ma. gracia m. pulido tan - coa.gov.ph · juan ponce enrile president, philippine senate gs.is...

Ma. Gracia M. Pulido Tan Chairperson

27 September 2012

His Excellency BENIGNO SIM£0N C. AQUINO III President of the Philippines Malacaiiang, Manila

Dear Mr. President:

Republic of the Philippines

COMMISSION ON AUDIT

OF.FICE OF THE CHAIRPERSON Commonwealth Avenue, Quezon City, Philippines

I have the honor to submit, pursuant to Section 4, Article IX-D of the Constitution of the Philippines, the following 2011 reports:

1. Audit Performance Summary Report 2. Annual Financial Reports

• National GoverntneiU (Volumes 1-A and I-ll) • Government-Owned and/or Controlled Corporations (Volumes II-A and II-B) • Local Government Units (Volumes III-A and Ill-B)

The Audit Performance Summary Report contains the highlights of the Annual Financial Reports, for quick reference. This is otlr first Report of this nature, and we trust that you will find it useful.

Very truly yours,

Phone: (632) 952-5700 local 1011/931-9232/931-9220/951-0936 fax: (632) 931-9223 Email: [email protected] Website: www.coa.gov.ph

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27 September 2012

His Excellency BENIGNO SIMEON C. AQUINO Ill President of the Philippines Malacafiang, Manila

Dear Mr. President:

Republic of the Philippines

COMMISSION ON AUDIT

OFnCE OF TilE CHAIRPERSON Commonwealth Avenue, Quezon City, Philippines


1. Audit Performance Summary Report 2. Annual Financial iteports

• National Government (Volumes 1-A and 1-B) • Government-Owned and/or Controlled Corporations (Volumes II-A and II-B) • Local Government Units (Volumes Ill-A and Ill-B)

The Audit Performance Summary Report contains the highlights of the Annual Financial Reports, for quick reference. This is our first Report of this nature, and we trust that you will find it useful.

Very truly yours,

Phohe: (632) 952-5700 local 1011/931-9232/931-9220/951-0936 Fax: (632) 931-9223 Email: cmgptl\[email protected] Website: www.coa.gov.ph

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27 September 2012

The Honorable JUAN PONCE ENRILE President, Philippine Senate GS.IS Complex, Pasay City

Dear Mr. President:



• National Government (Volumes 1-A and 1-B) • Government-Owned and/or Controlled Corporations (Volumes II-A and II-B) • Local Government Units (Volumes lil-A and Ili·B).


Very truly yours,

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Phone: (632) 952-5700 locall011/931-9232/931-9220 /951-0936 Fax: (632) 931-9223 Email: [email protected] Website: www.coa.gov.ph

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Ma. Gracia M. Pulido Tan

Chairperson

27 September 2012

The Honorable FELICIANO R. BELMONTE, JR. Speaker, House of Representatives National Government Center Quezon City

Dear Mr. Speaker:



• National Government (Volumes I-A and 1-B) • Government-Owned and/or Controlled Corporations (Volumes II-A and II·B) • Local Government Units (Volumes lll·A and Ill·B)


Very truly yours,

Phone: (632) 952-5700 local lOll ( 931·9232/931-9220 /951-0936 Fax: (632) 931-9223 Email: [email protected] Website: www.coa.gov.ph

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Ma. Gracia M. Pulido Tan

Chairperson

27 September 2012

The Honorable

FRANKLIN M. DRILON Chairman, Committee on Finance Philippine Senate GSlS Complex, Pasay City

Dear Senator Drllon:

Republic of the Philippines COMMISSION ON AUDIT

OFFICE OF THE CHAIRPERSON

Comtnonweallb. A venue, Quezon City, Philippines

I have the honor to submit, pursuant to Section 4, Article lX-D of the Constitution of the Philippines, the following 2011 reports:


• National Government (Volumes 1-A and 1-B) • G�vernment-Owned and/or Controlled Corporations (Volumes II-A and 11-B) • Local Government Units (Volumes III-A and Ill-B)


Very truly yours, !·��E-;lNfE�)j;� ;J:i:j[;' .. �j I� i:l'; �:·; ;.·;.:;- '\· Lcgi:>lativc Uudgel n�� an:h

and Monit11ring OJf•�

. ·. ·:·: H E C E I V E 0

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Phone: (632) 9S2-S700 locall011/931-9232/931-9220 /951-0936 Fax: (632) 931-9223 Email: [email protected] Website: www.coa.gov.ph

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27 September 2012

The Honorable CHAIRMAN, COMMITIEE ON APPROPRIATIONS House of Representatives National Government Center Quezon City

Dear Mr. Chairman:

1 have the honor to submit, pursuant to Section 4, Article IX-D of the Constitution of the Philippines, the following 2011 reports:


• National Government (Volumes I-A and I-B) • Government-Owned and/or Controlled Corporations (Volumes II-A and II-B) • Local Government Units (Volumes III-A and Ill-B)


Very truly yours,

Phone: (632) 952-5700 local 1011/931-9232/931-9220 /951-0936 Fax: (632) 931-9223 Email: [email protected] Website: www.coa.gov.ph

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AUDIT PERFORMANCE

SUMMARY REPORT

COMMISSION ON AUDIT

FOR CALENDAR YEAR 2011

T A B L E O F C O N T E N T S Page PART I – MANDATE AND EXECUTION OF AUDIT 1 I. Mandate 2

II. Audit Approaches and Methodologies 3

A. Residency Approach 3 B. Team Approach 3 C. Cyclical Approach 3 D. Pre-Audit 4

III. Types of Audit 4 A. Financial and Compliance Audit 4 B. Value-for-Money or Performance Audits 5 C. Fraud Audits 5 D. Other Special Audits 5 E. Variable-Scope Audit 6 F. Foreign-Assisted Projects 6 G. United Nation and Specialized Agencies 6

PART II – SIGNIFICANT AUDIT RESULTS 7 I. Entities Audited 8

A. National Government Auditees 8 B. Local Government Auditees 9 C. Corporate Government Auditees 10

II. Audits Conducted 11

III. Scope and Limitations of Financial and Compliance Audit Conducted 11

IV. Audit Reports Rendered 12

V. Summary of Audit Opinions 12

VI. Over-All Financial Data 14 A. NGAs 14 B. LGUs 15 C. GOCCs 15

VII. Budget Utilization 15

A. By Agency 15 B. By Priority Program 15

VIII. Common Audit Findings 16 A. Pecuniary Loss 16 B. Weak Controls and Administrative Lapses 17

T A B L E O F C O N T E N T S

Page

IX. Significant/Peculiar Audit Findings 18 A. NGS Audits 18 B. LGS Audits 21 C. CGS Audits 25 D. SSS-SAO Audits 27 E. LSS-FAIO Audits 28

PART III – ACTIONS TAKEN 30 I. Audit Recommendations 31

A. Common 31 B. Significant/Peculiar Audit Findings 37

II. Summary Status of Actions Taken on Prior Year’s Audit Recommendations 37

III. Suspensions, Disallowances and Charges 37

IV. Summary of COA Decisions on Appealed Cases 38

V. Referral of Cases to the Office of the Ombudsman and to Other Government Agencies 40

VI. Recoveries and Refunds 43 A. Administrative Recoveries 43 B. Supreme Court Decisions 43

VII. Audit of Intelligence Funds 44

VIII. The Way Forward 45 Annexes

Annex A – List of National Government Agencies B – List of Local Government Units C – List of Government Owned and/or Controlled Corporations D – NGS: Summary of Audit Opinions for CY 2011 E – LGS: Summary of Audit Opinions for CY 2011 F – CGS: Summary of Audit Opinions for CY 2011 G – List of Agencies Without Submitted F/S

List of Acronyms

L I S T O F T A B L E S Page PART II – SIGNIFICANT RESULTS

Table II.1 Total Auditees 8 Table II.1-A Auditees Under the National Government Sector 8 Table II.1-A.1 Audited Foreign-Based Government Agencies 9 Table II.1-B Auditees Under the Local Government Sector 9 Table II.1-C Auditees Under the Corporate Government Sector 10 Table II.2 Audits Conducted in CY 2011 11 Table II.3 Audit Reports Rendered 12 Table II.4-A Number of Opinions Issued by NGS 14 Table II.4-B Number of Opinions Issued by LGS 14 Table II.4-C Number of Opinions Issued by CGS 14 Table II.5 Overall Financial Data in CY 2011 14 Table II.6-A Budget Utilization by Agency 15 Table II.6-B Budget Utilization by Priority Program 16 Table II.6-B.1 Breakdown of DAP Budget Releases 16 Table II.7-A Common Audit Findings with Pecuniary Loss 17 Table II.7-B Common Audit Findings: Weak Internal Controls and Administrative Lapses 17

PART III – ACTIONS TAKEN

Table III.1 Summary of Status of Actions Taken on Prior Year’s Audit Recommendations 37 Table III.2-A Suspensions, Disallowances and Charges Issued in CY 2011 38 Table III.2-B Suspensions, Disallowances and Charges by Audit Action 38 Table III.2-C Suspensions, Disallowances and Charges by Sector 38 Table III.3-A Decisions of the Commission Proper 39 Table III.3-B Decisions of the Adjudication and Settlement Board 39 Table III.3-C Decisions of the Directors in the Central Office 39 Table III.3-D Decisions of the Directors in the Regional Offices 40 Table III.4 Referral of Cases to the OMB and Other Government Agencies 41 Table III.4-A Malversation Cases Referred to the OMB and Other Government Agencies 41 Table III.4-B Violation of R.A. No. 3019 Referred to the OMB and Other Government Agencies 41 Table III.4-C Other Cases Referred to the OMB and Other Government Agencies 42 Table III.4-D Cases Referred by LSS-FAIO to the OMB 42 Table III.4-D Cases Under Investigation by COA-OMB JIT 42 Table III.5 Recoveries and Refunds in CY 2011 43 Table III.6 Audit of Intelligence Funds 44

PART I

MANDATE AND EXECUTION OF AUDIT

AUDIT PERFORMANCE SUMMARY REPORT COMMISSION ON AUDIT For Calendar Year 2011

Part I – Mandate and Execution of Audit 2

I. MANDATE

The COMMISSION ON AUDIT (“COA”) is vested by the Constitution with the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and/or controlled corporations. (Art. IX-D, Sec. 2.1). The Constitution also grants the COA the exclusive authority to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. (Art. IX-D, Sec. 2.2). Moreover, the Constitution directs the COA to submit to the President and Congress an annual report covering the financial condition and operation of the Government, its subdivisions, agencies, and instrumentalities, including government-owned or controlled corporations, and non-governmental entities subject to its audit, and recommend measures necessary to improve their effectiveness and efficiency. It shall submit such other reports as may be required by law. (Art. IX-D, Sec. 4). P.D. No. 1445, the Government Auditing Code of the Philippines, prescribes that the Annual Report shall be submitted on or before September 30 of each year. Pursuant hereto, the COA has been submitting yearly its Annual Financial Report (“AFR”) in three volumes, one volume each for National Government Agencies (“NGAs”), Local Government Units (“LGUs”), and Government Owned and/or Controlled Corporations. (“GOCCs”).

Mindful of the numerous concerns and responsibilities that require precious executive time of the President and Members of Congress, COA believes that it may be of assistance and value to render a Summary of the AFR, highlighting certain information and audit recommendations in brief. Reference to the appropriate volume of the AFR may be made for details. Hence, beginning with the audit of CY 2011, we hereby submit this Audit Performance Summary Report. Data presented herein are as of August 31, 2012.



II. AUDIT APPROACHES AND METHODOLOGIES

A. Residency Approach

In general, COA employs the Residency Audit approach, where an auditing unit (the “Audit Team”) is permanently stationed in a government agency or unit (the “Auditee”), which provides the Audit Team with office space, supplies, equipment and necessary operating expenses, in accordance with Section 20 of P.D. No. 1445.

Each Audit Team is composed of a Team Leader and from one to five members, including administrative support staff, depending on the size, volume of transactions, and complexity of operations of the Auditee. Audit Teams are clustered into Audit Groups, each headed by a Supervising Auditor who manages the Audit Teams and provide administrative direction. The Supervising Auditors, in turn, report to and are supervised by a Cluster Director (in the case of the Central Office) or a Regional Director (in the case of Regional Offices).

Upon completion of the audit, the Audit Team discusses the results of audit with the Management of the Auditee in an Exit Conference. Thereafter, and taking into account the comments of Management, the Annual Audit Report (“AAR”) is issued for government agencies with complete set of books, and the Management Letter (“ML”) for those with incomplete set of books and limited-scope audits including staff, bureaus and field operating units. The ML is consolidated into the AAR of the departments/head offices. The AARs and MLs are transmitted to the Auditee management, oversight agencies, and other agencies and bodies.

B. Team Approach

In this approach, the Audit Team does not take residency in the office/s of the Auditee; rather, it reports at least once a year to the Auditee on a scheduled period to undertake the audit. Upon completion of the field work, the Audit Team returns to its designated official station for the preparation of the audit report. This approach, first adopted in 1996, is generally applied in municipalities and water districts in the provinces where size and volume of transactions are at a tolerable level within the risk assessment model of the COA.

C. Cyclical Approach This follows essentially the Team Approach and is used for a group of Auditees which, by sheer number or location or cost of deployment of Audit Teams, cannot be audited yearly. These are mainly the Barangays,



national high schools, and Foreign Based Government Agencies (“FBGAs”), e.g., embassies, consulates, and overseas labor offices. In the case of Barangays, for instance, there are 42,026 of them, which are audited on a three-year cycle pursuant to COA Resolution Nos. 97-002 dated January 9, 1997. National high schools number at least 4,700, with over 1,300 having complete set of books and are also subject to cyclical audit under COA Resolution No. 2006-005 dated March 25, 2006. FBGAs number 278 all over the world. COA generally audits half of these Auditees in a year, and the second half in the next, thus, making the cycle every other year.

D. Pre-Audit COA lifted pre-audit of government transactions through COA Circular No. 2011-002 dated July 22, 2011. Since then, all audits have been on a post-audit basis, to affirm the immediate and primary responsibility of heads of agencies for the fiscal affairs of the agency (see Section 102, P.D. No. 1445), and to promote the acceleration of delivery of services which, during the period that pre-audit was in effect, was reported to have been impeded by pre-audit. COA may, however, institute pre-audit when warranted, or when the internal control system of an Auditee is found to be weak or inadequate.

III. TYPES OF AUDITS

A. Financial and Compliance Audit

Financial audit evaluates the fairness of presentation of the financial condition and results of operations of the Auditee, including its cash flows. Pursuant to COA Memorandum No. 2002-060 dated November 14, 2002, COA also looks into the Auditee’s compliance with laws and rules, the National Government Accounting System (“NGAS”), policies and practices, applicable generally accepted accounting standards, and internal controls, for the purpose of determining the regularity of financial transactions. This type of audit is also referred to as compliance or regularity audit. It is this type of audit that the COA conducts annually and on a continuous basis, and on which the Residency Audit approach is mainly anchored. For agencies without complete set of books, the scope of financial audit is limited to the extent only of available financial data. The Audit Sectors and the Regional Offices are mainly responsible for conducting this audit. A usual specific audit focus of financial and compliance audit is cash examination, to establish the actual existence of cash in the custody



of the accountable officer; the validity of the cash items presented; whether all monies received have been correctly recorded and fully accounted for; whether disbursements are duly authorized, actually paid and properly recorded; to prove the accuracy of the cash balances appearing in the cashbook and related records; and determine if the accountable forms are duly accounted for. For agencies without complete set of books, cash examination is de rigueur.

B. Value-for-Money or Performance Audit Value-for-Money (VFM) or Performance Audits are conducted to ascertain the economy, efficiency and effectiveness in the manner in which agency programs, activities and projects are carried out. Government-Wide and Sectoral Performance Audit (GWSPA), first adopted under COA Resolution No. 98-005 dated March 3, 1998, allows a review of identical, similar or related programs or activities that are delivered by more than one government entity, and enables COA to determine particular segments of a government program where improvements can be introduced.

This type of audit is principally conducted by the Special Audits Office (“SAO”) under the Special Services Sector (“SSS”).

C. Fraud Audit Fraud audits are conducted when there are reports, complaints, or “red flags” detected in the course of a regularity audit, that fraud or irregularity attended the collection, disbursement and/or usage of government funds and property. Complaints may be in the form of referrals by the Office of the Ombudsman (“OMB”) and other agencies of the government; requests or referrals from the audit sectors; and letters and reports from the public in general (anonymous sources, whistle blowers and other stakeholders). With the establishment of the Citizens’ Desk at the Office of the Chairperson in 2011, many citizens’ reports have spawned several fraud and special audits. Fraud audits are principally undertaken by the Fraud Audit and Investigation Office (“FAIO”) under the Legal Services Sector (“LSS”). It may enlist the assistance of the Audit Sectors, the Regional Offices, and the SAO when circumstances warrant. Fraud Audit Reports are transmitted to the Office of the Ombudsman for the filing of appropriate charges.

D. Other Special Audits These are audits of specific transactions or projects that may be requested by any citizen. They are usually referred to the concerned Director for initial assessment, and forwarded to either the FAIO or SAO if further audit or investigation is warranted.



E. Variable-Scope Audit In the exercise of its visitorial powers, COA also performs variable-scope audits of non-government entities subsidized by the government; those required to pay levies or government share; those funded by donations through the government; those for which the government has put up a counterpart fund; those funded by loans guaranteed by the government; and public utilities insofar as the fixing of rates is concerned.

This type of audit is primarily handled by the Audit Sector concerned, or the SAO in the case of fixing of rates.

F. Foreign-Assisted Projects Audits of foreign-assisted projects are likewise conducted by COA when required in foreign loan agreements and grants of assistance in research and development projects extended by foreign lending and financial institutions to the Philippine government or to any of its agencies and instrumentalities. The loan agreement or financial assistance package specifies the types of audit, but usually requires audit of financial statements and audit of Statements of Expenditures. For World Bank-assisted projects, audit of the Special Account is always specified, while in case of Asian Development Bank-assisted projects, audit of the Imprest Account is always stipulated.

G. United Nations and Specialized Agencies The External Auditor of the United Nations (“UN”) Organization and its specialized agencies is selected from among the Auditors-General of member governments and appointed by the governing bodies of each agency. In line with this policy of the UN, COA, as the Supreme Audit Institution (“SAI”) of the Republic of the Philippines, has been appointed as the External Auditor of the Food and Agriculture Organization of the United Nations for the financial years 2008-2013 and the World Health Organization for the financial years 2012-2015. COA bested other SAIs of UN Member States in a competitive selection process based on the following criteria: Independence; Qualification of Officers and Staff; Training and Experience; Audit Approach and Strategy; Audit Reporting and Costs.

PART II

SIGNIFICANT AUDIT RESULTS


Part II – Significant Audit Results 8

I. ENTITIES AUDITED In 2011, COA had a total of 61,418 government agencies, units and entities under its audit jurisdiction. These Auditees are grouped into three main Sectors, i.e. National Government Sector (“NGS”), Local Government Sector (“LGS”), and Corporate Government Sector (“CGS”), and consist of: Table II.1. Total Auditees

Sector Number of Agencies NGS 14,013 LGS 43,740 CGS 3,665

A. National Government Auditees

The audit jurisdiction of the NGS covers 31 departments and regional offices, bureaus, attached agencies, districts, division offices, or field operating units under their supervision across the country, as follows: Table II.1-A. Auditees under the National Government Sector

Region Depart ments Line

Bureaus Staff

Bureaus Regional Offices SUCs

Attached Agencies

Constitu- tional

Offices

District/ Division Offices

Field Operating

Units Total

NCR 28 147 68 38 8 6 3 48 768 1,114 CAR - - - 50 6 - - 80 622 758 I - - - 76 6 - - 48 1,053 1,183 II - - - 51 5 - - 12 219 287 III - 3 - 54 12 - - 55 909 1,033 IV - 6 - 98 11 - - 44 2,079 2,238 V - 16 - 54 8 - - 32 1,186 1,296 VI - 7 - 55 11 - - 49 560 682 VII - - - 67 5 18 - 67 1,212 1,369 VIII - - - 61 10 - - 91 1,316 1,478 IX - 7 - 52 6 - - 66 377 508 X - - - 65 7 - - 34 268 374 XI - - - 68 4 4 - 121 224 421 XII - - - 56 5 - - 17 296 374 XIII - - - 51 4 - - 16 369 440 ARMM 3 5 - 42 5 - - 93 310 458

Total 31 191 68 938 113 28 3 873 11,768 14,013

Included in the above tabulation is the Office of the Regional Governor (“ORG”) of ARMM which was audited by the NGS. In 2011, the NGS and CGS also conducted an examination of the cash and property accountabilities of accountable officers in 113 FBGAs. Table II.1-A.1. Audited Foreign-Based Government Agencies

Foreign-Based Government Agencies Total Audited in 2011 A. National Government Agencies

1. Department of Foreign Affairs 94 34 2. Philippine Center Management Board 2 2 3. Department of Labor and Employment 38 16



Foreign-Based Government Agencies Total Audited in 2011 4. Manila Economic and Cultural Office 1 0 5. Department of Trade and Industry 31 18 6. Department of Tourism 15 8 7. Department of Agriculture 8 6 8. Department of National Defense 18 5 9. Philippine Veterans Affairs Office 1 1 10. Philippine National Police 6 3

Sub-Total 214 93 B. Government-Owned and Controlled Corporations

1. Home Development Mutual Fund 18 7 2. Development Bank of the Philippines 1 1 3. Social Security System 13 6 4. Overseas Workers' Welfare Administration 32 6

Sub-Total 64 20 Total 278 113

The List of National Government Auditees is appended herewith as Annex “A”.

B. Local Government Auditees The local government units subject of COA audit jurisdiction are presented below per Region: Table II.1-B. Auditees under the Local Government Sector

Region No. of Auditees Total Provinces Cities Municipalities Barangays NCR 0 16 1 1,705 1,722 CAR 6 2 75 1,176 1,259 Region 1 4 9 116 3,265 3,394 Region 2 5 3 90 2,311 2,409 Region 3 7 13 117 3,102 3,239 Region 4 10 16 199 5,469 5,694 Region 5 6 7 107 3,471 3,591 Region 6 6 16 117 4,051 4,190 Region 7 4 16 116 3,003 3,139 Region 8 6 7 136 4,390 4,539 Region 9 3 5 67 1,904 1,979 Region 10 5 9 84 2,022 2,120 Region 11 4 6 43 1,162 1,215 Region 12 4 5 45 1,194 1,248 Region 13 5 6 67 1,311 1,389 ARMM 5 2 116 2,490 2,613

Total 80 138 1,496 42,026 43,740 Of the 42,026 Barangays, 41.0% were audited for CY 2011 following the cyclical approach. The number of local government auditees will increase effective CY 2012, with the addition of leagues of LGUs (Liga ng mga Barangay, League of Municipalities, League of Cities, and League of Provinces) and leagues and



federations of local elective officials, pursuant to COA Resolution No. 2011-014 dated December 13, 2011. The Audit of Leagues is anchored on the Supreme Court’s decisions in Bito-Onon vs. Fernandez, et al., G.R. No. 139813 and National Liga ng mga Barangay, et al. vs. Paredes, et al., G.R. No. 130775, holding that the Liga ng mga Barangay is a government organization, being an entity created by law or authority of law, whose members are either appointed or elected government officials.

The List of Local Government Auditees is herewith appended as Annex “B”.

C. Corporate Government Auditees The CGS has audit jurisdiction over all GOCCs totaling 3,665, including financial institutions with branches and operating units nationwide, e.g. Bangko Sentral ng Pilipinas (“BSP”), Development Bank of the Philippines (“DBP”), Land Bank of the Philippines (“LBP”), Government Service Insurance System (“GSIS”), Social Security System (“SSS”); water districts; and government hospitals, e.g. Philippine Heart Center, Kidney Center of the Philippines, Lung Center of the Philippines, and the Philippine Children’s Medical Center, viz:

Table II.1-C. Auditees under the Corporate Government Sector

Region Head Offices Branches Subsidiaries Water Districts Field Operating

Units Total

NCR 79 138 47 0 272 536 CAR 21 1 6 95 123 I 1 1 45 190 237 II 15 25 47 87 III 7 290 1 85 383 IV 1 54 67 360 482 V 1 47 37 196 281 VI 8 30 63 79 180 VII 2 35 17 235 289 VIII 23 24 237 284 IX 1 53 15 91 160 X 3 32 2 22 102 161 XI 1 31 1 18 54 105 XII 24 22 94 140 XIII 13 20 100 133 ARMM 11 2 7 64 84

Total 104 817 55 473 2,216 3,665

Aside from the AARs and MLs, the CGS prepares other audit reports, such as the Report on Salaries and Allowances (“RoSA”) and the AFR of GOCCs, which are likewise submitted to the President, Congress, oversight bodies, and the Auditees. The List of Corporate Government Auditees is herewith appended as Annex “C”.



II. AUDITS CONDUCTED For CY 2011, COA completed a total of 38,505 audits, as follows:

Table II.2. Audits Conducted in CY 2011

Types of Audit NGS LGS CGS SSS LSS IARO Regions2 Total

Financial and Compliance1 8,827 18,412 2,538 8,396 38,173 Fraud Audits 1 5 6 12 GWSPA 31 31 FAPs NEX/ODA Audits 54 2 8 8 72 Audit of FBGAs 93 20 113 International Audits 24 24 Other Special Audits 33 25 6 16 80

Total 9,007 18,440 2,572 31 5 24 8,426 38,505 1 Includes Cash Examination 2 Not segregated by Sector There are seven on-going fraud audits in 2011 with target completion in 2012, namely: asphalting projects of Department of Public Works and Highways (“DPWH”) – NCR for P253.957 million; procurement of helicopters by the Philippine National Police (“PNP”) for P104.985 million; delivery of educational information technology materials for DepEd-ARMM for P80.032 million; share in Malampaya Funds of the Province of Palawan, Puerto Princesa City and DPWH Second Engineering District in Narra, Palawan involving P2.572 billion; and QUEDANCOR Swine Program in Region VIII. The 31 completed GWSPAs conducted by SAO in CY 2011 are comprised of 16 agencies covered under the audit of CCT Program of the Department of Social Welfare and Development (“DSWD”), and 15 agencies covered under the audit of ARRM. The SAO started in 2011 five audits with expected completion in CY 2012, namely:

• Priority Development Assistance Fund (“PDAF”) covering 24 NGAs,

4 GOCCs, 5 Provinces, 9 Cities and 110 Barangays • Malampaya Funds covering 19 NGAs and GOCCs • North Rail • LRTA • Municipality of Sara, Iloilo

III. SCOPE AND LIMITATION OF FINANCIAL AND COMPLIANCE AUDIT CONDUCTED Limitations in scope of Financial and Compliance Audits are reflected through the issuance of Disclaimer of Opinion on the Financial Statements (“F/S”) of the Auditee.



For CY 2011, Disclaimers of Opinions were rendered on the F/S of 2 NGAs, 6 GOCCs, and 72 LGUs. The most common reasons for the Disclaimer of Opinion are the inability of the Audit Team to obtain sufficient and/or appropriate audit evidence to provide a basis for an opinion, and the inadequacy of records which prevents the application of other audit procedures to establish the validity of some accounts in the F/S, due to:

• Failure to maintain complete set of books of accounts and subsidiary ledgers

• Non submission/delays in submission of F/S and documents supporting government transactions

• Unreconciled material cash balances due to non-preparation of bank reconciliation statements and adjusting entries

• Provisions of the Bank Secrecy Law, which prevent the Audit Teams from scrutinizing certain transactions of government banks.

IV. AUDIT REPORTS RENDERED COA issued a total of 38,505 Audit Reports for CY 2011. Reports issued on financial and compliance audits include MLs, Individual Annual Audit Reports (“IAARs”), and Consolidated Annual Audit Reports (“CAARs”).

Table II.3. Audit Reports Rendered

Types of Audit Conducted No. of Reports Financial and Compliance including Cash Examinations 38,173 Fraud Audits 12 GWSPA 31 FAPs NEX/ODA Audits 72 Audit of FBGAs 113 International Audits 24 Other Special Audits 80

Total 38,505

V. SUMMARY OF AUDIT OPINIONS COA renders four types of audit opinions on the F/S prepared by management, namely: unqualified, qualified, adverse and disclaimer opinions. An unqualified (UQ) opinion is expressed when the auditor concludes that the F/S are prepared, in all material respects, in accordance with the applicable financial reporting framework and in conformity with generally accepted state accounting principles, and that any changes in accounting policies or in the method of their application and the effects thereof, have been properly determined and disclosed in the F/S.



A qualified (Q) opinion is expressed when the auditor concludes, after having obtained sufficient appropriate audit evidence, that misstatements, individually or in aggregate, are material but not pervasive in the F/S, or when the auditor is unable to obtain sufficient appropriate evidence on which to base an opinion but the possible effects of undetected misstatements in the F/S, though possibly material, are not pervasive. An adverse (A) opinion is expressed when the auditor concludes that misstatements, individually or in aggregate, are both material and pervasive in the F/S. An adverse opinion is also expressed when the auditor is unable to form an opinion on the financial statements taken as a whole due to disagreement with the management of Auditee, which is so fundamental that it undermines the position presented to the extent that an opinion which is qualified in certain respects, would not be adequate. The wording of such an opinion makes clear that the financial statements are not fairly stated, specifying clearly and concisely all the matters of disagreement. The auditor issues a disclaimer (D) when he is unable to obtain sufficient appropriate audit evidence on which to base the opinion on and the possible effects of undetected misstatements on the F/S could be both material and pervasive. This is issued when the auditor is unable to arrive at an opinion regarding the financial statements taken as a whole due to an uncertainty or scope restriction, which is so fundamental that an opinion, which is qualified in certain aspects, would not be adequate. The wording of such a disclaimer makes clear that an opinion cannot be given, specifying clearly and concisely all matters of uncertainty. These audit opinions are issued for agencies with complete set of books. In CY 2011, IAARs and CAARs were issued together with the audit opinions on the F/S of stand-alone agencies and consolidated F/S of the departments and head offices, respectively, while MLs were issued for the audits of Regional Offices (“ROs”) and Operating Units (“OUs”) as well as the Head Office of national and corporate government agencies. The number of Opinions issued by the COA for CYs 2011, and compared with those for CYs 2009 and 2010 are as follows: Table II.4-A. Number of Opinions Issued by NGS

Year Opinion Rendered UQ % Q % A % D % Total 2009 52 17% 231 76% 19 6% 3 1% 305 2010 54 15% 262 74% 33 9% 4 1% 353 2011 44 20% 159 72% 17 8% 2 1% 222



Table II.4-B. Number of Opinions Issued by LGS

Year Opinion Rendered UQ % Q % A % D % Total 2009 165 13% 1,069 86% 14 1% 2 0% 1,250 2010 168 13% 985 77% 21 2% 103 8% 1,277 2011 209 12% 1,363 81% 46 3% 72 4% 1,690

Table II.4-C. Number of Opinions Issued by CGS

Year Opinion Rendered UQ % Q % A % D % Total 2009 163 28% 374 65% 18 3% 19 3% 574 2010 157 27% 398 68% 24 4% 10 2% 589 2011 94 31% 192 64% 10 3% 6 2% 302

There is an increasing trend in clean or unqualified opinions rendered for Auditees under NGS and CGS, percentage-wise, coupled with a decreasing trend in qualified opinions, which comprise the majority of audited F/S. Nonetheless, the number of qualified opinions rendered across the three Sectors indicates the need for greater vigilance and marked improvement in the financial management of agencies. As for Disclaimers, we find these to be more prevalent among LGU Auditees. The List of the Auditees, per Sector, with their corresponding Audit Opinions, are appended herewith as Annex “D” (for NGAs), Annex “E” (for LGUs), and Annex “F” (for GOCCs).

VI. OVERALL FINANCIAL DATA This section covers the financial data of the entire government, composed of NGAs, GOCCs and LGUs. Table II.5. Overall Financial Data in CY 2011

Particulars NGAs GOCCs LGUs Total (In Million Pesos) Assets 3,299,440 8,681,011 754,824 12,735,275 Liabilities 5,382,015 6,824,020 228,525 12,434,560 Equity (2,082,575) 1,856,991 526,299 300,715 Income 1,404,320 701,821 350,810 2,456,951 Expenses 1,417,945 617,310 281,613 2,316,868

A. NGAs

Overall financial data on NGAs for CY 2011 constitute 98.79% complete submission of F/S based on the consolidated data of the Government Accountancy Sector (“GAS”).



B. LGUs

For LGUs, the financial data for CY 2011 were 98.1% of the total number of required submissions, with all provinces and cities registering 100% submission. Nationwide, eight regions, including the NCR, posted 100% submission of financial statements of all their respective LGUs.

C. GOCCs

For GOCCs, the percentage of submission for CY 2011 was 84.0%.

The list of agencies without submitted F/S is appended herewith as Annex “G”.

VII. BUDGET UTILIZATION A. By Agency

Table II.6-A. Budget Utilization by Agency

Appropriations/ Corporate Operating

Budget Allotments Expenditures Balance Obligations Disbursements

(in Million Pesos) NGAs

PS 508,317 503,391 432,455 4,926 MOOE 922,126 864,676 797,887 57,450 CO 730,959 629,019 503,566 101,940 Sub-total 2,161,402 1,997,086 1,733,908 164,316

LGUs

PS 82,741 79,146 68,829 3,595 MOOE 111,751 93,778 77,403 17,973 CO 68,495 43,960 35,879 24,535 Sub-total 262,987 216,884 182,111 46,103

GOCCs

PS 77,685 69,362 73,922 8,323 MOOE 559,620 525,205 319,785 34,415 CO 209,709 100,853 95,183 108,856 Sub-total 847,014 695,420 488,890 151,594 Total 3,271,403 2,909,390 2,404,909 362,013

The total cash disbursements in CY 2011 included prior years’ payables paid in 2011. For NGAs, the data on disbursement were sourced from the Annual Report on Allotments, Obligations and Disbursements (“AOD”) for CY 2011. For LGUs and GOCCs, data were sourced from the regional submissions.

B. By Priority Program

The government embarked on two major priority programs in CY 2011 - the Disbursements Acceleration Program (“DAP”) and the Pantawid Pamilyang Pilipino Program (“4Ps”).



Table II.6-B. Budget Utilization by Priority Program

Particulars Allotments Obligations Balance (in Million Pesos) Disbursement Acceleration Program (DAP) 53,362 45,664 7,698 Pantawid Pamilyang Pilipino Program (4Ps) 17,812 16,665 1,147

The DAP was implemented by the Department of Budget and Management (“DBM”) in the fourth quarter of CY 2011 to fast track disbursements and push the economy upward. P72.11 billion was set aside for the DAP which included fast disbursing and high-impact projects like critical public works and agriculture infrastructure projects; housing, relocation and settlement projects; additional funding support for LGUs; rehabilitation of rail systems; peace efforts support projects; healthcare insurance for indigents; and human resource development training.

Out of the total funding, P53.362 billion was released to: Table II.6-B.1. Breakdown of DAP Budget Releases

Sector Amount (in Million Pesos) NGAs 31,588 LGUs, through the DBM 2,415 GOCCs, through BTr-DOF 19,359

The 4Ps or the CCT Program of the DSWD is a human development program of the national government and a social protection strategy that invests in the health and education of poor children aged 0-14 years old. For FY 2011, the program released P15.807 billion to the beneficiaries, of which 19% or P3.003 billion was released for health and 51% or P8.062 billon for education. The program covers 78 cities and 968 municipalities in 79 provinces.

VIII. COMMON AUDIT FINDINGS A. Pecuniary Loss

Most audit findings categorically indicate pecuniary loss on the part of the government as a result of violations of law, rules and regulations. For CY 2011, unauthorized/irregular/unnecessary expenses, unliquidated cash advances, violations of the Procurement Act, underassessment/ undercollection, unutilized/ineffective projects, and lack of appropriation constituted the most number of cases where the public coffers suffered unwarranted loss as shown in the succeeding table:



Table II.7-A. Common Audit Findings with Pecuniary Loss

Particular Total

No. of Findings

Amount (in Million Pesos)

1. Unauthorized/Irregular/Unnecessary expenses 1,642 18,653.516 2. Unliquidated Cash Advances 1,003 7,534.153 3. No bidding/Not in Accordance with Procurement Law 692 15,163.353 4. Underassessment/Undercollection 157 20,813.224 5. Unutilized/Ineffective Projects 104 13,583.533 6. Lack of appropriation 100 525.363 7. Unliquidated Fund Transfer 77 6,800.313 8. Delayed remittance/unremitted withholding tax/loans/premiums

of employees and other trust liabilities 73 750.910

9. Non-existent cash/unaccounted assets 49 1,199.753 10. Unimplemented projects/Unutilized funds 47 3,276.235 11. Shortages and malversation of funds 42 282.327 12. Delayed implementation of projects/ suspended projects 36 2,554.056 13. Unremitted/ Uncollected income/Accounts Receivables 34 3,511.810 14. Overpricing / excessive contract cost 34 1,117.419 15. Unsettled Suspensions/Disallowances/Charges 32 203.750 16. Fictitious claims/expenses 26 5,198.772 17. Untitled land purchased/ owned 17 390.671 18. Undeposited collections 9 149.658 19. Unrecouped advances/mobilization 6 107.860

B. Weak Internal Controls and Administrative Lapses

Some audit findings do not necessarily entail pecuniary loss to government, but are nevertheless deleterious to the effective and efficient discharge of public services and management of public resources. These are summarized in the table below: Table II.7-B. Common Audit Findings: Weak Internal Controls and Administrative Lapses

Particular Total

No. of Findings

Amount (in Million Pesos)

1. Delayed submission of contracts/accounts/ preparation of F/S 501 1,291.504 2. Incomplete documentation/undocumented accounts balances 389 7,589.587 3. Failure to prepare/reconcile Inventory Report with balances per

books 334 59,520.461

4. Failure to conduct/complete physical count of supplies and equipment 308 55,615.952

5. Failure to maintain SLs/Reconcile SLs with GL/Unsupported Balances/Dormant Accounts 239 2,039,855.987

6. Misclassification/misstatement of accounts 229 128,029.547 7. Failure to prepare BRS/unreconciled book and bank balances 139 8,361.768 8. Weak internal control 130 10,908.017 9. Lapses in operations/performance 35 17,561.162 10. Undisposed unserviceable property 34 369.418 11. Non-compliance with MOA/Agency Circular/Agency

Policy/Covenants 18 91,767.700



Delayed submission of contracts/accounts/preparation of F/S posted the highest number of instances where COA discovered administrative lapses in the course of audits performed for CY 2011.

IX. SIGNIFICANT/PECULIAR AUDIT FINDINGS The CY 2011 audits yielded several significant and peculiar findings, among them:

A. NGS Audits

1. Bureau of Customs (“BOC”) – (a) Drawback of customs duties and

taxes found to be illegal was approved by BOC amounting to P26.072 billion. Also, the unaccounted tax certificates (“TCC”) as of December 31, 2011 amounted to P1.902 billion. These unaccounted TCCs have been recurring in previous years.

(b) Matured bonds/outstanding accounts of surety companies relative to warehousing in the total amount of P4.633 billion for CY 2011 and prior years have not been collected/settled, which strongly indicates lapses in the enforcement of existing operational procedures to collect/settle such matured bonds.

(c) Forty-four (44) surety companies have outstanding accounts in the amount of P1.198 billion.

2. DSWD CCT – Of the total disbursements/liquidation of P14.486

billion on 4Ps which were recorded in the books, only P10.716 billion were properly documented and verified as of December 31, 2011, leaving an unaccounted balance of P3.770 billion, thus affecting the reliability of the ending balances of the Cash in Bank – Local Currency, Current Account (“LCCA”) for various 4Ps accounts.

3. DBM – Accountability over the funds transferred/released to

LGUs from the Special Account in the General Funds (“SAGF”) 151 amounting to P2.609 billion could not be established because these were recorded as Subsidy to LGUs rather than Due from LGUs thereby understating the latter account by the same amount.

4. Toll Regulatory Board (“TRB”) – The recurring failure of

management to initiate a meeting of concerned government entities for the offsetting of accounts as proposed by Philippine Retirement Authority (“PRA”) prevented the Accountant to record in the books of accounts its obligation to PRA amounting to P2.810 billion, resulting in the understatement of the agency’s liabilities.



5. Philippine Air Force (“PAF”) – Out of the total P12.3 billion cash

allocation received by the PAF from the DBM and from the AFP General Headquarters (“GHQ”) for the year 2011, only P10.7 billion was utilized due to the delay in the downloading of projects to procurement centers and in the conduct of bidding and procurement activities, thus, P1.6 billion or 13.17% intended for various programs/activities were reverted back to the National Treasury.

6. Department of Interior and Local Government (“DILG”) –

Allotments amounting to P1.043 billion were released for unprogrammed project/activities which were not supported by Physical and Financial Work Plan (“PFWP”) which should have shown, among others, the specific activities to be undertaken, the targeted outputs and the corresponding budget allocation to serve as guide in the disbursement of funds. This is contrary to the DAP of the government which aims to fast-track disbursements and push economic growth. As a result, corresponding project implementation has not taken off, negating the purpose of fast-tracking disbursement for high-impact projects.

7. Department of Transportation and Communications (“DOTC”) –

(a) The balance of Accounts Receivable (“A/R”) amounting to P799.785 million as of December 31, 2011 included conditional receivables of P796.799 million representing uncollected Development Rights Payments (“DRPs”) from the MRT Development Corporation for the air space above the undeveloped Stations of the Light Rail Transit System (“LRTS”) Phase I, which were under dispute, rendering the reported balance bloated. (b) The suspension of some airport/port projects with the total recorded value of P481.162 million, delayed/non-commissioning of the new air traffic control facility costing P510.221 million, and non-utilization of lighthouse spare parts/equipment worth P250.456 million not only caused delay in the achievement of their intended purposes/benefits but may also result in the incurrence of additional cost or wastage of government resources in the future.

8. National Labor Relations Commission (“NLRC”) Main/NCR –

Judgment awards of decided cases and cash bonds on appealed cases with an accumulated amount of P641.034 million which were maintained in a Fiduciary Trust Fund and deposited under Fiduciary Trust Account in UCPB and LBP for eight years since 2004 remained unremitted to the Bureau of Treasury, contrary to E.O. No. 338 dated May 17, 1996.



9. Philippine Coast Guard (“PCG”) – PCG recorded the receipt of

Marine Environment and Protection Equipment and Supplies from the DOTC in the total amount of P319 million without complete documentation. The receipt included some pieces of equipment which were not requested. There was no report submitted by PCG Technical Inspection and Acceptance Committee.

10. UP System – The P169.430 million rentals for the UP-Ayala Techno

Hub property could not be verified due to lack of supporting documents, including the unsettled technical and auditorial issues raised previously on the P4.2 billion, 25-year lease contract entered into by the UP and the Ayala Land, Inc., delaying further the determination of the accuracy, reasonableness and validity of said project.

11. Office of Civil Defense (“OCD”) DND – (a) The joint venture of

Joavi Philippines, Inc.; Talon Security Consulting & Trade Ltd.; and Aquasports Boats and Yachts Co., Ltd. failed to deliver to the OCD 52 units of Rigid Hull Inflatable Boats by September 30, 2011, contrary to the stipulation in their contract, but OCD issued the Notice of Termination of contract only on January 12, 2012, in violation of the pertinent provisions of RA No. 9184. These boats could have been used in rescue and relief operations during the recent catastrophic floods in Metro Manila and provinces in Luzon caused by heavy monsoon rains.

(b) Out of the total funds received of P140.0 million from DND- Quick Response Fund (“QRF”) in 2008-2010, only P28.167 million or 20.12 per cent had been utilized as of December 31, 2011 due to inadequate planning, thus depriving the proposed beneficiaries of the intended benefits.

12. DOE – Philippine Energy Efficiency Project (“PEEP”) – The distribution of the five million Compact Fluorescent Lamp (“CFLs”) procured under Lot 1 of Component 1.2 National Residential Lighting Program of the PEEP at a total cost of P171.593 million, programmed to be distributed within a period of three months as per contract with GRM International, Inc. dated September 9, 2009, was not yet completed as at year-end of 2011 despite the lapse of two years and three months with 359,711 pieces costing P13.6 million remaining undelivered as of January 12, 2012. Further, the 2,533,705 Incandescent Bulbs (“IBs”) stored at GRM International, Inc. warehouse for disposal plus an undetermined number with the electric cooperatives in Mindanao remained undisposed of as at year-end of CY 2011.



B. LGS Audits

1. On the full implementation of R.A. No. 10121, the Philippine Disaster Risk Reduction and Management (DRRM) Act of 2010 - The law provides that not less than 5% of the regular income of LGUs shall be set aside for Local DRRM Fund. Of the amount appropriated, 30% shall be earmarked for quick response fund while 70% shall be constituted into a special trust fund to support DRRM activities for five years.

a. Marikina – (1) Non-compliance with the full provisions of the law

and of City Ordinance No. 32, Series of 2011, and unavailability of a DRRM Plan, precluded the City to effectively manage their budgeted fund for LDRRM.

(2) The City has yet to implement fully the provisions of R.A. No. 10121 and its Implementing Rules and Regulations (“IRRs”) on the accounting of the LDRRMF and the reporting requirements thereon.

b. Manila - The LDRRMF appropriated by the City is less than the

five per cent ceiling. The nature of the activities cited in three programs overlapped while one project did not qualify within the context of program/projects that may be funded from the LDRRMF. In addition, disaster/calamity-related expenditures were not accurately consolidated such that reported utilization was misleading. Moreover, the unutilized balance of the LDRRMF was not constituted as a Special Trust Fund to be used solely for the purpose of supporting disaster risk reduction and management activities within the next five years. There was, likewise, incomplete reporting of LDRRMF utilization, and the unutilized balance of the LDRRMF was not constituted as a Special Trust Fund to be used solely for the purpose of supporting disaster risk reduction and management activities within the next five years.

c. Pasay – The City did not comply with the required composition of

the LDRRMC and has neither established the LDRRM Office nor prepared the LDRRM Plan.

2. Manila – (a) The City of Manila was unable to eliminate the

insufficiency of cash incurred in the previous year, hence, the cash available totaling P1.006 billion was still insufficient to cover its current liabilities, including taxes and other deductions withheld for remittance to the BIR, GSIS, PhilHealth, Pag-IBIG and other agencies amounting to P3.553 billion. Moreover, the practice of using part of cash withheld or received for remittance to the said agencies or for the implementation of specific project/program for other purposes



violated Section 309 (b) of R.A. No. 7160, Section 122, Volume I of the Government Accounting and Auditing Manual (“GAAM”), and Section 337 of R.A. No. 7160.

(b) The City granted financial assistance in the amount of at least P1.404 billion to its officials and employees, as well as the national government personnel stationed in or assigned to the City from CY 2009 to June 2011 despite the cash deficit to pay its obligations. Also, the said expenses were erroneously charged against the appropriations of the City for maintenance and other operating expenses, contrary to Section 289, Volume I of the GAAM.

3. Tarlac City – The continuous incurrence of obligations resulted in

cash overdraft of P163.322 million as of December 31, 2011. Trust collections were misapplied and obligations due were not paid on time.

4. Audits focusing on Credit Financing transactions entered into by certain LGUs revealed the following:

a. Unutilized Loan Proceeds

o The plan of the Municipality of General Mariano Alvarez, Cavite to relocate about 85 informal settlers inside the existing municipal cemetery, in order to give way to its development, did not push thru despite the purchase and development of the lot for the new relocation site financed from the proceeds of loans from the LBP amounting to P14.0 million due to stoppage/discontinuity of negotiation with Gawad Kalinga to supply the materials and labor for the housing construction and in order for the beneficiaries to do their share of sweat equity.

b. Not Used for Intended Purpose

o The loan balance of Bacoor, Cavite with the GSIS Family Bank amounting to P62.910 million was settled through another loan from the DBP instead of utilizing its time deposits amounting to P85.0 million, resulting in obliging future internal revenue allotment (“IRA”) to pay said loan and interest thereof instead of availing full use of the IRA in favor of future programs and projects.

c. Completed Projects Not Utilized/Fully Utilized

o The Municipal Government of Pantabangan, Nueva Ecija has undertaken unplanned computerization project costing P15.964 million through debt financing, which project remains



idle or unutilized despite its completion, hence rendering the said project futile.

o The materials recovery facility with composting sub-project and a lot with an area of 6,393 sq. m. purchased for school site costing P11.895 million and P28.768 million, respectively, which were financed partly by loan remain unused, thereby depriving the City Government of Antipolo and its constituents of the desired results and benefits expected from the projects. The City Government continues to pay interest on the loan contracted for the unutilized projects.

d. Project Not Yet Completed

o The cost of Aguioas Overflow Bridge in Naguilian, La Union funded out of loan with the LBP was not completed and was not yet used by the constituents, thus the purpose for which the loan was availed of was not achieved.

o Majayjay Falls Eco Tourism Park which was funded by a loan was never completed and put into operation since its construction in 2009 and became a wreckage without serving its purpose, thus resulting in wastage of the amount loaned.

o Construction, Rehabilitation and Expansion of Water System in the Municipality of Cataingan, Masbate funded out of the loan amounting to P70.0 million secured from the DBP was not completed within the contract time, contrary to the agreement entered into by and between the LGU and the contractor, thus depriving the targeted recipients of the benefits that could have been derived from its immediate use.

5. PDAF – utilization/non-utilization of fund

a. NCR – Unutilized fund amounting to P102.271 million in the

Cities of Manila, Makati, Marikina, and Pasig, thus, defeating their specific purposes and depriving the intended deficiencies of the socio-economic benefits sought to be derived therefrom.

b. Region VII - The failure of Lapu-Lapu City to implement various

programs/projects/activities relative to financial assistance received amounting to P59.372 million from other government units and from PDAF/Countrywide Development Fund of different legislators deprived the constituents of the benefits that could have been derived therefrom.

c. Region XI - The PDAF received by the City Government of

Davao from CYs 2000-2010, which remained unutilized, in the total amount of P25.080 million was reverted to the General Fund



as source of funds for Supplemental Budget No. 1 of CY 2011 since priority projects and programs were not identified by the Office of the City Planning and Development; thus, the purpose for which the fund was created during that period was not achieved.

6. 20% Development Fund from IRA

a. Utilization of the fund

o Muntinlupa City - Of the 20% Development Fund amounting to P114.88 million, only 50.53% was utilized and P34.99 million was used for personal services, operating and administrative expenses of the City, contrary to DILG-DBM Joint Circular No. 1, series of 2005 dated September 20, 2005.

o Parañaque City - While essentially provided with actual funds, only 20 projects with a total cost of P77.701 million were obligated of which 11 costing P31.001 million were actually implemented and only one project costing P9.5 million was partially paid P5.0 million during the year denoting a very low utilization rate. In addition, of the P27.420 million continuing appropriation from the immediately preceding year, only P8.352 million was used for the payment of four completed projects.

o Taguig City - The projects/programs funded under the 20% Development Fund of the City Government for the CY 2011 amounting to P144.660 million were not implemented, thus attainment of desirable socio-economic developments and environmental management projects were not pursued. Further, some of the identified programs/projects are not in line with the guidelines set under DILG-DBM Joint Memorandum Circular (“JMC”) No. 1 dated September 20, 2005.

o Dagupan City - The proposed projects under the 20% Development Fund for CY 2011 were not approved by the Sangguniang Panlungsod in its Appropriation Ordinance, thus the related incurrence of expenses or contracts entered into by Management in the implementation of the development projects amounting to P26.562 million was not proper.

o Province of Quezon - The 20% Development Fund of the Province amounting to P107.866 million remained unutilized as of December 31, 2011, thus, depriving the intended beneficiaries of the maximum benefits that could be derived therefrom.



o Lucena City - The 20% Development Fund of the City amounting to P49.848 million remained unutilized as of year-end of 2011.

b. Appropriated amount below the statutory ceiling of 20% of IRA

o Parañaque City - The appropriation of P133.997 million for development projects is less than the statutory requirement of 20% of the annual IRA as provided in Section 287 of R.A. No. 7160 and DILG and DBM JMC No. 1, s. 2005 dated September 20, 2005.

C. CGS Audits

1. BSP – (a) Non-compliance with the dividend computation based on

R.A. No. 7656 resulted in the underpayment of dividends paid to the National Government for years 2008 and 2009 amounting to P1.758 billion.

(b) Inappropriate recording of swap costs, contrary to paragraph 13 of Philippine Accounting Standards (“PAS”) 1 resulted in misstatements of affected accounts by P18.916 billion. (c) Using two different methods in determining the historical costs of foreign securities is contrary to the principle of consistency which resulted in the understatement of Trading Gain or Loss-Foreign Securities by P18.513 billion and understatement of the credit balance of Revaluation of International Reserve - FX Rate Fluctuation by P13.027 billion.

2. DBP – (a) Recognition of a miscellaneous liability for the residual

gain between the revaluation of foreign borrowings and derivative value of the foreign exchange risk cover overstated liabilities by P6.984 billion, in violation of the provisions of PAS 39, MB Resolution No. 1063, and BSP Circular No. 494.

(b) The Hybrid Tier 1 (HT1) securities were classified as Other Equity Instrument contrary to PAS 32, and the Revised Framework, BASEL Committee on Banking Supervision, resulting in the overstatement of capital funds by P5.699 billion and understatement of liabilities by P5.659 billion. In addition, the related transaction costs were not amortized contrary to PAS 39.

(c) Official Development Assistance (“ODA”) loans/foreign borrowings amounting to P9.842 billion withdrawn from various funders from 2008 to 2009 remained unutilized as of December 31,



2011 which may result in the delay or non-attainment of the purposes for which such loans/borrowings were acquired.

3. LBP – Total past due obligations of eight commercial borrowers

amounting to P698.478 million were not fully secured by hard collateral, one of which has annotation of restrictions on title; and five out of eight were restructured without strengthening the Banks’ position, in violation of pertinent credit rules and regulations, putting the interest of the Bank at risk.

4. Philippine Postal Savings Bank, Inc. (“PPSBI”) – (a) Almost 78%

loan or a total of P193.086 million loan out of P248.181 million outstanding loan for Project D.R.I.V.E. accounts were past due, thereby casting doubt as to their collectibility.

(b) A loan of P75.0 million was granted to a borrower notwithstanding violations of the provisions stated in the Manual of Lending Operations resulting in the account becoming past due.

5. Home Guaranty Corporation (“HGC”) – (a) Foreclosed assets account

remained overstated by at least P1.603 billion, recorded at guaranty call instead of appraised values which is not in accordance with the provisions of PAS 36.

(b) HGC’s accumulated deficit of P12.771 billion continues to cast doubt on its ability to provide a viable shelter program for the homeless and underprivileged sectors of the society under Sections 5 and 7 of R.A. No. 8763, the HGC Act of 2000. (c) The approved guaranty lines of P222.286 billion are 1,615% of the guaranty capacity of P13.761 billion. (d) HGC has been operating on a negative working capital by P2.928 billion as at December 31, 2011.

6. Quedan and Rural Credit Guarantee Corporation (“QUEDANCOR”) –

The matured principal for Series A, B and C of QUEDANCOR Multi-Series Bonds amounting to P1.418 billion remained unpaid as at December 31, 2011, resulting in the accumulation of penalties amounting to P1.079 billion which were not recorded in the books, thereby understating the expense and liability accounts by the same amount.

7. Light Rail Transit Authority (“LRTA”) – Receipt of funds amounting to P4.5 billion by LRTA from DOTC on December 29, 2011, released to the latter by the DBM in October 2011 to cover the requirements for the expansion of MRT 3, was not proper. The fund transfer was



made pursuant to a Memorandum of Agreement (“MOA”) between LRTA and DOTC without any supporting work program, and with no bidding conducted yet by LRTA as the procurement agent of DOTC for the project. Moreover, the release of fund for MRT 3 was questionable as it is operating under Build-Lease-Transfer Agreement with Metro Rail Transit Corporation Limited.

A related audit finding was included in the Consolidated AAR of the DOTC for CY 2011.

8. Civil Aviation Authority of the Philippines (“CAAP”) – The

Philippine Civil Aviation has not regained its Category I (pass) status despite engaging the services of International Civil Aviation Organization (ICAO) consultants from 1996 to 2011 with a total amount of $14.835 million transferred to the Trust Fund account maintained by ICAO.

9. Philippine Aerospace Development Corporation (“PADC”) –

Revenues generated for the past 15 years were not sufficient to sustain its operations, with accumulated net losses over the years amounting to P166.0 million.

10. Manila International Airport Authority (“MIAA”) – Twenty-one (21)

abandoned aircraft were left parked and exposed to natural elements at the General Aviation area, depriving the MIAA of additional income and posing risk to the approaching and leaving aircraft as well as to the health and safety of the workers in the area.

11. National Electrification Administration (“NEA”) – Unexpended

Subsidy Fund balances of P29.71 million were not returned to NEA by the Electric Cooperatives.

D. SSS-SAO Audits

1. Province of Maguindanao (covering CYs 2007-2009) – Around P1.862 billion, granted as cash advances to two disbursing officers in amounts far exceeding their maximum accountabilities, were reportedly used to pay transactions of as high as P11.263 million. The transactions were not subjected to competitive public bidding. Moreover, these were supported with Official Receipts (“ORs”) which were either denied by the suppliers or issued by suppliers without permits or who cannot be located. The implementation of the reported projects was also unlikely, as these were found to be 96% deficient.

2. DPWH-ARMM (covering CYs 2007-2009) – Payments amounting to P1.123 billion to 112 suppliers/contractors were either not supported with documents and/or supported with documents that may be



considered spurious. Checks released to 103 suppliers/contractors and LGUs were encashed by only three individuals or deposited in two common accounts. These procurements were also not subjected to public bidding; 27 of these projects costing P422.797 million may be considered either not implemented or implemented but not in accordance with plans and specifications. These projects manifested deficiencies amounting to P363.432 million.

3. Office of the Regional Governor of ARMM (covering CYs 2007-

2009) – The grant and liquidation of cash advances by the disbursing officers amounting to P866.513 million are highly doubtful. These were granted without specific purpose and used for payments in amounts as high as P13.48 million in a single day which is highly improbable. These transactions were also not subjected to public bidding and not fully documented. Transactions worth P393.804 million were denied by the suppliers while others worth P347.198 million were supported with spurious invoices.

Funds for unbooked prior years' obligations amounting to P261.66 million were released and obligations paid, one day upon release of Notice of Cash Allocation (“NCA”), despite the absence of COA’s certification that the obligations were indeed valid, as required under Section 19 of the General Appropriations Act for Fiscal Year 2008. Of the 16 creditors/suppliers with alleged unpaid transactions ranging from P0.739 million to as high as P67.329 million, 14 did not yet exist at the time of transactions. Seven of them were located in mere residential houses, with five located in the same residence. Moreover, these transactions were not subjected to public bidding of which payments amounting to P32.02 million were supported with spurious invoices.

4. Selected LGUs in the Province of Maguindanao (covering CYs 2007-

2009) – The funds acknowledged received by 10 municipalities were not all deposited in their authorized depository accounts and were used for the implementation of various projects without the benefit of public bidding. Of the projects implemented, 50 projects were found deficient by P458.976 million. Of these, transactions amounting to P86.374 million were already denied by the concerned suppliers and contractors.

E. LSS-FAIO Audits

1. DPWH–NCR – Claims for repairs of motor vehicles (“MVs”) were

irregular since these were processed and paid without vital supporting documents required in DPWH, COA, OMB, MOF and MOTC issuances clearly defining the guidelines for the repair and maintenance of transport equipment. About 477 units of MVs were



repaired for a total cost of P141.93 million without LTO registration, 527 units were without memorandum receipts (“MRs”) and 526 units were without pre-repair inspection reports (“PRIR”). In addition, official receipts issued by the suppliers in 1,089 Disbursement Vouchers (“DVs”) amounting to P24.30 million for the repair of MVs were not submitted for reimbursed claims for repair expenses, hence the payments were disallowed in audit.

2. Malampaya Funds (allocated to the Provincial Government of

Palawan and the First Congressional District) – The Bids and Awards Committee (“BAC”) awarded the 217 infrastructure projects with total cost of P1.714 billion to the contractors without posting the Invitation to Apply for Eligibility and to Bid (“IAEB”) in the Government Electronic Procurement System (“PhilGEPS”) and in the agency website as required in Sections 8.2.1 and 21.2 of R.A. No. 9184. Without such posting, widest dissemination of IAEB and best prices for the projects were not secured.

3. MWSS (Cash Advances for payment of allowances/benefits for the

period 2005-2008) – Cash Advances amounting to P60.483 million for payment of allowances and benefits of COA Auditors assigned in MWSS for the period January 1, 2005 to May 31, 2008, were clearly in violation of law, and not properly accounted for in the books and liquidated as required under Section 168 of GAAM, Vol. I. Concealment and manipulation were employed to avoid proper accounting and liquidation.

4. Tacloban City Sub-District Engineering Office (“TCSDEO”) –

Management failed to complete the submission of the documents necessary to support the disbursements of government funds involving P152.770 million for the implementation of 49 infrastructure projects by TCSDEO as stated in the Notice of Suspensions (“NSs”) that matured into Notice of Disallowances (“NDs”), hence, the disbursements are deemed illegal for not complying with Section 4(6) of P.D. No. 1445.

PART III

ACTIONS TAKEN


Part III – Actions Taken 31

I. AUDIT RECOMMENDATIONS

To address the common, significant and peculiar issues, problems, and violations of law, rules and regulations discovered in audit, certain recommendations were presented by the audit teams to the management of the Auditees, and reiterated in the AARs. These recommendations to Management are summarized below:

A. Common

1. Unauthorized/Irregular/Unnecessary Expenses

● Direct the concerned officials to explain/justify the irregular disbursement of funds. If justification is not acceptable, cause the immediate refund of the amounts involved from the claimants or from all persons who authorized and/or approved the payments.

● Exercise prudence in the discharge of fiscal responsibility particularly the disbursement of funds to avoid wastage of government funds and property.

● Enhance the review process as well as supervision of the processing of claims.

2. Unliquidated Cash Advances

● Strictly implement the provisions of Section 4.1.3 of COA Circular No. 97-002 on the grant, utilization and liquidation of cash advances.

● Demand immediate liquidation of the cash advances and/or return the unused balance.

● Impose the sanction of suspension of salaries. ● Exhaust all possible means to locate the whereabouts of officials

and employees who are no longer connected with the Auditee and require them to immediately liquidate and/or refund their unliquidated cash advances.

● Require the liquidation of outstanding cash advances by retiring employees prior to and as a condition to the payment of any claim or issuance of the clearance.

3. No Bidding/Not in Accordance with Procurement Law

● Investigate the bidding and awarding of the contracts and hold liable all those involved in the non-observance of R.A. No. 9184.

● Enforce strict compliance with applicable laws, rules and regulations on all procurement transactions.

4. Underassessment/Undercollection

● Exert efforts and initiate other measures to enforce collection of the agency’s outstanding receivables and exercise proper control and monitoring of amounts due the agency.



5. Unutilized/Ineffective Projects ● Take the necessary remedial measures to prevent the equipment/

facilities/projects from further deterioration and damage. ● Provide adequate security measures to safeguard the assets. ● Explore all the possibilities on how to make use of the equipment/

projects to recover part of the cost invested by the agency. ● Coordinate with other government agencies involved in

implementing infrastructure projects to avoid overlapping with projects of the DPWH.

● Undertake accurate planning of the procurement activities to ensure that the funds received for the projects are properly utilized and conduct inspection/evaluation on the unutilized equipment/ project to determine their present status and hold persons accountable for committed irregularity, if any.

● For ineffective non-infrastructure projects, intensify the information dissemination and make use of the available funds to attract potential beneficiaries of the project.

● Revisit/review the policies and procedures in the conduct of the program to attract more interested and qualified beneficiaries.

6. Lack of Appropriation ● Employ control measures to decline processing of expenditures

without appropriations.

7. Unliquidated Fund Transfers ● Require the submission of the liquidation reports pertaining to the

unliquidated balances together with the Credit Notice (“CN”) issued by the Resident Auditor and refund any unutilized balance.

● Strictly enforce liquidation of fund transfers by implementing agencies pursuant to the provisions of COA Circular No. 94-013 dated December 13, 1994 and the provisions of the MOA.

● Refrain from granting additional fund transfers to IAs with outstanding balances without requiring the liquidations of the previous ones.

● Continuously send demand letters to the head of recipient agencies to submit liquidation reports of the funds entrusted to them.

8. Delayed or Non-remittance of Taxes Withheld/Loans/Premiums of Employees and Other Trust Liabilities ● Follow strictly the provisions on withholding of taxes and remit

the same within the prescribed period. ● Require the Accountant to remit promptly all deductions and

contributions due the GSIS, Pag-IBIG and PhilHealth to avoid



penalties and surcharges as well as suspension of privileges of the members.

9. Non-existent Cash/Assets

● Create a task force to conduct within a specified timeframe detailed analysis of cash/PPE accounts and determine the causes of discrepancies between the book and bank/inventory report balances.

● Pinpoint responsibility for the loss of assets, if any, and hold the concerned persons accountable for said loss. Otherwise, prepare guidelines on how the non-existing assets could be adjusted and if warranted, request for authority to write-off from the COA.

10. Unimplemented Projects

● Undertake bidding and award of contract only after the detailed engineering investigation, survey and design, clearances, etc. for the project have been sufficiently carried out as provided in the IRR of R.A. No. 9184.

● Strictly follow the guidelines set forth under the Regional Project Monitoring and Evaluation System (“RPMES”) to ensure the early detection of problems that would impede project implementation.

11. Shortages and Malversation of Funds

● Initiate administrative and criminal charges against persons liable for the shortages and malversed funds.

12. Delayed/Suspended Implementation of Projects

● Strictly monitor project implementation and ensure that the project is on schedule and, if necessary, issue a suspension once the slippage is more than negative 15%.

● Facilitate the issuance of variation orders and speed-up the settlement of the road right of way (“RROW”) problems and resolution of other issues/problems relating to suspended projects so that the projects may be resumed.

● Set a definite time table for the resumption of works and impose liquidated damages and terminate or rescind contracts on infrastructure projects with negative slippages.

● Take appropriate action to cause the immediate completion of the project and enforce legal action against the contractor for damages or to recover any amount of losses.

13. Unremitted Income

● Instruct the concerned offices to remit the unutilized collections, interest income and balances of trust receipts to the Bureau of Treasury in accordance with existing rules and regulations.



14. Overpricing/Excessive Contract Cost

● Abide strictly by and enforce the rules and procedures in the preparation of cost estimates for all infrastructure projects to avoid excessive contract costs.

● Take necessary actions for the immediate settlement/correction of the deficiencies noted in the technical review, evaluation of contracts, and in the inspection of the projects.

● Instruct the Accounting Division/Section to deduct from the billing of the remaining contracts the excess cost and recover any overpayments made to contractors.

15. Unsettled suspensions, disallowances and charges ● Strictly monitor the settlement of suspensions, disallowances and

charges as mandated by COA Circular No. 2009-006 and strictly enforce the provisions therein to ensure prompt settlement and avoid accumulation thereof.

16. Fictitious Claims/Expenses ● Investigate the fictitious transactions and if warranted initiate

administrative and criminal charges against the persons liable.

17. Untitled land ● Facilitate the registration of the land in the name of the agency to

establish ownership over the property and to avoid possible disputes.

18. Undeposited collections

● Monitor and ensure that the Cashiers/Collecting Officers deposit all collections regularly and intact to the Bureau of the Treasury or to any authorized government depository banks as required under existing regulations.

19. Unrecouped Advances to Contractors

● Demand the immediate refund of the remaining unrecouped advances from contractors or deduct the amount from the retention money or any claims due the contractor.

● Locate the whereabouts of the contractors with terminated/ rescinded contracts and take appropriate legal remedies/actions to recover the unrecouped advances.

● Impose sanction against the agency officials/personnel who may be determined to be liable for the non-recovery of the advance payments.



20. Delayed Submission of DVs and F/S ● Promptly submit to the Office of the Auditors the F/S, reports and

disbursement vouchers and their supporting documents to facilitate the complete review and analysis of accounts and to affirm the reliability of the management’s assertion on the existence/occurrence, validity, accuracy and completeness of the recorded transactions.

21. Incomplete documentation

● The concerned agencies should submit/produce immediately the approved DVs and supporting documents of the paid claims, otherwise, appropriate sanctions should be imposed on the concerned officers and employees to include suspension of salaries as mandated by Sec. 122 of P.D. No. 1445.

22. Failure to reconcile inventory report with book balances (GL and SL) ● Instruct the concerned Supply Officers to: (a) promptly prepare the

Monthly Report of Supplies and Materials Issued (“MRSMI”) and submit the same on time to the Accountant for recording; and (b) maintain Stock Cards and reconcile property records periodically with the accounting records to detect discrepancies and effect immediate corrections, if necessary.

● Observe the perpetual system in recording purchases and use the MRSMI in recording issuances.

23. Failure to conduct/complete physical count of supplies and equipment

● Conduct a comprehensive physical inventory of property, plant and equipment and inventories and reconcile the results thereof with the accounting records.

● Maintain the Property, Plant and Equipment Ledger Card (“PPELC”) for all PPE items and Stock Cards for all inventories on stock.

● Require the Supply Officer to complete and submit the Report on the Physical Count of Property, Plant and Equipment (“RPCPPE”) with all information as to date of acquisition, cost of assets, etc. to the Accountant so that the latter can compute and recognize depreciation charges for all PPE accounts.

24. Failure to Maintain Subsidiary Ledgers (“SLs”)/Reconcile SLs with

General Ledger (“GL”)/Unsupported Balances/Dormant Accounts ● Create a committee to conduct the verification of the

undocumented/unreconciled balances by tracing prior years’ records and transactions, to fully identify/document the composition of the account.



● In the meantime that the unreconciled amounts are still not adjusted, make proper disclosure in the Notes to Financial Statements.

● For accounts that could no longer be documented, proper evaluation and disposition of the account should be initiated or steps should be undertaken for the write-off of the balance.

● Maintain updated SLs with relevant information to facilitate verification and determination of the composition/details of the account and reconcile the SL balances regularly with the controlling account in the GL to detect errors/discrepancies in recording and to effect immediate adjustment.

25. Incorrect Recording of Transactions/Misstatement of Accounts ● The accountants concerned should make the necessary adjusting

entries to correct the balances of affected accounts and strengthen the review and supervision over the work of subordinate personnel to avoid errors in recording transact

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