BRSs on time.

Outright utilization of collections and non recording of related expenses

4. The proceeds of collections from seminar and conference fees were utilized to

defray the related seminar/conference expenses of the CAR-DO Abra,

contrary to sound internal control system on cash. Furthermore, thetransaction was not recorded in the books of accounts resulting in the

overstatement of Cash-Collecting Officers and understatement of the related

expense accounts due to non-recording of expenses amounting to

P547,700.00.

Section 9 of the CY 2011 GAA also states, among others:

Departments, bureaus, offices or agencies which conduct

training programs in relation to their mandated functions are

authorized to collect seminar and conference fees xxx. The

proceeds xxx may be used for the conduct of seminars,

conferences and trainings, subject to pertinent budgeting,accounting and auditing rules and regulations: PROVIDED,

That any excess shall be deposited with the National Treasuryand shall accrue to the General Fund pursuant to Section 44,

Chapter 5, Book VI of E.O. No. 292: PROVIDED, FURTHER,

That upon the conclusion of the seminar or conference, theoffice authorized to conduct the same shall submit to the DBM

a report of the fees collected and of the expenses incurred.

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Sound internal control system over cash dictates that collections bepromptly and fully deposited in an authorized government depository bank and

disbursements properly accounted for.

Registration fees for trainings and seminars conducted by the CAR-DO

Abra in 2011 amounted to P401,000.00, of which P386,789.00 was immediately

utilized for expenses incurred during these trainings and seminars.

The Cash-Collecting Officers account has a balance of P548,288.12 in the

financial statement at year-end December 31, 2011. Post-audit of the Report of

Collections and Deposits (RCD) revealed that all collections were duly accountedfor and all cash in the custody of the Cashier were deposited, except the amount

of P547,700.00, which were expended for the seminars and trainings and were

not recorded in the books. This resulted in the overstatement of the Cash-Collecting Officers account and understatement of the related expense account/s.

The outright utilization of collections from trainings and seminars anddepositing only the excess after all expenses for these activities have been

accounted may result in possible mishandling of funds. Also, the failure to record

expenses incurred resulted in the overstatement of the Cash-Collecting Officer

account and understatement of expenses by P547,700.00.

We recommended that Management of DO Abra:

require the Accountant to record all collections and deposits in the books

of accounts promptly and prepare a Journal Entry Voucher (JEV) to

take up the adjusting entry, if necessary; and

henceforth, deposit intact to the agencys bank account all collections

from training and seminar fees upon collection, disburse funds through

check or cash advance, and deposit all excess collections to the National

Treasury.

The Cashier explained that training and seminar fees were used because of

the persistence of the Supervisor-Coordinators to immediately provide for thefood and materials needed during these trainings and seminars, but assured the

Audit Team that she will comply with the recommendation.

The Accountant of DO Abra also admitted that the non-recording of all

collections, deposits and disbursements of the Cashier, particularly during the

latter part of the previous year, was due to delayed submission of the RCDs. She,however, assured the immediate adjustment of the account.

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Non cancellation of stale checks

5. Checks issued to private lending and insurance institutions and various

teachers totalling P4,005,125.99 by the DepEd NCR and ROs XII and XIII

became stale but were neither cancelled nor reported in the List ofUnreleased Checks contrary to Section 52 of the MNGAS Volume I. This had

also deprived the employees of the benefits thereof.

Section 52 of the Manual on the New Government Accounting System(MNGAS), Volume I states the checks may be cancelled when they become stale.

The depository bank considers a check stale, if it has been outstanding for over

six months from the date of issue or as prescribed. A stale check shall be markedcancelled on its face and reported as follows:

Unclaimed stale checks which are still with the cashier shall

be cancelled and reported in the List of Unreleased Checks ascancelled.. The List of Unreleased Checks is attached to the

Report of Checks Issued (RCI).

Audit of the RCIs of the three ROs disclosed checks totaling

P4,005,125.99 issued during the year which became stale, as shown below.

Region Amount

NCR P1,235,304.53

XII 1,945,836.04

XIII 823,985.42

Total P 4,005,125.99

The reason, among others, for the stale checks is due to the failure of thePrivate Lending Institutions (PLIs) to pick-up the check representing monthly

collections of loan remittance and/or authorized deduction of employees and

teachers. Records showed that it took an average of two years for the PLIs torequest for replacement of staled checks. Further, the PLIs did not submit written

justification/request to replace the staled checks since 2007, hence the

accumulation of the amount.

In DepEd RO XII, the P1,945,836.04 consisted of 254 staled checks which

were issued in CY 2010 and early CY 2011. Said checks were neither cancelled

nor included in the List of Unreleased Checks attached to the RCI, contrary toSection 52 of the MNGAS Volume I.

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The Cashier explained that authorized representatives of the PLIs opted

not to pick up the checks because the cost of their transportation is higher than theamount of check involved, thus not worth the effort. Management further

explained that they cannot just delete these deductions in the payroll because there

is a MOA between the DepEd OSEC and the lending institutions on the grant ofautomatic payroll deduction for loans extended to DepEd teachers/personnel,

which provides, among others -

2. Roles and Responsibilities of the Lender

2.2 TheLender shall pick-up the monthly collections from

DepEd and correspondingly issue Official Receiptthereof. In case of failure to pick up the collection

checks within the period of six (6) months, the Lender

shall not impose any interest/penalty/surcharges against

the DepEd borrowers.

3 Responsibilities of the DepEd

3.3 The DepEd may replace stale remittance checks only

once for a particular check on the basis of written

justification from the Lender acceptable to DepEd.

However, it was noted that the MOA did not provide sanctions to Lender

in case they fail to pick-up the monthly collections from DepEd to prevent stalechecks.

The above deficiency may deprive the employees of the benefits due themand may entail the payment of additional interest for late payments.

On the other hand, the stale checks amounting to P823,985.42 of RO XIII,covering 1,006 pieces of checks issued on December 20, 2010, January 10, 2011

and March 7, 2011, covering refunds to teachers of the various DOs of DepEd

RO. Of this amount, only P59,384.50 or 6.72% were claimed by the payees while

the remaining P823,985.42 or 93.28% was unclaimed and not yet restored to thecash account as of December 31, 2011.

We recommended and Management of concerned ROs agreed to:

require the Cashier to cancel the staled checks and report the same in the

List of Unreleased Checks as cancelled;

require the Accountant to prepare the necessary JEV to take up thestaled checks in the books of accounts;

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make representation with DepEd OSECCO officials to revisit theprovisions of the MOA, specifically items 2 and 3 and possibly include the

provision that in case of failure of private insurance institutions to pick

up the checks, the insurance coverage and prospective benefits therefrom

shall not be adversely affected;

inform the teachers concerned of the termination of the loans andinsurance deductions until both parties have agreed on a mechanism for

the prompt collection of the checks;

confirm with SEC if the concerned PLIs are still active. If no longeractive or not eager to collect the remittance, study the possibility of

refunding the amount to the teachers and employees concerned to settle

the accountability and responsibility of DepED to its employees; and

in RO XIII, ensure that the list of payees/teachers with unclaimed checksis widely disseminated to all DOs and schools as a means of informing the

concerned payees.

Unliquidated Cash Advances (CAs)

6. Cash advances totaling P796,416,808.15 granted to officers and staff

remained outstanding for at least 30 days to more than ten years as of

December 31, 2011 and additional CAs were granted despite existing

unliquidated balances, thus, violating Section 89 of PD 1445, among others.

This resulted in the overstatement and understatement of cash advances and

affected expenditure accounts, respectively.

Section 89 of PD 1445 and Section 4.1.3 of COA Circular Nos. 97-002dated February 10, 1997, provides among others, that a CA shall be reported onand liquidated as soon as the purpose for which it was given has been served. No

additional CA shall be allowed to any official or employee unless the previous

CA given to him is first settled or an accounting thereof is made.

COA Circular No. 97-002 dated February 10, 1997 provides further:

a a No CA shall be given unless for a legally specific

a a The CA shall be used solely for the specific legal

purpose for which it was granted. Under no circumstance,

shall it be used for encashment of checks or for liquidationof a previous CA;

a a The Accountant shall obligate all CAs granted. Heshall see to it that CAs for a particular year are not used to

pay expenses of other years; and

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a a CA for official travel shall be liquidated within

thirty days after return to the permanent official station asprovided for in EO 248 as amended by EO 298 and COA

Circular 96-004.

Review of the reports and records of the different offices showed that thefollowing agencies had repeatedly violated the regulations on CAs and previous

deficiencies noted had not been rectified that resulted in the accumulation and/or

increase of long outstanding accounts in the books, which had amounted toP796,416,808.15as of December 31, 2011. The breakdown is shown in Table 3.

Table 3. - Summary of unliquidated cash advances

Office

Amount of Cash Advance (in million PhP)Nature/

Purpose30-90

days

91-365

days

Over 1 to

10 yearsTotal

RO IX-ROP, DOsZamboanga City, - del

Norte, - Sibugay, - del

Sur, & Dipolog City

263.724 115.250 378.973 Salaries & wages,MOOE, and time-

bound undertaking

OSEC 12.530 21.213 79.354 113.096 Special and travel

purposes

RO X-ROP, DOs Cag.

de Oro, Misamis Occ./

Oriental, Malaybalay,

Bukidnon, Gingoog,

Iligan, Ozamis, Tangub

No Aging 79.377 Not Specified

CAR-DOs Abra,

Apayao & Flora NHS,Baguio, Benguet,

Ifugao & NHS, Mt.

Province & NHS

37.960 14.303 52.264 Salaries and wages,

MOOE, travelallowances, various

trainings &

seminars and other

programs.

NCR-DOs QC, Pasay,

Caloocan, Taguig/

Pateros, Pasig/San

Juan, Marikina,

Muntinlupa and NHS

51.052 Trainings/seminars,

travels, internet,

payroll fund, SBM,

office supplies,

other activities/

programs.

RO XIII 6.159 6.349 27.513 40.022 Salaries & wages,SBM, travel &

other time-bound

activities

RO V 23.966 Salaries, benefits,

travel & training

expenses

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Office

Amount of Cash Advance (in million PhP)Nature/

Purpose30-90

days

91-365

days

Over 1 to

10 yearsTotal

RO I- DOs Ilocos

Norte, Laoag City, San

Carlos City,Pangasinan I

22.862 Not Specified

BALS 4.744 2.200 12.936 19.880 Training & travel

expenses

Bureau of Elementary

Education (BEE)

1.745 0.633 0.010 4.308 Official travel &

time- bound

undertakings

Bureau of Secondary

Education (BSE)

0.810 0.146 2.890 3.846 Official travel &

time-bound

undertakings

RO II 13.560 Supplies &materials

registration fees,

gas, cater services,

landscaping,

athletic equipment,

Palarong

Pambansa,

CAVRAA, travel

expenses, etc.

SHNC 3.542 Orientation

Seminar/Worksho

ps

OSEC-LCC 2.400 Special and travel

purposes

RO III 2.094 MOOE allocations

EDPITAF 1.673 Training & travel

expenses

NEAP 0.666 0.621 1.287 Not Specified

RO XII 1.245 Official travels

and time-bound

undertakings

RO IV A 0.044 0.110 0.238 0.392 Not specifiedRO VI 75.677 Salaries, wages,

other benefits and

travel expenses

Total 796.417

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The reasons, among others, for the recurring problem are the following:

AOs were granted multiple cash advances or allowed additional

advances even if previous ones were not yet settled;

Employees were allowed to retire or resign without first settling their

accountabilities; Processing and recording of liquidation documents in the books was

delayed;

Liquidation, refund, and adjustments were either not or erroneously

recorded;

Liquidation was not matched properly to the specific cash advance;

Subsidiary ledgers (SLs) were not accurately and completely

maintained;

Monitoring and enforcement of submission of reports not strictly

observed;

Misposting of liquidation and improper use of accounts, which

eventually resulted to negative balances of accounts;

Officials and employees opted to avail of the cash advances for fear

that the allocated amount will be reverted to the National Treasury;

thus, they could no longer make use of the amount; and,

Officers lacked the technical knowledge on the time table to liquidate

the cash advance.

The timely submission of liquidation reports is necessary so that expensescan be recognized during the year these were incurred in accordance with the

accounting principle of proper matching of cost against revenue. Likewise, the

receivable or asset account can be correspondingly adjusted.

We recommended and Management agreed to ensure the following:

comply strictly with the pertinent provisions of Section 89 of PD 1445 andCOA Circular No. 97-002, specifically on the grant of additional cash

advances unless the previous cash advance has been liquidated. Impose

appropriate sanctions necessary under the circumstances;

demand immediate liquidation or settlement of the unliquidated cashadvances from those AOs who have retired or transferred, otherwise,

hold liable the signatories who granted clearance to those concerned; and

strengthen the internal control and monitoring procedures on the grantand liquidation of cash advances.

Excessive cash advances

7. In OSEC, excessive cash advances for special purposes were granted

resulting in refunds totaling P11,652,451.73 or 14 % of total cash advances of

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P80,665,930.60, thereby, losing the opportunity to finance other activities

and exposing the funds to possible loss or personal use.

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Section 5.7 of COA Circular No. 97-002 states that when a cash advance

is no longer needed or has not been used for a period of two months, it must be

returned to or refunded immediately to the collecting officer.

During the year, refunds of cash advances for trainings, seminars, and

other related activities amounted to P11,652,451.73. Refunds ranged from 1 to100 % of the cash advances, with a minimum of P4,000.00 to P900,000.00 per

individual cash advance. Five cash advances totalling P555,490.00 were fully

refunded while P8,497,343.54 were refunds of P50,000.00 or more per cashadvance, and P128,605.41 were less than P50,000.00 but at least 50 percent of the

cash advance. It can be construed that the project implementers did not properly

plan the activities.

The unused cash advances were not immediately refunded and have

remained in the hands of the disbursing officers for a period of 8 days to more

than 4 years from the time the cash advances were granted, as shown below, thus

exposing the funds to possible misuse or personal use.

No. of days in the hands of AO Unused/Excess CA

30 days or Less P 1,518,987.79

31 - 180 days 6,615,796.58

181 to 364 Days 2,153,345.15

1 year or more but less than 5 years 1,364,322.21

Total P 11,652,451.73

We recommended that Management ensure the following:

comply strictly with the provisions of COA Circular No. 97-002 on therefund of unused CAs;

henceforth, demand immediate refund and/or return of unused balancesfrom the AOs concerned; and

Direct the project implementers to observe prudence in planning aproject or activity, taking into consideration the proper budgeting, timing

and previous data, among others, to minimize grant of excess CAs.

The Chief Accountant explained that they had been implementing certain

measures in the pre-audit of budget estimates of every activity to minimize the

excess cash advance.

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Reporting Difference

8. Reporting differences/disparities totalling P667,297,522.64 were noted

between the GL and SL balances of the Due from NGAs account, as well as

erroneous accounting entries, which resulted in the net overstatement of

P2,280,170.60.

EO No. 40, s. 2007 provides that common-use supplies, materials and

equipment shall be procured from DBM-Procurement Service.

The Due from NGAs account includes unliquidated fund transfers to theDepartment of Public Works and Highways (DPWH) and the Department of

National Defense (DND) for the implementation of the School Building Program;

and the amount transferred to the DBM-Procurement Services for the purchase ofcommon-use supplies, office equipment, IT equipment and software, etc.

Section 12 of the MNGAS, Vol. II states that the Subsidiary Ledger (SL)

is a book of final entry containing the details or breakdown of the balance of thecontrolling account appearing in the General Ledger (GL). Postings to the SL

generally come from the source documents. The totals of the SL balances shall bereconciled with their respective control account regularly or at the end of each

month. Schedules shall be prepared periodically to support the corresponding

controlling GL accounts.

Verification disclosed that the SL of the Due from NGAs account

amounting to P2,735,537,429.63 did not tally with the GL balance of

P2,068,239,906.99, or a difference of P667,297,522.64 as shown on the nexttable. This could be attributed to the failure to update and reconcile regularly the

SL with its corresponding control account.

Implementing Agency SL Balance

DBM Procurement Service P2,465,339,204.50

Department of Public Works and Highways 195,547,795.06

DepEd Autonomous Region in MuslimMindanao

58,340,600.16

Department of National Defense 16,309,829.91

TOTAL P2,735,537,429.63

An overstatement of P4,028,476.00 was also noted due to double

recording of the amount on advances paid to the DBM-PS. Per JEV No. 2011-01-8322 dated 1/31/11. The transaction was first recorded in the January LDDAP

under JEV No. 2011-03-2562 dated January 31, 2011 and another entry was

made upon payment of check to the DBM-PS under JEV no 2011-03-2562 datedMarch 03, 2011.

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In addition, there was an understatement of P1,748,305.40 due to

erroneous recording of liquidation reports from ARMM on the basis of thecontract amount per report and not the actual payments made, thus understating

and overstating the Due from NGAs and Prior Years Adjustment accounts. The

liquidations pertain to the CAs granted/fund transfers for the implementation ofthe School Building Program and the School Furniture Program (SFP).

In view of the foregoing deficiencies, the Due from NGAs account has anet overstatement of P2,280,170.60, and the existence and validity of the account

cannot be established due to the unreconciled SL and GL balances.

We recommended that Management require the Accountant/Bookkeeper to

investigate the differences and prepare the necessary entries to reflect the

correct balances of the accounts. Moreover, maintain properly the SL for

the account to facilitate reconciliation and verification.

The Chief Accountant commented that efforts have been exerted to

reconcile/fully account for the funds transferred to the DBM PS.

Funds transferred to other NGAs, such as the DND and DPWH, are being

closely monitored through the regular issuance of demand letters. Liquidationreports being submitted from time to time are reviewed and immediately recorded

once evaluated to be in order.

Long Outstanding Accounts

9. Due from ROs and OUs of P29,126,210.00 and uncollected/unremitted

income due the NETRC totalling P3,812,643.24 have long been outstanding

in the books of accounts of the Center since 1980/1983. As a result, the

validity and accuracy of the accounts were doubtful.

As prescribed under the MNGAS, the Due from ROs/Staff Bureaus

(Account 136) and Due from OUs (Account137) shall be used to record inter-

office transactions in the books of CO/OUs or that of CO/RO.

As of year-end, the ledger balances of the Due from ROs and OUs

amounted to P1,051,341.65 and P28,074,868.35, respectively, or a total ofP29,126,210.00. These represent the unsettled accountability/liability of ROs and

ORs for the cost of Philippine Examination Placement Test (PEPT) application

forms as of December 31, 2012 entrusted to the different ROs, and theunliquidated financial subsidy in the administration of different examinations

covering the period CY1980-2011.

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The previous practice was to debit the Due from OUs account for the total

cost of application forms given to the different DOs for PEPT examination and tocredit the corresponding income account. Upon remittance of collections to the

NETRC, the account of ROs and DOs are credited. Hence, the receivable account

was established based on the actual cost of registration forms received and not onthe actual number of forms utilized. This system appears to be in consistent with

the accounting principle of recognizing income, where the long outstanding

accounts can be attributed.

The data provided by the Accounting Unit showed unremitted PEPT

registration fees, totalling P3,812,643.24. However, this amount was based on

the actual cost of registration forms entrusted to the different ROs, and not theactual number of issued/utilized forms.

The balance of the accounts also include the amount of unsettled accounts

representing financial subsidy granted to the different DOs for the administrationof the different examinations conducted by the Center. As of December 31, 2011,

the established balance of unsettled accounts for financial subsidy amounted toP24,480,385.17, which were sourced from the report of the Accounting Unit.

This is a reiteration of the previous years audit recommendation toconduct verification and reconciliation of records and demand settlement of

accounts from the concerned official which management failed to implement.


send demand letters to concerned officials for the immediate settlement ofoutstanding accounts and request the assistance of the concerned regional

directors, when necessary, for the settlement of these accounts;

impose appropriate sanctions to compel immediate compliance and to

deter the practice; and

request for the writing-off of accounts after exhausting all the possible

remedies available in accordance with the conditions set forth in the

guidelines for write-off.

Management, in their reply dated May 23, 2012, disclosed that severalmeasures are now being undertaken to address the issues, such as regular sendingof demand letters to concerned officials of DO/OUs and institutionalization of the

recent policy of Schools Superindent obtaining clearance at the CO upon

retirement as an effective tool for the DO/OUs to settle their unliquidatedbalances.

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Unreconciled balances of reciprocal accounts

10. The Due from/to accounts in both the CO and RO Books showed

unreconciled balances totalling P2,272,592,688.74 while the Due from/to

accounts in both the RO and OU Books have unreconciled balances totalling

P678,763,024.76, casting doubts on the reliability of the account balances aspresented in the FSs.

Section 3.2 (a and b) of GAFMIS Circular Letter No. 2003-007 providesthat in the process of consolidation, the Regional Accountants shall eliminate the

reciprocal accounts between the RO and the OUs while the CO Chief Accountant

shall eliminate the reciprocal accounts between the CO and the ROs, and betweenthe CO and the Provincial Offices/OUs, if any.

The reciprocal accounts to be eliminated in the consolidation of the

financial statements (FS) at year-end are, as follows:

a) Central Office

Particulars CO RO OUs

1

.

Transfer of funds to RO for centrally-

managed projects

Due from

RO

Due to

CO

2

.

3

.

Transfer of funds to OU for centrally-

managed projects

Transfer of funds from OU to CO

pertaining to salary deductions

Due from

OU

Due to

CO

b) Regional Office

Particulars RO OUs

1.

2.

Issuance of Summary of Cash

Disbursements Report (SCDR)

Transfer of funds from RO to OU for

RO managed projects

Due from OU Due to RO

3. Transfer of other funds from OU to RO

of payroll funds

Due to OU Due from RO

The reporting differences resulting from elimination of the reciprocalaccounts between the CO and RO books of accounts and between the RO and

OUs books of accounts are shown on the next page.

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CO Books RO Books Difference

Due from RO/OU P2,505,172,640 Due to CO P390,676,222 P2,114,496,419

Due to RO 624,000 Due from CO 158,720,270 158,096,270

P2,272,592,689

RO Books OUs Books

Due from OUs P 685,776,548 Due to RO P 26,789,152 P 658,987,396

Due to OU 180,123,432 Due from RO 160,347,804 19,775,629

P 678,763,025

*rounded off to the nearest peso.

The reasons, among others, for the unreconciled balances are as follows:

non-recording/non-reconciliation of the billed net pay, salary

deductions and cancelled payroll checks by the CO, RO and OUs prior

to the decentralization of the processing of payrolls; and by the ROand OUs after its decentralization;

non-recording of receipt/liquidation of funds transferred by the

CO/RO, Staff Bureaus to RO, Staff Bureaus/OUs; and,

recording under the Due from OUs account, the downloading of

MOOE funds by the DOs to elementary schools without complete set

of books of accounts.

We recommended that concerned DepEd Accountants:

conduct a regular periodic/quarterly reconciliation of reciprocal accounts

to immediately correct any discrepancies noted; and,

draw a Journal Entry Voucher to take up the reconciling items noted to

correct the balances of the accounts affected after reconciliation.

Uncollected Accounts Receivable

11. Receivable Accounts totalling P13,134,988.00 from the business operations of

the BTC, NEAP and Region II remained uncollected for one year to over 30

years, due to the failure of management to monitor long outstanding

receivables and leniency to oblige debtors and concerned employees to settletheir obligations.

Sound accounting principles emphasize the basic requirements thataccounts and reports of an agency reflect its actual financial condition and

operation. As much as the FSs are useful tools of management for planning and

budgeting, these reports need to provide complete and accurate information

regarding the affairs of the agency.

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Section 64 of the GAAM, Volume I, provides, among others, that,

Quarterly, each agency accounting unit shall prepare a statement scheduling

overdue accounts receivables. The agency head, or his authorized representative,shall review and sign this statement as an indication that he has examined the list

of overdue accounts and has instituted, or will institute, action for their

collection.

Item III. 8.10 of COA Circular No. 97-001 dated February 05, 1997

provides that if the analysis/review of the accounts is not possible due to absenceof records, the agency head concerned should request for write-off and/or

adjustment of account balances from the COA, supported by the following

documents:

List of available records and extent of validation made on the accounts;

and

Certification and reasons why the books of accounts/records, financialstatements/schedules and supporting vouchers/documents cannot be

located.

Further, COA Circular No. 93-404 dated October 18, 1993 provides the

reporting requirements in case of losses of documents evidencing financial

transactions and/or records of accountabilities. The Circular states that no requestfor the write-off of accountabilities shall be reviewed/evaluated by the

Commission unless accompanied by the following documents:

Copy of the report and/or notice of loss to the COA Auditor; and

Copy of the investigation report narrating the cause(s) of loss of the

documents or records, and pinpointing the official/s and employee/s

liable therefor.

The receivable accounts of Region II, Baguio Teachers Camp (BTC) and

National Educators Academy of the Philippines (NEAP) operations showed longoutstanding receivables or uncollected income accounts of P13,134,987.74 as of

December 31, 2011. Aging of the accounts are as follows:

Agency

Amount by Age (in PhP)

TotalLess than 1

year

Over 1

year

Over 2 to3

Years

Over 5

Years

Region II 118,850 118,850

NEAP 266,328 266,328

BTC 96,316 4,405,050 8,248,444 12,749,810

Total 96,316 4,523,900 266,328 8,248,444 13,134,988

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The reasons for the past due accounts are as follows:

The lodgers failed to settle their accounts regularly (Region II);

No monitoring of the receivables or follow-up on their collection from

the concerned debtors/persons liable was done; hence, the receivablesremained uncollected ( NEAP);

The Philippine Sports Commission (PSC) continues to use the BTC

facilities from October 2007 up to the present without renewedcontract and without paying any rental fee, including its arrears; and,

The PSC did not honor the Lessor-Lessee Agreement entered into

between the PSC and the then Department of Education, Culture andSports (DECS) on August 31, 1998 in the amount of P7.032M.

It is worth mentioning that the CY 2010 audit report disclosed that thedetails and validity of said accounts could not be fully ascertained due to lack orunavailability of supporting documents. Despite the materiality of the findings,

management did not take any appropriate action on the audit recommendations.

Managements inaction had resulted in the accumulation of receivables

with missing or incomplete documentation, which rendered the validity and

collectibility of the receivables totaling P8,248,443.75, aging 13 to over 30 years,doubtful.

Management informed that a letter regarding the PSC receivables was sent

thru fax to the Office of the Undersecretary for Finance and Administration lastSeptember 06, 2011; however, no information or feedback was received yet by

management to date.

We recommended and concerned Management officials agreed to ensure the

following:

instruct the dorm manager to intensify collection of fees from lodgers so

that the amount can be used to improve the facilities of the dormitory

(RO II);

exert all efforts to collect past due accounts from concerned debtors/persons liable by sending demand/follow-up letters. Advise the

Accountant to prepare a quarterly report/Statement of Overdue

Receivables and submit the same to the agency head or his authorized

representative so that appropriate action for the collection of said

receivables could be instituted as required under Section 64 of the

GAAM, Volume I (NEAP); and

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adopt the following corrective measures (BTC):

o intensify collection efforts and institute legal remedies, if warranted.

Seek the assistance of the DepEd CO in the collection of long

outstanding receivables, especially from the NGAs, namely, the

NEAP, NFE-CAR, DAR-CAR, DepEd and from the concerned LGUs;

o exert all efforts to locate the records of receivables which remained

uncollected so that appropriate action could be undertaken.

Determine the persons responsible for the loss of documents

evidencing financial transactions and records of accountabilities;

o see to it that accounts on credit are properly documented and

supported with billing statements/contracts, and that these bills/

contracts contain all the necessary information, such as the contact

person and complete addresses, to facilitate monitoring and

enforcement of collection of receivables;

o consider renegotiating the terms of the expired Memorandum of

Understanding (MOU) between the PSC and BTC for the staggered

or full settlement of the account prior to continued use of the BTC

premises and cottages thereof; and,

o issue periodic statements of accounts/billing statements on the

outstanding current receivables to serve as a reminder and to prevent

the accounts from becoming past due.

Dormant Receivable Accounts

12. Dormant or non-moving receivable account balances of ROs I and III and

SHNC totaling P15,887,720.67 remained in the books for more than five

years resulting from program/projects which had long been

finished/terminated. Collectivity or settlement of these accounts is no longer

feasible due to lapse of time or absence of record as provided under COA

Circular No. 97-001 dated February 25, 1997.

COA Circular No. 97-001 dated February 6, 1997 provides guidelines on

the Agencys proper disposition/closure of dormant funds and/or accounts of

NGAs/projects. Dormant accounts refer to individual or group of accounts withbalances which remained non-moving for more than five (5) years.

Audit of accounts showed the following funds/accounts had been non-

moving for more than five years since their settlement are no longer achievable

due to absence of records and lapse of time:

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Office Amount Remarks

Region I

Due from BTr

Due from NGA

10,038,666.3

5

111,584.30

Dormant since CY

2006

Dormant since CY2004

Region III

Due from LGU 605,259.05 Dormant since CY

1998

SHNC

Due from BTr 5,132,210.97 Dormant since CY

2007

Total 15,887,720.6

7

We recommended and Management agreed to direct the concernedAccountant/s to strictly comply with the provision of COA Circular No. 97-

001 dated February 6, 1997; make necessary evaluation of dormant accounts

to establish the validity of claims; and enforce the collection and effect the

final adjustments in the books of accounts, when appropriate.

Deficiencies affecting the accuracy and existence of inventory accounts

13. The non conduct of physical inventory, absence of RPCI and non

maintenance of records of inventory account totaling P711,392,519.09,

unrecorded issuances of inventory amounting to P18,578,239.74, direct

charges to expense of purchases totalingP

12,602,990.84, and unreconcileddifference of P15,606,611.60 between the physical count as against the

inventory records had affected the accuracy and existence of the Inventory

Accounts balances.

Under the MNGAS, purchases and issuances of supplies and materials are

accounted for in the books of accounts as follows:

Section 43, Vol. 1 provides that upon purchase, it shall be recorded as

Inventory account and recognized as expense upon issuance of Report of

Supplies and Materials Issued (RSMI).

Section 4 provides that liability shall be recognized at the time goods andservices are accepted or rendered and supplier/creditor bills are received.

Section 46 provides that the Supply Officer shall be the one to prepare the

RSMI and submitted to the accounting every end of the month as the basis

of the bookkeeper in preparing the JEV to record the issuances of supplies

and materials. The RSMI shall be prepared daily and in two copies, onefor accounting unit and the other copy as Supply Officers file.

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Section 65, Volume II requires the preparation and submission of the

RPCI every six (6) months, certified by the Inventory Committee and

approved by the Head of Agency.

Also under COA Circular No. 2005-002 dated April 14, 2005, small

tangible items or Property, Plant and Equipment (PPE) of small value withestimated life of more than one year shall also be recorded as Inventories upon

acquisition and as expense upon issuance. The Inventory Custodian Slip (ICS) is

prescribed to be used upon issuance of these items. Textbooks and instructionalmaterials are among the items considered as small tangible items with estimated

life of more than one year. These items should be recorded as inventories upon

acquisition.

The accuracy of the inventory accounts balances was affected by several

deficiencies as summarized in Table 4.

Table 4. - Summary of deficiencies in accounting for inventories

Office/DOs

Deficiencies

Unsubmitted

RPCI / No

inventory

records

Unrecorde

d issuances

Direct

charges to

expense

accounts

Reporting

differences

between GL

and RPCI

OSEC 23,956,294* 6,294,156

BSE 2,777,808

BEE 1,931,348

NEAP 16,768,688 1,611,094

EDPITAF 3,377,141

SHNC 5,435,591CAR-DO Abra, Baguio

NHS

5,291,800

Baguio Teachers Camp 2,832,232

NCR 4,912,822

DO Quezon City 174,825,132 2,750,478

DO Caloocan City 3,542,961

DO Muntinlupa City 4,218,833

DO Marikina City 2,504,028

DO Navotas-Kaunlaran HS 148,957

I-ROP, DOs San Carlos, La

Union

14,094,425

ROP, DOs Dagupan City,Pangasinan I 782,740

II-ROP 5,964,029 105,794

III-DO Zambales 62,212,373

V-DO Camarines Sur 203,655,205

DO-Iriga City 30,472,236

DO-Catanduanes 9,057,251

DO-Sorsogon Province 9,077,141

DO-Legaspi City 8,096,149

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Office/DOs

Deficiencies

Unsubmitted

RPCI / No

inventory

records

Unrecorde

d issuances

Direct

charges to

expense

accounts

Reporting

differences

between GL

and RPCI

DO Sorsogon Province

Bagamanoc Rural Devt.

HS, Viga Rural Devt.

HS

2,209,464

VI-ROP 1,607,407

IX-ROP, DOs Dapitan,

Zamboanga del Sur/del

Norte and Basilan NHS

125,997,237

XIII-SDOs Agusan/Surigao

del Sur and Sibagat NHS

21,669,546

Total 711,392,519 18,578,240 12,602,991 15,606,612

*Textbooks and Instructional Materials

We recommended that Management :

create an Inventory Committee to conduct physical inventory and

prepare the Report of Physical Count of Inventory (RPCI) pursuant to

Section 65 of the MNGAS Vol. I and coordinate with the Accounting

Section for the reconciliation of the said account and submit the same to

the Audit Team within the prescribed period;

require the Supply Officers concerned to submit regularly the RSMI

which is the basis of the Accounting Unit in recording the supplies

expenses for the period as required in Section 46 of the MNGAS Vol. I.

Maintain stock cards and reconcile them periodically with the supplies

ledger cards and other records of the Accounting Unit;

require the Accountant/Bookkeeper to record the purchase of supplies

and materials as inventories upon acquisition and record the related

expense accounts upon issuance thereof based on the RSMI in

accordance with Section 43 of the NGAS Manual and COA Circular No.

2005-002; and

direct the Accountant and the Supply Officer to monitor and reconcile

their records and make the necessary adjustments on the discrepancies

noted to reflect the correct and actual balances of the Inventory accounts

in the FSs.

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Management comments/action taken are as follows:

a. The management of OSEC and BSE will like to request approval fromCOA to write-off the unaccounted prior years balances of dormant

accounts.

b. RO II, Baguio Teachers Camp, DOs Caloocan, Muntinlupa, Surigao delNorte will comply with the audit recommendations.

Deficiencies affecting the accuracy and existence of PPE accountsPPE accounts

14. The absence of RPCPPE, property cards and property ledger cards of

recorded PPEs with balances ofP14,040,803,535.29; unreconciled difference

of P44,771,439.86 between RPCPPE and books of accounts; unrecorded

PPEs of P1,230,465,191.92; misclassification of accounts totaling

P2,218,334,194.32 and error in recording resulting in a net understatement

of P2,057,379.00; and lack of documentation to establish ownership of the

Land and Other PPE accounts totaling P7,043,543,612.24, had affected theaccuracy and existence of the PPE accounts recorded in the books of OSEC,

Bureaus, ROs, DOs and Schools as well as the reliability of the balances

presented in the FSs.

The following rules and regulations, as prescribed under the MNGAS,Volume II, govern the proper accounting for and safeguarding of PPEs:

Section 66 The Report on the Physical Count of Property,

Plant and Equipment (RPCPPE) shall be used to report the physicalcount of PPE by type as of a given date. It shows the balance of

property and equipment per cards and per count and

shortage/overage, if any.

Section 41 PPEs acquired through purchase/donation are

recorded in the books of accounts as assets.

Section 43 - The Accounting Unit shall maintain perpetual

inventory records, such as xxx the PPE Ledger Cards (PPELC) for

each category of PPE including work and other animals, livestock,

etc. The SL cards shall contain the details of GL accounts.

For check and balance, the Property and Supply Officer/Unit shall

maintain Property Cards (PC) for PPE xxx. The balance in quantity per PCand SC should always reconcile with the ledger cards of the Accounting

Unit

Section 12 - The PPELC shall be kept by the Accounting Unit

for each specific item to record promptly the acquisition,

description, estimated life, depreciation, disposal; accumulatedmaintenance expenses incurred other information about the asset.

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The following deficiencies were noted in the audit of the PPE accounts of

the DepEd:

a. Absence of RPCPPE/PCs/PPELCs

The PPE accounts totalling P14,040,803,535 of the OSEC and

various DepEd ROs and DOs have no RPCPPE and PCs, renderingdifficulty in the reliance on accuracy and existence of the balances of the

PPE accounts. Details are Table 5.

Table 5. Breakdown of PPE account balances with deficiencies

Office Balance Per Books

OSEC P 2,164,512,128.16

NETRC 8,832,527.74

NEAP 16,768,687.70

EDPITAF 110,384,323.00

NCR-DO Pasay

DO Las Pinas

DO Caloocan

DO MuntinlupaDO Malabon

99,046,570.38

153,039,320.14

1,078,805,180.84

188,608,993.40408,740,905.07

BEE 5,608,713.03

BSE 8,085,808.10

RO I 1,729,201,466.76

RO II-ROP, DO Tuguegarao 74,214,879.22

CAR 19,452,607.84

RO III 2,842,191,697.56

RO V- DO Camarines SurDO Catanduanes

599,975,830.75136,020,776.55

RO IX 670,521,022.31

RO X- DO Cagayan de Oro, Bukidnon,

Iligan City, Ozamis City, Camiguin

2,017,126,962.85

RO XIII-ROP, Dos Agusan del Sur,

Dinagat Islands,

Siargao and Surigao del Sur

1,709,665,133.89

Total P14,040,803,535.29

b. Unreconciled balances between property and accounting records

Comparative analysis of the GL balances of the PPE accounts and

the RPCPPE of the BEE, Ros I and II and CAR revealed a difference of

P44,771,440. The reasons, among others, for the difference are: (a) non-recording of properties in the books including donated equipment, (b) non-

recording of purchases and transfer of properties to other OUs, (c) no

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inventory reports prepared, and (d) non-reconciliation of the property and

accounting records.

c. Unrecorded Land and other PPE Accounts

Verification of the PPE accounts of the following Dos and

National High Schools in four Ros of DepEd and NETRC showed thatLand and Other PPE accounts with total cost of P1,230,465,191.92were

not yet recorded in the books. Details are as follows:

Table 6. - Summary of unrecorded PPEs

Office AccountAmount

(in PhP) Remarks

NCR-

DO Malabon

Land Not specified Ownership yet to be established

DO QuezonCity

Land 2,826,460 Cost of property not included nor dropped from the books of the School

for Crippled Children upon transfer to

Sta. Lucia ES

School

Building

182,863,122 School Building transferred by the DO

to different NHS

DO Caloocan School

Building

887,968,805 Not included in the list of properties

DO TAPAT Motor Vehicle 120,000 Donated by PTA in CY 2003

NETRC IT/Office

Equipment

152,299 Procured out of cash advances for

training, seminars or workshopsRO III Land 13,650,210 A total of 33 lots being used as school

sites acquired by the different DOs

thru purchase and donations were not

recorded in the books due to failure of

e management to pursue titling

School

Buildings

36,550,061 School buildings constructed by

DPWH-Engineering District of Bataan

from 2000 up to 2008 not yet booked

up due to absence of coordination

between the DPWH-ED and the

Division

CAR- NHSs:Conner Central,

Namilinga, and

Hingyon

Equipment 1,877,041

Donation from the IWILL Project andother donors

RO I-DO Dagupan

SchoolBuildings

70,660,754 Major repairs of schools which was notrecorded as addition to the cost-

P8,887,629.48; Other Structures in ESs

not taken up in the books-

P61,773,124.17

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Office AccountAmount

(in PhP) Remarks

DO Pangasinan I SchoolBuildings

29,938,009 Donated properties

CAR- Hingyon

NHS

School

Buildings

3,858,432 Unrecorded donations

Total 1,230,465,192

d. Misclassification of or Error in recording and non recording of

accounts

Misclassifications of PPE accounts amounting toP2,218,334,194.32 and errors in recording and/or non-recording of

transactions were noted resulting in net understatement of P2,057,379.00:

Table 7. - Summary of deficiencies in recording of PPEs

Office MisclassificationAmount

(in PhP)

NEAP Non-reclassification of unserviceable equipment 183,856.39

CAR 469,271.75

RO XIII 2,892,689.70

NCR-

DO Quezon City

Erroneous recording of the cost of the transferred

school buildings

2,193,626,454.72

CAR-ROP,

Tublay NHS

Completed buildings not yet reclassified from

Construction in Progress

21,161,921.76

Total 2,218,334,194.32

Office Errors (Overstatement)/

Understatement

RO I-

DO Dagupan

Demolished building not dropped from the books (600,000.00)

CAR-

DO Apayao

Eastern Bontoc

NAVHS

Internet facilities recorded as internet expenses

Major repair of school building recorded as repair

and maintenance

School building which needs repair but still being

used, erroneously dropped from the books

662,700.00

724,679.00

1,270,000.00

Total Understatement 2,057,379.00

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e. Ownership over recorded Land and Other PPE accounts not

established

A general accounting principle stipulates that one of the conditions

for an asset to be recognized is when the entity has control over the same.To establish ownership, it is necessary that these are covered by authentic

Transfer Certificates of Title (TCT) issued by the Land Registration

Authority (LRA) and registered with the Registry of Deeds in theprovince/city where the property is situated.

Verification of the Land and Building accounts in the books of the

OSEC, BEE and NCR disclosed a total of P7,043,543,612.24 withoutvalid documentation to establish ownership, breakdown as shown below.

Office LandBuilding/Land

ImprovementTotal

OSEC 6,941,417,000.00 6,941,417,000.00

BEE 7,287,973.24 38,639.00 7,326,612.24

NCR 94,800,000.00 94,800,000.00

Total 7,043,504,973.24 38,639.00 7,043,543,612.24

There were no TCTs and other documents conveying ownership ofthe properties and not even in the name of the agency, thus absolute

ownership over the properties cannot be rightfully claimed by the DepEd.

Also, there is no basis for recording the land in the books of accounts.

We recommended that concerned Management officials ensure the

following:

direct their Accountants to maintain and update PPELCs and property

cards;

require their Accountants to prepare a JEV to reclassify and adjust the

misclassified accounts to the appropriate account/s;

conduct regular physical count of PPEs, prepare and submit the

RPCPPE, and reconcile with the accounting records to ensure

completeness and accuracy of the recorded PPE accounts; and

exert efforts for the titling of the acquired land thru purchase and

donation to establish absolute ownership over these properties.

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In partial compliance with above recommendations JEV No. OSEC 2012-

05-233 dated May 21, 2012 was drawn by the OSEC to effect the necessaryadjustment of the Land account based on the assessed value indicated in the

Declaration of Real Property. Management also informed that the value of the

property in Fort Bonifacio, Makati, C5 was not yet adjusted awaiting submissionby the Property Division of the TCT in the name of the DepEd.

Uninsured Properties

15. Properties totalling P251,507,980.15 were not insured with the General

Insurance Fund, which resulted to inadequate protection coverage in case of

loss or damage.

RA No. 656 (Property Insurance Law) provides, among others, under

Section 11, that each government shall include in its annual appropriation the

amount necessary to cover the premiums for the insurance of its properties duringeach fiscal period and remit immediately to the System (GSIS).

Properties in four Regions with a total book value of P251,507,980.15were not insured with the General Insurance Fund of the GSIS contrary to the

provisions of RA No. 656; thus, insurable interest of the government is not amply

protected in case of loss or damage.

Region Amount

II P 97,904,904.61

V 102,430,245.12

IX 20,621,620.80

XIII 30,551,209.62

Total P 251,507,980.15

We recommended and management agreed to insure all government

properties with the General Insurance Fund of the GSIS.

Unreliable balances of liability accounts

16. The validity and reliability of the liability account balances cannot be

ascertained due to: (a) non-reversion of long outstanding payable accounts

without valid claims in three Regions totalling P12,722,969.99; (b)

unreconciled difference ; amounting to P5,331,058.37 between the SL and

GL due to unsupported claims in OSEC; and, (c) overstatement amounting

P1,214,542.26 due to accounting error in one Region.

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Section 98 of PD No 1445 provides,The Commission upon notice to the

head of agency concerned may revert to the unappropriated surplus of thegeneral fund of the national government, any unliquidated balance of accounts

payable in the books of the national government, which has been outstanding for

two years or more and against which no actual claim, administrative or judicial,has been filed or which is not covered by perfected contracts on record xxx.

Under DBM. Circular Letter No. 2005-02 dated January 28, 2005,accounts payable refers to valid and legal obligations/commitments of NGAs, for

which goods/services/projects have been delivered/rendered/completed and

accepted.

In our verification of the liability accounts, several deficiencies were noted

which affected the accuracy and reliability of balances presented in the FS.

a. Non-reversion of payable accounts without valid claims - P12,722,970

Payables totalling P12,722,969.99 have been outstanding in thebooks of accounts for more than two years and validity of the claims could

not be established due to absence of supporting documents, as summarized

below.

Region/DOAccounts

Payable

Due to

Officers and

Employees

Due to

National

Treasury

CAR-DO Abra 29,439.92 1,661,396.73

RO I-ROP, DO

Urdaneta

6,492,271.34 2,014,515.71 1,732.57

RO IV-A 2,340,691.5

7

94,450.00

RO IX-DOZamboanga del Sur

88,472.15

Total 8,950,874.98 3,770,362.44 1,732.57

b. Unreconciled difference between SL and GL-P5,331,058.37

Section 12 of the MNGAS, Vol. II states, among others, that the

SL balances shall be reconciled with their respective control account

regularly or at the end of each month. Schedules shall be prepared

periodically to support the corresponding controlling GL accounts.

In OSEC, the Schedule and Aging of Accounts Payable for various

contractors showed a total of P98,051,852.77 while the GL showed a

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balance of P92,720,794.40 or a difference of P5,331,058.37, which can be

attributed to the lack of supporting records on retention fees payable.

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The Chief Accountant stressed that they have exercised due

diligence in the review of accounts and that these were duly supportedwith documentary requirements to establish existence.

In reply, the Audit Team recognized that due diligence may havebeen exercised, but emphasized that the audit was based on the records

and reports prepared and submitted by the Accounting Division. The

Audit Team acknowledged managements compliance with some of theiraudit recommendations.

c. Overstatement due to accounting error - P1,214,542.26

In CAR, paid payrolls for employees benefits and allowances

were still recorded as payable and refunded bidders bond was not adjusted

at year-end, resulting in overstatement of P995,913.99 and P218,628.27,

respectively, in the Due Officers and Employees and Bidders Bondpayable accounts.

We recommended that concerned Management direct their Accountants to::

review the legality and validity of obligations to warrant payment andeffect reversion for those long outstanding accounts if without existing

valid claims;

reconcile the deficiencies and make necessary adjustments to reflect thecorrect balance of Accounts Payable (OSEC); and

prepare the necessary adjusting entry to correct the accounting errorsaffecting the Due to Officers and Employees and Bidders Bonds Payable

accounts (DO Abra and EBNAVS).

Non Remittance of GSIS Deductions and Government Share

17. DO Dipolog City failed to remit to the GSIS within the prescribed period,

contributions deducted from the salaries of some employees and the

government share amounting to P2,151,495.73. Likewise, the personal share

for compulsory contributions on Life and Retirement Gratuity of Malangas

NHS employees in the amount ofP200,971.36 were not deducted from theirregular salaries and salary differentials contrary to the provisions of RA

8291.

Section 5 (c) of RA 8291 states, It shall be mandatory

and compulsory for all employers to include the payment ofcontributions in their annual appropriations. Penal sanctions

shall be imposed upon employers who fail to include the

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payment of contributions in their annual appropriations or

otherwise fail to remit the accurate/exact amount of

contributions on time, or delay the remittance of premiumcontributions to the GSIS. The heads of offices and agencies

shall be administratively liable for non-remittance or delayed

remittance of premium contributions to the GSIS.

Section 6 (b) likewise states, Each employer shall

remit directly to the GSIS the employees and employerscontributions within the first ten (10) days of the calendar

month following the month to which contributions apply. The

remittance by the employer of the contribution to the GSIS

shall take priority over and above the payment of any and allobligations, except salaries and wages of its employees.

Section 7 further provides, Agencies which delay the

remittance of any and all monies due to the GSIS shall becharged interests as may be prescribed by the Board but not

less than two percent simple interest per month. Such interestshall be paid by the employers concerned.

It was noted that the outstanding balance of the account Due to GSIS as ofDecember 31, 2010 was P2,151,495.73. There were no remittances or

adjustments made until August, 2011 although there were GSIS deductions made

from salaries every month.

Failure to remit the contributions within the prescribed period is

detrimental to the welfare of the employees concerned since they may not be able

to fully avail of the benefits offered by the GSIS due to defaulting paymentsthrough no fault of their own.

Relative to Malangas NHS, post-audit disclosed payments of salarydifferentials and 1st salary and regular salaries of its officials and employees did

not consider the mandatory deductions for life and retirement pursuant to RA

8291. Payments were made at a gross amounts without deductions which may

adversely affect the retirement gratuity of the officials and employees concerned.Computation showed that the undeducted personal share amounted to

P200,971.36.

We recommended that Management officials concerned require their

accountants to:

remit to the GSIS the employees contributions and the corresponding

government share pursuant to RA 8291 is requested (DO Dipolog City);

and

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collect GSIS contributions from the concerned employees and remit the

same to the GSIS (Malangas NHS).

Management committed to give preferential attention to address this

observation.

Payment of Professional Fees Not Proper

18. Professional fees totalling P7,907,634.41 paid to consultants, officers and

staff by OSEC, NETRC and SHNC for services rendered and activities

during orientation/training, seminar-workshop, and other similar activities

conducted within their mandated functions is contrary to Section 7 of EO No.

366 dated October 4, 2004 and Budget Circulars No. 2007-1 and 2007-2.

Section 7 of EO No. 366 Prohibition on Hiring/Rehiring of PersonnelDuring Plan Preparation, states, Except for newly created agencies, the hiring of

additional personnel (permanent, temporary, contractual or casual), and the

renewal of contracts/appointments of all employees hired on contractual, casualor temporary basis is hereby prohibited during the preparation of RationalizationPlan.

Paragraph 4.5 of Budget Circular No. 2007-1 dated April 23, 2007 alsostates, Honoraria shall not be granted to the designated lecturers, resource

persons and facilitators within their respective sponsoring agencies as such

services are deemed part of the duties and responsibilities of their appointivepositions to disseminate information, to clarify issues and concerns and to

interact with clients and/or implementers of agency mandates.

Moreover, Budget Circular No. 2007-2 dated October 1, 2007 provides the

following guidelines on the entitlement of honorarium:

Government personnel who are on part-time assignment to a

special project which entails rendition of work in addition to orover and above their regular workload may be entitled to

honoraria.

The amount of honoraria shall be based on the nature of their work

assignments in a special project, the level of difficulty of the duties

and responsibilities thereat, the extent of their productivity and

quality of performance measured in terms of completed and

accepted deliverables in accordance with the timeframes set perproject component of a special project plan approved.

Payment of honorarium to be made only upon completion of the

project and acceptance by the agency head of the deliverable per

project component.

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No overtime pay or other allowances shall be paid nor any

Compensatory Time-off be granted to the same personnel for the

period that honoraria are granted.

Review of the liquidation reports submitted by the OSEC, NETRC and

SHNC for CY 2011 showed a total of P7,907,634.41 were disbursed for thehonoraria of officers and staff personnel who participated in various Agency-sponsored training/seminars, either as speakers, facilitators or support staff. These

activities were found to be in line with their respective Agencys primary

mandate/ function.

The amount of P7,388,234.41 or approximately 93% represents

professional fees and honoraria paid to 36 consultants hired under the differentoffices of the DepEd OSEC. Despite the previous years audit observations, the

DepEd renewed the contracts of the consultants and hired seven of them in CY

2011 although the offices have also assigned personnel under contract of serviceas summarized in Table 8.

Table 8. - Breakdown of consultants and contractuals assigned by the DepEd

per office

OFFICE CONSULTANTS CONTRACTUALS

OSEC-Proper 12 7

USEC For Legal Affairs 1 6

USEC for Programs and Projects 1 14

USEC for Muslim Affairs 1 2

USEC for Regional Operations 1 -

Property Division 3 2Information and Communications

Technology

1 9

Physical Facilities Schools and

Engineering Divison (PFSED)

6 231

Communications Unit 6 -

Internal Audit Service 1 5

GSIS Concerns Unit 1 4

Adopt-A-School Secretariat 2 6

Total 36 286

In the case of PFSED, verification disclosed that the functions performed

by the consultants can be provided by the existing regular and contractual

personnel thereat. It was gathered that the 286 contractuals include the 79 ProjectEngineers hired in 2011.

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In the case of Bureaus under the DepEd, the orientation/training, seminar-

workshop, and other similar activities/programs in the different areas of Luzon,

Visayas and Mindanao were found to be within the Agencys primary mandate.

Furthermore, the activities were usually attended by its officers and

selected staff and some of its contractual personnel.


stop the payment of professional fees/honoraria/incentives to officers and

employees performing regular activities, which are within their mandated

functions;

comply strictly with existing rules and regulations on grant of honoraria;

and

institute the refund, without prejudice to the accountability/liability ofthe Agency Head under Section 7 of DBM Circular 2007-1.

NETRC Management commented that:

Services of these personnel are necessary given the magnitude of

programs and projects viz a viz the current manpower complement of the

Department.

Granting of honoraria during the orientation day/testing center preparation

and conduct/administration of the 2011 Philippine Education Placement

Test (PEPT) was authorized per approved authority from the DepEd datedOctober 11, 2011.

Section 50, RA No. 10147 of the GAA for FY 2011 is the basis of

granting the honoraria which states that The respective agencyappropriations for honoraria shall only be paid to the following:

o Those who act as lecturers, resource persons, coordinators and

facilitators in seminars, training programs, and other similar activitiesin training institutions, including those conducted by entities for their

officials and employees wherein no seminar fee are collected from

participants;

o Said activities specifically orientation of personnel involved in

the conduct and administration of the PEPT are similar in nature, thus,

said honoraria can be considered legal and compensatory of the

services rendered.

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The Management has committed to submit the required documents.

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The following are the NETRC Audit Teams rejoinder:

Laws and regulations are created for uniformity and common observance.

Officers of the government are expected to observe and enforce the law.

Any authority or implementing guidelines must be in accordance with

governing laws, or else they can also be held secondarily or primary liableon their actions depending on the circumstances.

Guidelines on the granting of honorarium and for those who are entitled

thereof are very specific, hence, we cannot just conclude any activity byanalogy.

Hiring of legal consultants with no prior approval of OSG and written COA concurrence

19. Hiring of 14 Legal consultants was without prior approval of the OSG and

written concurrence of COA, and considered excessive because of the

existence of 28 OSG lawyers already engaged by the DepEd to address thelegal cases of the agency, thus resulting in incurrence of ineligible

professional fees amounting to P4,063,064.51.

COA Circular No. 98-002 dated June 9, 1998 states:

Public funds shall not be utilized for payment of the services

of a private legal counsel or law firm to represent government

agencies and instrumentalities, including GOCCs and LGUs in

court or to render legal services for them. In the event thatsuch legal services cannot be avoided or is justified under

extraordinary or exceptional circumstances for governmentagencies and instrumentalities, including GOCCs, the writtenconformity and acquiescence of the solicitor General or the

Government Corporate Counsel, as the case may be, and the

written concurrence of the Commission on audit shall first besecured before the hiring or employment of a private lawyer or

law firm.

In CY 2011, the DepEd OSEC hired the services of 14 private lawyers

under the Contract for Legal Consultancy and Services for P4,063,064.51 without

the written concurrence by the COA.

Of the P4,063,064.51 payment, P1,844,333.96 was disallowed in audit

under Notice of Disallowance No. 11-020-101-(11) dated October 18, 2011, while

the balance of P2,218,730.55 was held in abeyance pending resolution of themanagements request for COAs concurrence dated October 17, 2011 to the

contracts of the 13 Legal consultants who were hired by the DepEd in July 2011.

The said request and pertinent documents were returned to management forcompliance of requirements.

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Management explained that:

a. The DepEd, being the biggest government organization in the Philippines,administers 17 regions, 200 divisions, 43,204 Public Elementary and High

Schools and 15,841 public pre-schools, not to mention, the more than

1,000 personnel in the CO.

b. At present, DepEd CO has only three Legal Officers in its Legal Division,

thus, considering the volume of work assigned to them plus the conduct offact-finding investigations, there is an imperative need to hire Legal

Consultants to handle all legal and legislative concerns of the central and

field offices of the Department.

c. The legal services provided by the Legal Consultants cannot be avoided

and is justified under extraordinary and exceptional circumstances. They

are precisely hired to provide consulting services to top officials, to render

legal opinion and advice on all matters affecting the government andpropriety functions of the Department.

d. They serve as Special Prosecutors in Motu Proprio cases and members of

the fact finding investigation committees in various administrative cases

against DepEd officials.

It is worthy to mention that, aside from the 14 private lawyers hired,

records disclosed that the DepEd also engaged the legal services of 28 OSG

Lawyers as the OSG-DepEd Task Force per MOA between the OSG and DepEddated September 28, 2009 to address all the legal problems of the agency. In CY

2011, the DepEd paid P3,148,200.00 in allowances to OSG Lawyers.


review judiciously the need for hiring private lawyers considering thenumber of OSG lawyers already engaged by DepEd;

ensure that all payments to private lawyers are supported both with thewritten conformity of the Solicitor General and the written concurrence

of the COA; and

cause the settlement of the audit disallowance and notice of suspension ormake an appeal with the COA in accordance with the Revised Rules on

the Settlement of Accounts (RRSA).

Non-compliance with RA 9184

20. The DepEd OSEC and Region V did not did not comply strictly with the

requirements of RA 9184 and its IRR in the procurement of goods and services.

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Section 3 of RA 9184 and its IRR states the governing principles on

government procurement. Furthermore, Section 18 of the Revised IRR provides

that specifications for procurement of goods shall be based on relevantcharacteristics and/or performance requirements. Reference to brand names shall

not be allowed.

Review of contracts disclosed several lapses manifesting the procuring

entitys non-adherence to the set standards of RA 9184, among others, as follows:

The brand names of six items procured totaling P1,877,788.00 were

indicated in the Technical Specifications, purchase requests, annual

procurement program and approved budget for the contracts, contrary to

Section 18 of the Revised IRR of RA 9184, and thus precluding otherprospective suppliers-carrying other brands of equipment from

participating in the public bidding, to the prejudice of the government

(Region V);

Non-observance of the prescribed timelines or period of action on

procurement activities where delays were noted from the BAC Resolution

recommending the award of contracts to the LCRB/HRRB orSCRB/SRRB up to issuance of the Notice to Proceed (NTP), as well as

from the date of the bid openings up to issuance of the NTP;

The date of signing by the Head of the Procuring Entity (HOPE) of the

BAC Resolution recommending the award of contracts is not indicated;

thus, it cannot be determined whether the immediate and non-extendible

issuance of the Notice of Award (NOA) complies with the prescribed

period (Section 37.1.3 in relation to Section 37.1.2). While the date ofsigning may be traced from the date of issuance of the NOA, if the

issuance was beyond the prescribed period of seven calendar days whichis non-extendible, it is not traceable whether it is the omission of the

HOPE or that of the Receiving Section;

Bids were not accompanied by a sworn affidavit of disclosure of no

relations signed by all its officers, directors, and controlling stockholders

in case the bidder is a corporation; by all its officers and members in case

of partnership; or by the bidder himself in case of an individual or singleproprietorship; and,

The Tax Clearance, Certificate of PhilGEPS Registration, latest income

and business tax returns were undated. The dates are vital to determinewhether bidders are disqualified for award, and whether bid securities are

forfeited for failure to submit such requirements not within 3 calendar

days from receipt by the bidder of the Notice from the BAC that thebidders have the LCB/HRB.

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We recommended that:

The Procuring Entity and the BAC comply strictly with the requirementsof RA 9184;

Management oblige the BAC to fully discuss in pre-bid conferences allcomponents of the contract to be bidded with approved budget of P1

million or more to give all prospective bidders opportunity to compete

and for the supplemental bids to be properly availed by them; and

Management require the BAC to submit a written justification why thesubject IT Equipment procured, carrying brand names should not be

disallowed in audit.

Management comments and justifications are as

DEPED COA2011 OBSERVATION RECOMMENDATION

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