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PART II - Observations and Recommendations A.

VALUE FOR MONEY AUDIT


Low Collection Efficiency of Agricultural Competitiveness Enhancement Fund (ACEF) Loans 1. Of the total ACEF loans granted to 304 proponents of P5.888 billion in CY 2000 to 2010, only P868.970 million or 14.76% was collected, leaving an outstanding balance of P5.019 billion as of December 31, 2011. Moreover, of the 304 proponents, 294 were from the private sector with total loans of P4.431 billion, of which P2.232 billion or 50.37% were already due and demandable as of December 31, 2011, yet only P462.809 million or 20.74% was collected, thus, leaving a balance in arrears of P1.781 billion at year end. The low collection rate was due to the failure of DA to monitor collections, issue demand letters and impose legal actions against delinquent borrowers. The Agricultural Competitiveness Enhancement Fund (ACEF) was created under R.A. 8178 dated March 28, 2996 otherwise known as An Act Replacing Quantitative Restrictions on Agricultural Products, Except Rice, with Tariffs, Creating the Agricultural Competitiveness Enhancement Fund, and for Other Purposes on July 24, 1995. This Fund consists of the in-quota tariffs collected from the importation of Minimum Access Volumes (MAVs) of agricultural products. The DA, being the implementing agency of ACEF, issued Administrative Order (AO) No. 19 Series of 2008 re: Implementation Guidelines on the Utilization of the ACEF to improve the mechanism and procedures necessary to efficiently and effectively allocate and disburse the ACEF in order to achieve its objective of competitiveness. The AO contains the revised rules and regulations that will govern the disposition and utilization of the ACEF. The ACEF shall be extended as an interest-free loan to eligible proponents the proposed projects of which are income generating. The ACEF shall also be extended as collateral-free loan, except for those which the Executive Committee (ExeCom) may require to put up collaterals as loan security. The minimum amount of ACEF assistance is P150,000.00. A maximum amount may be set by the ExeCom according to the importance of the projects activity to agri-development, particularly on the use of indigenous raw materials, generation of local employment, export potential and similar factors. Loan disbursement and repayments shall be governed by existing guidelines, procedures, rules and regulations of the government on the release of funds to,
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and collection of loans from, the proponents. These shall form part of the ACEF Loan Agreement/Contract/Memorandum of Agreement (MOA) between the DA and the project proponent/s. Should the proponent fail to comply with any provision particularly the loan and amortization schedule provided for in the Loan Agreement/Contract with DA, the latter shall take legal and/or remedial measures to secure the loan. 1.6 The following provisions were also stipulated in the MOA entered into by and between the ACEF Execom and the Proponents: ARTICLE VI: DEFAULT Section 2. Effects of Default The occurrence of any of the foregoing events of default shall have the following effects: a.1 a.2 DA shall not release and shall have no further obligation to allow subsequent draw downs on the LOAN; Unless waived by DA, the Proponent shall pay on demand a penalty charge of 24% per annum on the total loan outstanding computed from and after the occurrence of an event or default; and The entire outstanding balance of the LOAN, including all other unpaid obligations of the Proponent, shall become immediately due and payable and forthwith, without need of presentment, demand, protest or other notice of any kind all of which are hereby expressly waived by the Proponent, shall be paid by the Proponent, at such time and in such a manner as DA may require. Should the proponent be guilty of default, DA shall have full power and authority to proceed against the Proponent and the other co-signatories, as well as the security mentioned in Article II hereof and to take steps such steps or actions, judicial or extrajudicial, against the Proponent which DA may deem necessary and proper for the full protection and enforcement of its rights and interests, including the foreclosure of the mortgaged properties.

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ARTICLE VII: General Terms and Conditions Section 1. Insurance The Proponent shall provide insurance coverage on all insurable assets mortgaged to DA up to the full extent of their insurable values. xxx The proponent shall see to it that said insurance coverage shall at all times be at least equal to the outstanding balance of the LOAN and shall authorize DA to renew the same automatically upon expiration. However, the cost of the premium and other charges shall be for the account of the Proponent.

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Section 2. Taxes Evidence of payment of all taxes due the government including personal income tax shall first be submitted in furtherance of its undertaking hereunder. The BORROWER shall submit annually to DA its income tax returns and receipts for business permit and realty tax payments on the mortgaged properties. Section 3. Management Take-Over If deemed necessary by DA, when the LOAN amortization/s or portion/s thereof are in arrears, DA, in its discretion, shall assign the management of the Proponents business for a fixed fee until it can be ascertained by DA that the Proponent will be able to meet its obligations. 1.7 The Land Bank of the Philippines (LBP) had been selected by the DA as the conduit bank for the ACEF program to service the needs for the release and collections of loans to and from the program beneficiaries. The DA shall transfer funds to the LBP for the implementation of the ACEF loan program and LBP will release the fund in tranches to the beneficiaries upon the advice of the ACEF Committee. Review of the accounting records showed that DA received a total allotment for ACEF of P8,956,222,412.00 for CY 2000-2011, of which the amount of P360,612,123.39 was lapsed and total disbursements amounted to P8,594,031,001.61, as presented below:
TOTAL NCA RECEIVED 2000 P 62,480,831.00 2001 394,907,370.00 2002 456,764,456.00 2003 514,544,288.00 2004 762,107,371.00 2005 577,580,355.00 2006 None 2007 1,561,332,010.00 2008 1,701,466,795.00 2009 1,881,931,940.00 2010 1,037,875,331.00 2011 5,231,665.00 Cancelled checks in 2012 TOTAL P 8,956,222,412.00 YEAR LAPSED NCA P 10,000,000.00 2,267,990.53 0.22 2,861.64 TOTAL DISBURSEMENTS P 62,480,831.00 384,907,370.00 456,764,456.00 512,276,297.47 762,107,370.78 577,577,493.36 1,561,332,010.00 1,701,466,795.00 1,720,523,629.00 851,545,812.00 4,628,224.00 (1,579,287.00) P 8,594,031,001.61

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161,408,311.00 186,329,519.00 603,441.00 P 360,612,123.39

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Review and evaluation of the ACEF fund utilization showed that DA released the amount of P2.575 billion to 12 implementing agencies as grants and P5.888 billion to 304 proponents as ACEF Loans or a total of P8.464 billion from CY 2000-2010, as shown below: ACEF Grants

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Implementing Agency 1. 2. 3. 4. 5. 6. 7. 8. 9. Sugar Regulatory Administration BPRE (PhilMech) National Agribusiness Corp. (NABCOR) NABCOR NABCOR LGU- Aurora Province Aurora State University Baler, Aurora DA- RFU IV-B Sugar ACEF

Project Title

Amount of Grant (In Millions) P 599.00 500.00 225.00 300.00 500.00 200.00 100.07 100.00 10.20 14.93 11.00 15.00 P 2,575.20

Palawan State University Puerto Princesa, Palawan 10. Aklan State University Banga, Aklan 11. LGU Iloilo City 12. LGU Guimbal, Iloilo

Mechanical Drying Support to Farm Clusters: Provision of Flat Bed Dryers Competitive Food Processing and Cold Chain Operation Post harvest Processing and Trading Center Establishment of Cold Chain Facilities for Fruits, Vegetables, Livestock and Fishery Products Road Concreting and Improvement Project along Baler-Casiguran Road Enhancement of Technology Based Agribusiness Industry Eradication of Mango Pulp Weevil in Palawan and Intensification of Plant Quarantine Service Operation Abaca Production and Processing Establishment of Aklan State University Biodiesel Plant Completion of Class AA Abattoir Improvement/Upgrading of Class AA Abattoir Total

ACEF Loans
No. of Projects/ Proponents NCR 3 CAR 5 I 19 II 14 III 64 IV-A 52 IV-B 5 V 13 VI 30 VII 11 VIII 7 IX 13 X 9 XI 24 XII 23 XIII 2 ARMM 10 TOTAL 304 Average Loan Per Proponent Region ACEF Assistance (Loans) P 1,027,961,354.00 99,161,110.00 368,803,858.00 182,730,139.00 1,157,758,502.00 807,594,795.00 41,340,480.00 145,124,514.00 500,873,620.00 145,453,196.00 100,292,103.00 293,535,116.00 144,893,736.00 310,843,479.00 400,800,219.00 20,899,772.00 139,492,891.00 P 5,887,558,884.00 P 19,366,970.01

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Of the 304 ACEF loan proponents, two are GOCCs, eight are LGUs and 294 are in the private sector such as Cooperatives, Small and Medium Enterprises (SMEs) and individual persons. Based on the data above, DA extended a total loan of P5,887,558,884.00 to 304 proponents or an average of P19,366,970.01 per proponent. Analysis of the collection efficiency of the loans receivables showed that of the total loans granted of P5,887,558,884.00, only P868,969,740.97 or 14.76% was collected leaving a balance of P5,018,589,143.03, broken down as follows:
Outstanding Balance Loans Receivable -GOCCs Philippine Rice Research Institute Quedan and Rural Credit Guarantee Corporation Loans Receivable-LGUs Pagadian City Sumipsip, Basilan Bayawan City, Negros Or. Carmen, Bohol Padre Garcia, Lipa, Batangas Rizal, Occidental Mindoro Guiguinto, Bulacan Loans Receivable-Others TOTAL P 7,751,791.66 1,000,000,000.00 42,591,670.00 4,500,000.00 1,798,770.00 2,733,000.00 1,680,000.00 14,999,900.00 6,530,000.00 10,350,000.00 3,968,245,681.37 P5,018,589,143.03 Total Balances P1,007,751,791.66

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It was noted that there were no fund releases for new projects under ACEF since the change of DA leadership in July 2010. There were, however, fund releases of P92,676,981.00 in CY 2011 pertaining to the last tranches of approved loans in previous years. Audit also disclosed that out of the 294 proponents from private sector with total loans granted of P4,431,054,560.00, P2,232,165,269.15 or 50.38% were already due and demandable as of December 31, 2011, of which only P462,808,878.63 or 20.73% were collected, thus, leaving a balance in arrears of P1,769,356,390.52. Audit, likewise, disclosed that of the 294 proponents, only 23 had fully paid their loans and 271 still had outstanding balances. Of the 271, only 15 or 5.54% were updated; 132 or 48.71% were with arrears or already in default; and 124 or 45.76% had no payment at all. Review of the loans receivables account showed that delinquent borrowers were not charged with a penalty of 24% per annum on the total amount of loan outstanding computed from and after the occurrence of an event or default as provided in Section 2.4 of the MOA. It was also noted that DA did not proceed against the proponent and the other cosignatories, guilty of default, nor take any legal action, judicial or extrajudicial,
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against the proponent which DA may deem necessary and proper for the full protection and enforcement of its rights and interests, including foreclosure of mortgaged properties. Moreover, a validation of 27 ACEF proponents with outstanding balances totaling P430,801,997.00 were conducted in RFUs I, X and XI and various observations were noted, as summarized below:
Observations a) Status and existence of projects Existing and operational Existing but not operational Not existing b) Financial condition of projects Profitable Not Profitable/Loss Bankrupt c) Status of loan amortization payment No payment With arrears Updated Not yet due d) Confirmation of the balance Balance confirmed correct With different balances Cannot be confirmed No. of Projects 20 4 3 15 5 7 18 5 3 1 22 2 3 Percentage to Total 74.07% 14.81% 11.11% 55.56% 18.52% 25.93% 66.67% 18.52% 11.11% 3.70% 81.48% 7.41% 11.11%

1.18

Failure of management to monitor collection of receivables and to address the observations noted during validation will deprive the government with needed resources to finance other priority projects and may contribute to the nonattainment of the project objectives. We recommended that management (a) exert extra effort to collect the past due loans receivables; b) impose the required penalty on defaulting proponents and/or foreclose the mortgaged property, if possible; (c) take appropriate legal actions against proponents in accordance with the guidelines on ACEF; and (d) conduct an over-all assessment and evaluation of all ACEF projects/proponents to determine the viability of their projects in order to ensure attainment of the project objectives. On the recommendation that management exert extra effort to collect the loans receivables, the following actions were taken: a. Issued demand letters/legal notices to delinquent borrowers that drew immediate response from these borrowers thru partial payments, submission of rehabilitation plans and coordination with the DA ACEF Committee; b. Regularly issued demand letters and reminders on the schedule of payments;

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c. Set-up with the COCAFM an inter-disciplinary monitoring and evaluation team to validate and evaluate the status of the projects with requests for loan restructuring and unpaid amortizations in order to arrive at an intelligent recommendation on the various requests for loan restructuring and a valid basis for appropriate legal actions; and d. Sent another set of demand letters to projects which were initially recommended by the team for appropriate legal action while those projects with potentials for rehabilitation were required to submit collaterals on top of the 4% interest per annum. 1.21 On the recommendation to conduct an over-all assessment and evaluation of all ACEF projects, the following measures were taken by management: a) DA imposed a moratorium on the processing of new funding assistance under ACEF; b) Reconstituted the ACEF Enabling Committees (Retooling of the ACEF National Technical Secretariat) since there is a moratorium on the processing of new loans under ACEF, the contracts of service of all job orders/contractual staff were not renewed; c) Conducted review/inventory of all project proposals in the pipeline for funding under ACEF; d) Conducted review/inventory of all ACEF funded activities/projects; e) The Congressional Oversight Committee on Agricultural and Fisheries Modernization (COCAFM) and DA conducted a separate comprehensive evaluation on the implementation of ACEF; f) Conducted a Policy Review on the implementation and utilization of ACEF; g) Evaluated 117 projects with arrears in loan amortization; and h) DA issued Administrative Order No. 18 or the Revised Implementation Guidelines on the Utilization of ACEF. Incurrence of Commitment Fees Due to Delayed Implementation of ODA ProjectsP143.620 million 2. Slow availment of Official Development Assistance (ODA) funds arising from delayed implementation of foreign-assisted infrastructure projects resulted to the incurrence of commitment fees amounting to P143,620,000 on top of interest charges from CY 2002 to CY 2011. Furthermore, the benefits expected to be derived by the intended beneficiaries in terms of increased household income as a result of the immediate use of the improved rural infrastructure were not yet fully achieved because of delayed implementation. Commitment Fee (CF) is a fee paid to a bank in exchange for the banks agreement to grant a loan at a later date. Such charge shall accrue on amounts of
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loan (less amounts withdrawn from time to time) during successive periods commencing 60 days after the date of the Loan Agreement. This CF is charged by the foreign lending institution on top of interest charges and other fees as embodied in the loan agreement. The said provision for commitment fees ensures that the Philippine Government maximizes the utilization of the loan before its closing date. 2.2 Section 2.03, Article II of the Loan Agreement of Infrastructure for Rural Productivity Enhancement Sectoral (InFRES) Project, provides that the Borrower (Philippine Government) shall pay commitment charge payable semi-annually on March 15 and September 15 of each year, at the rate of three-fourths of one percent (0.75%). NEDA Portfolio Review Report showed that the total commitment charge incurred for CY 2002 2011 for the InfRES loan amounted to US$3,340,000 or P143,620,000 (using the exchange rate of P43 to US$1) as of the date the loan was granted on October 22, 2001. The InfRES Project was conceptualized to assist farmers in hauling inputs to farms and outputs to markets by investing in rural infrastructure in Southern Philippine regions with high poverty incidence but with high agricultural potential. It aims to increase rural income with distributional gains favoring the poor. Specifically, the Projects objectives are to (a) remove constraints to agricultural productivity caused by the lack of adequate rural infrastructure; and (b) reduce rural poverty by increasing agricultural productivity and profitability. The Project has three components: (a) improvement of rural infrastructure such as farm-to-market roads, communal irrigation systems and potable water systems; (b) capacity building for devolved project implementation and management; and (c) project management and coordination. The Project encompasses 92 LGUs in 30 provinces of Southern Tagalog, Bicol, Eastern Visayas, and the whole of Mindanao, covering Regions IV-B (excluding Palawan), V, VIII, IX, X, XI, XII, XIII and ARMM. The project is partially funded by the Asian Development Bank (ADB) through Loan Agreement No. 1772-PHI signed on October 22, 2001, with the National Government of the Philippines, the LGUs and beneficiary communities, and a grant from the International Labor Organization (ILO) as its counterpart. The InfRES project started in CY 2002 and was initially expected to finish on June 30, 2008. The project implementation, however, was extended twice until June 30, 2011 to fully complete the unfinished FMR sub-projects. The first request for extension was for two years covering the period July 1, 2008 to June
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30, 2010 while the second request was for an extension of another year (from July 1, 2010 to June 30, 2011). 2.10 As of June 30, 2011, the InfRES Project had accomplished only 184.63 kilometers or 75.17% of the total targeted 245.63 kilometers of farm-to-market roads covered by the program while fully accomplishing its target of improving 9 potable water systems and repairing 22 damaged FMRs. Details are shown below:
Particulars Farm-to-Market Roads Potable Water Systems Sub-Projects requiring repairs of damaged FMR Accomplishments Targets Actual Percentage 245.63 184.63 75.17 9 9 100 22 22 100

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According to the NEDAs ODA portfolio review for the DA, the disbursement level of the DA portfolio for CY 2011 was significantly lower compared to the previous years figure. InfRES was not able to maximize the remaining time to fully complete the implementation of the sub-projects despite two extensions granted by ADB. The absorptive capacity of DA for InfRES for CY 2011 was only 13% or US$3.9 million. The Project Coordinating Office (PCO) stated that while deadlines for financial liquidations and the physical completion of civil works were set in line with the ADB closing date, these were not met because some of the LGUs were not able to submit the reports to substantiate the disbursements or withdrawals from the loan which would be submitted to the ADB for processing. Out of 92 LGUs, only 68 submitted their completion reports, while the other 24 LGUs still have unfinished sub-projects as of the loan closing date of June 30, 2011. In September 2011, the loan for the InfRES project was formally closed in line with the ADBs internal directives of non-extension of loan for programs/projects aging over 10 years. Thus, the unutilized loan amount of US$9.8 million representing 13% of the total loan was returned to the foreign lending institution. We recommended that for similar and/or future projects, management: a) accelerate/maximize the utilization of loan proceeds by adopting efficient and timely procurement procedures in accordance with the guidelines of the foreign lending institutions (FLIs); adopt an effective Project Monitoring System that will keep track of the implementation of the projects vis--vis the approved Implementation Schedule and the Disbursement Schedule embodied in the loan agreement/appraisal report to avoid the incurrence of huge commitment fees; and
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advise the LGUs and all implementing agencies to comply strictly with the deadlines set by the FLIs for submission of financial liquidations and completion of works.

Goal of Barangay Food Terminal (BFT) Project Not Attained 3. The goal of the BFT project to provide farmers with a stable, healthy, quality and sufficient supply of affordable farm, fishery, poultry and other food products was not attained because out of the 141 BFTs to be implemented in CY 2011, only three or 2.13% were established. Moreover, of the allotment of P534,680,000, only P16,092,000 or 3.01% was obligated. Significant observations were also noted in Regional Field Units (RFUs) I, II, V, VI, X and XI in the implementation of the project which resulted in foregone benefits or delayed services to the intended beneficiaries. The DA implemented the Barangay Food Terminal (BFT) project to enable the farmers to establish a direct and effective farm-to-consumer food supply chain. The project is a barangay-based food depot and distribution system offering safe and quality agri-fishery products at low prices to the consumers. It comprises direct marketing of fresh agriculture and fishery food products from the producers to the BFT where it will be sold on a wholesale and/or retail basis at a price lower than the prevailing wholesale and retail prices in the market. Under the Accelerated Hunger Mitigation Program, the DA RFUs were tapped to establish Bagsakan Projects in the regions, especially the Barangay Bagsakan (BBs) and Bagsakan Centers (BCs), to make food accessible to the consumers and link the production areas to the identified market outlets. These market outlets require the facilities and logistics to reduce post-harvest losses and to ensure quality, fresh and safe foods. In order to achieve the objective of the project, the DA is implementing two bagsakan projects namely: the Barangay Food Terminal (BFT) and the Municipal Food Terminal (MFT), formerly the Barangay Bagsakan and the Bagsakan Center, respectively. The Memorandum of Agreement (MOA) signed between the DA RFU and the BB Operator/Recipient provides that the DA RFU shall facilitate the training of the personnel on the proper food handling techniques, operation and maintenance of the cold storage facilities, as well as the management and operational systems of the Food Terminal. It also provides that the DA RFU reserves the right to intervene and institute the necessary measures in cases of zero or low utilization of facilities, and in such cases, cancel the operation thereof and work for the retrieval or transfer of the facilities, based on its monitoring and evaluation findings. The Agribusiness Marketing Assistance Service (AMAS), being the lead division of the DA in the implementation of the BFT project, is responsible for the overall
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planning, management and coordination of the project component and activities nationwide. It is assisted by the Agribusiness Marketing Assistance Division (AMAD) in the Regional Offices. 3.6 In CY 2011, the DA received from the Department of Budget Management a total allotment of P534,680,000 for the implementation of Market Oriented Programs (including trading centers and food terminal projects) which were subsequently downloaded to the RFUs. Audit showed that of the allotment of P534,680,000, only P16,092,000 or 3.01%, was obligated, as follows:
Office OSEC/NCR RFU - CAR RFU-1 RFU-II RFU-III RFU-IV A RFU-IV B RFU-V RFU-VII RFU-VIII RFU-IX RFU-XI RFU-XII Total ALLOTMENT P 463,791,000 8,384,000 330,000 3,285,000 8,408,000 8,770,000 2,616,000 6,429,000 9,035,000 4,045,000 704,000 14,938,000 3,945,000 P 534,680,000 OBLIGATIONS 6,000 1,170,000 24,000 0 2,542,000 7,840,000 1,323,000 603,000 991,000 0 454,000 686,000 453,000 P 16,092,000 P BALANCES P 463,785,000 7,214,000 306,000 3,285,000 5,866,000 930,000 1,293,000 5,826,000 8,044,000 4,045,000 250,000 14,252,000 3,492,000 P 518,588,000 Percentage of Obligations over Allotment 0.00001 13.96 7.27 0.00 30.23 89.40 50.57 9.38 10.97 0.00 64.49 4.59 11.48 3.01

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Review of the accomplishment report submitted by the Director, AMAS, DA,

revealed that of the 141 BFTs and MFTs to be implemented in the regions, only three or 2.13% were accomplished as of December 31, 2011, as presented below:
Office Actual Sites Funded No. of BFT OSEC/NCR RFU- CAR RFU-1 RFU-II RFU-III RFU-IV A RFU-IV B RFU-V RFU-VII RFU-VIII RFU-IX RFU-XI RFU-XII ARMM Total 0 31 0 1 19 0 1 17 0 9 9 0 8 35 130 No. of MFT 1 4 2 0 1 0 0 0 2 1 0 0 0 0 11 Accomplishment No. of BFT 0 0 0 0 2 0 0 0 0 0 0 0 0 0 2 No. of MFT 0 0 0 0 1 0 0 0 0 0 0 0 0 0 1 Percent of Accomplishment No. of BFT No. of MFT 0 0 0 0 0 0 0 0 10.53 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

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Likewise, physical inspection and validation conducted in RFUs I, II, V, VI, X and XI for BFT projects established in prior years, showed the following deficiencies:
Observations Ten BBs and BCs are no longer in operation and/or not operating as intended; Out of the total 24 chest freezers issued, 20 were found not operating as intended. Some of these were even being used by organizations/cooperatives other than the identified operators or beneficiaries; hence, users cannot be held accountable in case of loss; and All three 20-footer cold storage facilities were found to be not operational. The cold storage facility in Currimao, Ilocos Norte was already padlocked due to minimal supply of agri-fishery products. Most of the BBs are already inoperational and those that are still operational are just maintaining small quantities of fish, meat and vegetables and more on grocery items; hence not operating as intended; There are also equipment bought out of DA funds which are no longer used in the BBs and are left idle, exposing these to further deterioration and also to possible theft; and A total of 70 BBs were established and it was noted and reported that almost all are not operating strictly as conceptualized. None of the 17 BBs targeted to be implemented in CY 2011 was established; and Ten BBs or 46% out of the 22 BBs validated were found to be operational; while 12 BB or 54% were non-operational/closed; equipment were not being utilized; and commodities available were not those proposed in the guidelines of the project. The amount of P1,000,000.00 for the implementation of the Farmers Trading Center at Brgy. Dian-ay, Escalante City was already obligated but the project was not yet implemented since the Notice to Proceed was issued only in November 2011 and the documents for the release of funds are still being processed; Out of 45 BFTs funded in prior years, 3 or 7% were operational; 5 or 11% were for training of management team and targeted to operate in CY 2012; 11 or 24% for bidding of facilities; 14 or 31% for completion or processing of documents on-going; and 12 or 27% failed to comply with the documents and for transfer to other site; Of the 27 MFTs, 2 or 7% are operational; 10 or 37% are already completed; 3 or 11% are still on-going construction; 7 or 26% are still processing the documents; 4 or 15% failed to comply with the documents and for transfer to other site; while the P1,000,000.00 for the establishment of one MFT was already reverted back to the National Treasury and was issued a negative ASA; Only 21 or 29% were established out of the total 72 BFTs funded from various ASAs in prior years; and Nineteen BFTs were not fully utilized or operating as intended. The agency had physically accomplished only one out of 12 or 8% program accomplishment vis-a-vis its target; Only the elf was purchased by LGU-Laguindingan thus an accomplishment of 54.54%; and Most of the CY 2009-2010 Bagsakan Center Projects had not been utilized for the intended purpose. Of the 95 BFTs established, 44 or 46% were fully utilized; 24 or 25% were not fully utilized; and 27 or 28% were already closed; The BFTs were given two units chest type freezers each but only one freezer was used to minimize the power consumption; and Several facilities were missing and unaccounted such as 2 units computers with cash register, several stackable crates, food trays, knives, and others.

Region I

II

VI

XI

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The low accomplishment and non-utilization of the facilities/equipment were attributed to the following: a) The MOA did not provide for the duration of the project implementation; thus, the implementing agencies were not compelled to implement the project immediately; b) The LGU/barangay management problem, wherein some LGUs were hesitant to embark on the project or the new management was not amenable to the proposed site and is proposing a new location; c) Management team training was not conducted; d) Operating capital was not yet released/provided; e) No agri-fishery products were brought to the food terminal; f) The location of the food terminal is not suitable to the place, wherein there was an existing market place or some stalls had its own cold storage facility that can accommodate all products brought/sold therein; and g) Some equipment purchased like the crates and freezer were not utilized in the operation since products sold were in small quantities.

3.10

It was also disclosed that DA-RFU XI purchased 25 freezers/chillers for BFT projects on November 30, 2010 totaling P667,070.00, however, partial deliveries were made on various dates from January 1, 2011 to December 20, 2011 for the 17 units freezers/chillers, as shown below:
Delivery Receipt # 143067 152306 152306 152307 152308 152391 156452 156453 162598 Delivery Date 1/31/11 5/26/11 5/26/11 5/26/11 5/30/11 6/13/11 9/21/11 9/21/11 12/20/11 Total Cost Chest Freezer WCX 11 1 1 1 1 1 1 1 1 1 9 P 195,984.00 Upright Chiller SV 140 0 1 1 1 1 1 1 1 1 8 P 199,150.00 Total 1 2 2 2 2 2 2 2 2 17 P 395,134.00

3.11

In addition, eight units costing P271,936.00 have not yet been delivered to the beneficiaries and are still stored in the bodega of the supplier, as follows:
Facilities Upright Chiller Chest type Freezer Chest type Freezer Total Model SV 140 WCX 11 WHD 20 Qty 1 3 4 8 Unit Cost P28,450.00 24,498.00 42,498.00 Amount P28,450.00 73,494.99 169,992.00 P271,936.00

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Due to the delay or non-implementation of the project and the deficiencies noted in the operation of the food terminals, the projects objectives to make available and accessible quality food products such as meat, poultry, fish, vegetables and fruits at affordable prices; and to develop an alternative market for farmers produce and provide opportunities for farmers and fisherfolks to engage in direct marketing were not attained; hence, resulting in wastage of government funds. Likewise, had there been proper implementation and strict compliance with the project guidelines particularly the identification of project recipient/operators and enforcement of illegibility requirements, the above deficiencies could have been avoided and millions of government funds could have been saved. We recommended that management advise AMAS, as the lead division in the implementation of the BFT Project, to take the following remedial actions: a) revisit the guidelines and/or conduct feasibility studies on the project to identify the flaws/problems in the design and implementation of the project, and to properly establish its viability before proceeding with the project implementation; b) evaluate and assess the capabilities of future BFT operators to ensure that only qualified beneficiaries can avail of the project and conduct a thorough site inspection before project approval to establish the existence and readiness of the project; c) establish close coordination with the LGUs and strengthen linkages between farmers, fisherfolks, and the MFT/BFT operators to ensure success and continuity of the project; d) ensure through close monitoring that the project operates in accordance with the BFT guidelines; e) retrieve all unutilized facilities and equipment and transfer them to other qualified and interested operators in case the project did not operate within the prescribed period; and f) revert back the allotment for the unutilized funds so that it can be made available for other useful government projects.

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3.14

3.15

In his Memorandum dated March 28, 2012, the Director, AMAS, DA-OSEC submitted the status of the project as of March 26, 2012, together with the CatchUp Plan for CY 2012 to improve the implementation of the project. In Region I, no BFT was funded/ established in 2011, however, only Municipal Food Terminals (MFTs) were established with an allocation of P6,910,000.00.

3.16

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3.17

Management in RFU II recognized the weaknesses in the project implementation and they came out with procedures for strengthening, revival, closure and retrieval of equipment of BFT projects and reviewed the implementing guidelines. For 2011, the establishment of new BFTs in the region was suspended. Instead the work plan of the Agribusiness Marketing Assistance Division (AMAD) concentrated on the strengthening of the existing BFTs. Management of DA-RFU V represented that with regards to BFTs which were closed or non-operational, four BFTs were already transferred to new recipients/operators. Others were given warning letters that the agency will cause the retrieval of all facilities and equipment as well as cancellation of NFA license should they not operate vibrantly or profitably within predetermined time. Immediate retrieval of two unutilized freezers was also effected and the same is now with the agency for redistribution.

3.18

Objectives of Farm-to-Market Road Projects Not Attained 4. The objective of the Farm-to-Market Road (FMR) program to facilitate the delivery of farm products to the market sites and improve the farm income and generate work opportunities of farmers and fisherfolk in RFUs II, IV-A, IV-B, V and VI was not attained due to the delay/non-completion of FMR projects in these regions. Likewise, the RFU X could have generated savings of P15.068 million had management strictly enforced the provision in the implementing guidelines on the refund of any unutilized amount from the DPWH and LGUs. The Department of Agriculture is mandated to undertake various infrastructure projects such as, but not limited to, restoration and rehabilitation of irrigation system, post-harvest facilities and farm-to-market roads (FMRs) aimed at providing better opportunity to farmers and fisherfolks by reducing the cost of production and thereby increasing their incomes and also making food more affordable to the general public. Republic Act No 8435 otherwise known as the Agricultural and Fishery Modernization Act of 1997 (AFMA) mandated the construction and upgrading of FMRs as one of the priority infrastructure intervention with significant impact in increasing agricultural productivity and reducing losses by Filipino farmers. Section 52 of the AFMA provides, in part, that the construction of FMRs shall be a priority investment of the local government units which shall provide a counterpart of not less than ten percent (10%) of the project cost subject to their Internal Revenue Allocation (IRA) level. The FMR program includes the construction of new barangay roads/road openings in new agricultural as well as marginal lands and rehabilitation/repair of existing FMRs that will facilitate the delivery of farm products to the market site.
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4.1

4.2

4.3

4.4

4.5

In accordance with the Revised General Guidelines on the Implementation of Farm-to-Market Road Development Program (FMRDP) implemented under the DA-Regular Fund, the DA shall be the lead agency and it shall identify priority locations of FMR projects in coordination with the local government units and the resident-farmers and fisherfolk and consolidate these roads to DA FMR Network Plan. Meanwhile, the DPWH shall act as the implementing agency. The DPWHOffice of the Secretary shall construct, repair/rehabilitate the approved identified farm-to-market road sub-projects through its District Engineering Offices (DEOs) and may utilize capable LGUs and private contractors to expedite the implementation and completion of FMR projects. Paragraph B.b.5 of the guidelines provides the refund/return to the RFU any unutilized amount after the completion of the project by the implementing LGUs/DPWH. Validation and evaluation of the FMR projects implemented in CY 2011 and prior years revealed various observations, as summarized below:
RFU I Observations Noted Various FMRs were not provided with markers that would readily identify the DA projects. The non-installation of markers would make an impression that these projects were solely funded by the LGUs/DPWH, and may open an opportunity for fraud through double payment. Four FMR projects for the Province of Batanes reported to have started on November 25, 2010 and targeted to be completed on December 5, 2010 were not actually implemented; and A MOA entered into by and between RFU-II and LGU Pamplona, Cagayan on July 15, 2010 for the rehabilitation of FMR for a total cost of P500,000 was not started. A mobilization cost of P75,000.00 was already transferred to the LGU. According to management there was a verbal agreement to cancel the MOA for the interest of both parties.

4.6

4.7

II

IV-A IV-B

The team was informed that the checks representing payment of fund transfers for the implementation of four projects in Batanes were returned and cancelled, thus, would no longer be implemented. Out of the total 543 FMRs for the three year period ending December 31, 2011, 25 FMRs with a total allotment of P47,500,000.00 were not implemented due to non-release of funds. Of the 77 FMRs targeted in CY 2010 and 2011, only 44 or 57% were completed; 9 or 12% were still on-going; and 24 or 31% were not yet implemented. The funds intended for the 24 unimplemented FMRs were not yet released to the implementers. For CY 2011 allocation
66

RFU

Observations Noted Of the total allocation of P149,900,000, only P85,900,000 or 57.30% was disbursed and/or transferred to the implementing agencies; Of the 29 FMRs targeted, 19 or 65.52% were on-going/completed and 10 or 34.48% were not yet implemented; and Of the three FMRs handled by the RFU, only one was implemented. For CY 2010 allocation Of the total allocation of P493, 500,000 for 140 FMRs, 55.42% or P273,500,000 were expended for the 75 on-going/completed FMRs while 44.58% or P220,000,000 for the 65 FMRs were recalled. Allotments totaling P60,970,000 were already obligated but no accomplishment report was presented; and Seventy-two FMR projects funded in 2007 to 2010 amounting to P270,730,000 were not fully accomplished. Excess of P15,068,231.80 from 90% DA allocation was not returned by the implementing agencies; and Of the total FMR allocation, 3.5% was deducted as administrative cost.

VI

4.8

The following factors contributed to the delay/non-implementation of the FMR projects: a. In RFU II, the failure of the IA to complete the projects within the period stipulated in the program of work and as agreed upon in the MOA; and due to change in administration; b. In RFU IV-A, the non-release of funds in Cavite and Batangas was due to the failure of the DPWH Regional Office No. IV-A and DPWH 4 th District Engineering District to liquidate the previous fund transfers granted to them while in Rizal and Quezon, the unimplemented FMRs were due to political reasons; c. Non-liquidation of the previous fund transfers in RFU IV-B by the concerned implementing agencies; d. Bad weather condition in RFU VI and additional releases which were only granted upon submission of the liquidation report of the previous release.

4.9

It should be considered that FMRs are vital infrastructures which promote ease in transportation of farm produce thereby resulting in preserved quality and premium price of the same. Success therefore of the agencys FMR program is imperative for the improved production and improved income for farmers within the region. Hence, low percentage of accomplishment by the agency under its FMR program will deprive the farmers of immediate access to much needed infrastructure

67

projects which would otherwise contribute to agricultural productivity within the region and to the increase of farmers income. Excess of the 90% DA Counterpart not returned to DA-RFU X 4.10 Analysis made on the Status of the Implementation of CY 2009-2011 Other Infrastructure Projects prepared by DA-RFU X Regional Agricultural Engineering Division (RAED) as of December 31, 2011 disclosed that the P15,068,231.80 excess of the 90% DA-Counterpart based on the contract cost was not returned to DA-RFU X as required in the implementing guidelines. The result of COAs evaluation and computation of the excess in cost is as follows:
DA Allocation (Fund Transferred) Recomputed 90% DA Counterpart Based on Contract Cost

SARO/ASA/Implementer

No. of Projects

Variance

SARO No. E-10-0001302 ASA No. 101-2011-174 DPWH 2nd District Misamis 2 Oriental DPWH 1st District Misamis 2 Occidental Sub-total 4 ASA No. 101-2010-096 PLGU Camiguin 15 MLGU/PLGU Misamis 7 Oriental Cagayan de Oro 2nd District 2 PLGU Lanao del Norte 1 Sub-total 25 ASA No. 101-2010-131 (Annex A-3) MLGU/DPWH-2nd Mis Occ 4 ED Sub-total 4 SARO No. E-09-000991 (Annex A-4) Bukidnon (Various) 6 Camiguin (Various) 7 PLGU-Lanao del Norte 1 ARMM-Lanao del Sur 8 DPWH-Cagayan de Oro 2nd 2 District Lanao del Norte 1 Sub-total GRAND TOTAL

P 3,500,000.00 3,000,000.00 6,500,000.00 25,000,000.00 18,000,000.00 10,000,000.00 10,000,000.00 63,000,000.00 10,000,000.00 10,000,000.00 10,000,000.00 10,000,000.00 10,000,000.00 20,000,000.00 2,500,000.00 7,500,000.00 60,000,000.00 P139,500,000.0 0

P 2,991,927.10 2,465,566.40 5,457,493.50 21,059,866.00 16,401,705.20 8,418,080.20 8,855,986.50 54,735,637.90 9,064,231.50 9,064,231.50 9,664,374.30 8,425,979.10 8,859,893.90 2,200,810.00 6,638,898.30 55,174,400.57 P124,431,768.2 0

P 508,072.90 534,433.60 1,042,506.50 3,940,134.00 1,598,294.80 1,581,919.80 1,144,013.50 8,264,362.10 935,768.50 935,768.50 358,063.80 1,574,020.90 1,140,106.10 615,550.30 299,190.00 861,101.70 4,848,032.80 P15,068,231.8 0

4.11

Initial discussion with the Regional Agricultural Engineering Division (RAED) and Finance Division officials revealed that the implementers (either LGU or DPWH) usually utilize the excess of the contract cost to fund extensions for the
68

same projects (e.g. additional road length) or those items of work considered as contiguous to the projects. There were, however, no additional Programs of Works submitted for approval by the Regional Executive Director authorizing the utilization of the excess fund. 4.12 Not having refunded the variance between the Contract Cost and the DA allocation also indicated that the supposed 10% LGU counterpart had not been applied in actuality. The DA allocation was enough to cover the Contract Cost of almost all projects, practically foregoing the 10% counterpart of the LGU, thus the provision of the implementing guidelines was not followed. Administrative cost of 3.5% were deducted from the FMR allocation 4.13 Audit showed that the agency provided for an average of 3.5% administrative cost from the FMR funds, 2% of which is retained in the RFU and the 1.5% paid to the implementer. The audit team found no basis for such provision. The 3% (and not 3.5%) engineering and administrative overhead (EAO) authorized in Section 5 of the Special Provisions of the General Appropriations Act (GAA) of FY 2011 for the Department applies specifically for the implementation of irrigation projects by the National Irrigation Administration (NIA). Also, as shown in the GAA and the Agency Budget Matrix, RFU X was already provided appropriations for Maintenance and Other Operating Expenses (MOOE) not only for general administration and support services but also for support to operations. Likewise, the implementing agencies also had their own appropriations for MOOE. The table on the next page presents the 2% administrative cost retained and utilized by DA-RFU X out of the CY 2010-2011 FMR Fund, the 1.5% engineering, administrative, and overhead (EAO) costs for the implementer were made part of the FMR Project Cost downloaded to them.
Total Allotment (Fully Obligated as of 31 Dec 2011)
P 91,000,000.00 13,000,000.00 15,000,000.00 14,000,000.00 P 133,000,000.00

4.14

SARO/ASA No. E-10-0001302


101-2010-096 101-2010-131 101-2011-174 101-2011-579 Total 1.5% EAO

DISBURSEMENTS Fund Administrative Transferred to Cost the Implementer


P 56,834,500.00 9,308,250.00 4,925,000.00 0.00 P 71,067,750.00 P 1,066,016.30 P 1,138,552.95 191,931.52 170,627.87 0.00 P 1,501,112.34

Total
P 57,973,052.95 9,500,000.00 5,095,627.87 0.00 P 72,568,680.82

Balance

P 33,026,947.05 3,499,818.48 9,904,372.13 0.00 P 46,431,137.66

4.15

The provision of administrative cost for RFU X in the amount of P1,501,112.34 and the engineering, administrative, and overhead costs provided to the implementers in the amount of P1,066,016.30, reduced the amounts for the direct implementation of the FMR projects.

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4.16

We recommended that DA management undertake the following remedial measures to fully attain the objective of the program: a. instruct DA-RFU I officials to provide permanent markers for all FMRs constructed out of the funds released to various LGUs and DPWH offices for ready identification in accordance with approved guidelines; b. direct DA-RFU II management to require the refund of the fund transferred to LGU Pamplona amounting to P75,000.00 covering the mobilization of a project which was not started and will no longer be implemented; and officially terminate the agreement for the four FMRs in Batanes which should have been implemented in 2010; c. require RFU IV-A management to make a follow-up with the DPWH Regional Office and the 4th District Engineering Office in Batangas to submit the liquidation documents of previous fund transfer in order to facilitate the release of succeeding fund transfers for FMR implementation and coordinate with the concerned political heads in addressing the problems of the unimplemented FMRs in Quezon and Rizal; d. direct DA-RFU IV-B management to follow-up with the concerned implementing agencies the liquidation and submission of documents pertaining to the utilization of previous fund transfers in order to facilitate the release of succeeding fund transfers for FMR implementation; e. require RFU VI management to ensure complete construction/rehabilitation of FMRs within the time frame as stipulated in the MOA thru direct and proper coordination with the implementing agencies (IA) so that target farmers would be immediately benefited by the FMR project;

f. direct DA-RFU X management to strictly adhere with the implementing guidelines set forth for FMRDP particularly on the 90:10 percentage counterparting scheme based on the actual project or contract cost; and to utilize its allotments for direct costs only, unless the General Appropriations Act or other laws and rules authorize the provision of administrative cost and engineering overhead from the funds allotted for the projects; and g. conduct regular monitoring and closely coordinate with the implementing agencies to ensure the successful implementation and timely completion

70

of the projects that will promote agricultural productivity and increase the farmers income. 4.17 Management of RFU II commented that a letter dated January 19, 2012 was already sent to the Local Executive of Pamplona, Cagayan, officially terminating the Memorandum of Agreement and requiring the refund of the P75,000 transferred for mobilization in 2010. Due to Road-right-of-way problem, however, LGU Pamplona requested for the transfer of the project location, which was approved by this office. For the construction of FMR for the province of Batanes, there was a delay due to the scarcity of concrete products and aggregates that are sourced from the mainland. RFU IV-A commented that the reasons for the delay of projects were the nonliquidation of previous fund transfers; political interventions; some implementing agencies have two or more proponents and difficulty in complying some supporting documents. The management of RFU VI replied that for the six FMR projects obligated in 2011, no accomplishment was presented due to the time/period for the preparation and submission of documents required from the implementing agency prior to implementation, such as project proposal, program of works and cost estimates, engineering plans and designs, and other pertinent documents. As to the status of the projects as reported, the percentage of accomplishment is based on the findings of the inspection committee, since lack of technical personnel on the part of the Regional Engineering Group hinders the regular and efficient monitoring given the voluminous number of FMR, irrigation, on-farm and postharvest machinery projects to be supervised. As of now, five additional personnel were hired to be mobilized in the field to augment the monitoring of projects. Based on the updated status of the projects, 20 projects were already 100% completed. The implementing agencies, the mayor, municipal engineer, district engineer and/or authorized representative will be invited to a meeting scheduled on March 21, 2012 for the assessment of the projects and to set a target date for the completion. The management of RFU V averred that at present, out of the four FMR projects with a total allocation of P49 million under ASA No. 334, only one FMR project amounting to P4.0 million remained for implementation. The funding for the P5.0 million FMR project in Capalonga, Camarines Norte was already released to the LGU of Capalonga earlier this 2012 and the P40.0 million FMR project in Naga City was already bid out last year. The implementation of the latter, however, is currently on hold pending the issuance of new Authority to Implement due to changes in the projects Program of Works.

4.18

4.19

4.20

4.21

4.22

71

Unutilized Post-Harvest Facilities 5. Various post-harvest facilities donated to farmer beneficiaries in RFUs I, III and VI were unutilized due to the inability of management to closely monitor the actual status and utilization of the facilities resulting in the wastage of governments resources. One main component of the DAs program is the provision of post-harvest facilities which is believed to give long-term and great contribution and impact to the national goal of attaining food self-sufficiency and sustainability, among others. Palay (unhusked rice) is the most widely grown crop in the Philippines. Rice, being the main staple food of the country should be produced in greater volume to keep in pace with the growing population. This can be achieved through intensive provision of production and post-production interventions as well as market assistance and credit facilitation. Post-production operation is one critical factor in increasing the volume of rice production because post harvest losses suffered by farmers were due to poor and insufficient post-production practices. Several government initiatives and interventions were made in the past to address post-harvest problems specifically on drying operations. The need for more drying facilities coupled with the unfavorable climatic conditions prevailing in the provinces necessitates the establishment of drying facilities. The proposed establishment of drying facilities in every rice cluster/association is in line with DA Action Agenda for Post-harvest and Processing Modernization Plan which intends to improve rice farmers productivity and income through expanding access of farmers to low-cost drying technology and to reduce postharvest losses through provision and promotion of flat bed dryers. These postharvest facilities will be strategically located to rice production centers to ensure greatest impact that could be realized by the government. The program was funded by the ACEF and the Philippine Center for Postharvest Development and Mechanization (PhilMech) which aims to increase the agricultural sectors productivity and enable it to achieve higher levels of competitiveness by providing Biomass-Fed Flat Bed Dryers (BFFBDs) to farmers who employ the traditional solar drying method. Said technology aims to reduce the significant drying losses and palay quality deterioration during the wet/rainy seasons due to high moisture content of freshly harvested grain which is not immediately reduced to a level safe for storage. One of the conditions provided under the Deed of Conditional Donation for the BFFBDs was for the recipients to ensure and maintain the operational condition
72

5.1

5.2

5.3

5.4

5.5

5.6

5.7

of the flatbed dryers and to shoulder the cost of such operation and maintenance. It also provides for the following: Utilize the unit in accordance with its nature and purpose and shall not use the dryer for any other endeavor e.g. drying fish, clothes, etc.; It shall be the responsibility of the Donee to secure the integrity of the dryer from pilferage or loss and shall give the Donors the power to temporarily repossess the dryer and/or rescind the Conditional Donation; and The Donee shall inform without delay the Donors of any act, circumstance or event that one way or the other affects the effective and efficient operation of the dryer.

5.8

Ocular inspection and validation of the post-harvest facilities in RFUs I, II, III, V, VI and X costing P259,485,344.52 were conducted and the following observations were noted:
No. of Units 1 1 Amount Not specified Observations Some of the flatbed dryers constructed were not fully utilized because they are not accessible to some farmers and oftentimes operators trained were not available; Some farmers prefer solar drying because it is more economical; One flatbed dryer was used as drying area for newly washed clothes and another one was used as storage facility; and Some of the flatbed dryers were already with damaged and missing parts and could no longer be used by the farmers.

Facility/Recipient Region I Flatbed Dryers Pacalat IA Brgy. Malibong, Mangatarem, Pangasinan SOMASA MATALUNGARING IA Brgy. Sonquil, Sta. Barbara, Pangasinan Fed. Farmers Ass Inc. Brgy. Poblacion Sur, Sta. Maria, Ilocos Sur Dupitac IA Brgy. Dupitac, Piddig, Ilocos Norte

1 1

Region II Corn Grits Mill @P230,000 each Cassava Granulator @ P95,000 each Farmers Cooperative in San Guillermo, Isabela

P1,380,000.00

2 1

190,000.00 95,000.00

The six units are still at DA RFU compound and remained undelivered and unutilized because they are not suited to the needs of the farmers. The two units are still stored at DA compound; and Delivered to beneficiary without a perfected MOA

73

Facility/Recipient Region III Village Type Corn Dryers: (6 units @ P2,999,000) Lubao Corn Growers MPC, Lubao, Pampanga LGU Magalang, Pampanga Barangay Vega, Bongabon, Nueva Ecija Dinadiawan, Aurora NEPARI, Rizal, N.L San Manuel Tarlac

No. of Units

Amount

Observations

1 1 1 1 1 1

2,999,000.00 2,999,000.00 2,999,000.00 2,999,000. 00 2,999,000.00 2,999,000.00

Unutilized. No electric current provided. Problem was brought to the LGU officials. Unutilized. No electric power provided. Utilized but seasonal. Utilized. Some operational defects and non-conformity with specifications were reported to the supplier Utilized for both corn and palay Utilized for both corn and palay. Facility not fully sheltered and some parts are rusty. Minor operational defects were already reported to the supplier. Acquired in CY 2010 and donated to the Valiant MPC to be used by the onion growers to stock/store their produce, instead of having them stored in private warehouses. Unutilized and not yet distributed. These were intended for the Village Type Corn Dryers. From 2008-2011, a total of 227 BiomassFed Flat Bed Dryers (BFFBD) were installed in various municipalities and the following were noted: Of the 224 BFFBDs inspected, 184 or 82.14% were utilized and 40 or 17.86 were unutilized; Some BFFBDs were poorly maintained and/or in a highly deteriorated/ dilapidated condition; Some parts of the BFFBDs were missing such as nuts and bolts, perforated metal sheet flooring, and other furnace parts and or drying bin accessories; and Some BFFBDs appeared to be totally abandoned and not properly secured thereby exposing the same to possible pilferage.

Refrigerated Van Valiant MPC Bongabon N.E Hermetic cocoons Found in the DA Regulatory warehouse Region V Albay Camarines Norte Camarines Sur Catanduanes Masbate Sorsogon

1,582,490.00

1,650,000.00

31 26 118 4 20 25

Not specified

Region VI Mechanical Flatbed Dryers

193

236,462,004.52

A total of 193 units of mechanical flatbed dryers in Region VI were

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Facility/Recipient

No. of Units

Amount

Observations already completely installed as of December 31, 2011. Almost all units were operational and functional, but most of the units were utilized during rainy/wet season only; eleven units not being utilized due to loss of four engine; and four units are for rehabilitation. Procured in 2008 but remained nonoperational as of December 31, 2011 and were lying idle, corroded, and one is almost covered by grass-vines.

Region X Corn Grits Mill Kalabaylabay Community Multi-Purpose Cooperative Alimpolos Multi-Purpose Cooperative Bismartz Agrarian Beneficiary MPC Total

1,796,850.00

P259,485,344.5 2

5.9

The non-utilization of the flatbed dryers resulted in the wastage of government funds and non-attainment of the objectives of the program, which is to preserve grain quality and reduce quantitative losses through appropriate and efficient drying technologies. We recommended that management: a) regularly monitor the operation of the post-harvest facilities; advise the farmers of their responsibilities as embodied in the MOA; and train alternate operators of the facilities to maximize the utilization of the units by the program beneficiaries;

5.10

b) ensure that the recipients utilize the post-harvest facilities in accordance with its intended purpose and require the recipients to properly maintain the condition of the facilities to ensure its long period of serviceability and to avoid its early deterioration; and c) cancel the donation to the recipients who failed to comply with the terms under the Conditional Deed of Donation and transfer the facilities to other willing and qualified recipients who will ensure their proper utilization, operation and maintenance.

5.11

Management of RFU I pointed out during the exit conference that some farmers, particularly in Balaoan, La Union, prefer solar drying because it is more economical. With regard to the damaged flatbed dryers, it is provided in the MOA that upon acceptance by the farmer-beneficiaries, repairs and maintenance should be shouldered by them. Some recipients did the initiative of replacing damaged screens with bamboos. Management also started relocating flatbed

75

dryers which were underutilized to places where more farmers could avail of the drying facilities. 5.12 Management of RFU II offered the following comments on the delayed distribution of equipment to intended recipients: there were no interested recipients of the equipment due to some mechanical and technical problems observed during the testing; the corn grit mills which is intended to mill grits for human consumption produced grits fit only for animal feeds; two corn grit mills were part of the commitment of the DA Secretary to Batanes and they are needed to be tested properly and re-adjusted as to the intended use before final delivery. The unavailability of test materials (white corn grains) further delayed the delivery; and three corn grit mills were already properly tested and adjusted and ready for delivery. The other three units are undergoing further re-adjustments.

5.13

The Audit Team Leader of RFU II commented that had there been meticulous planning, the electrical requirements and needed spareparts of the equipment could have been considered before the procurement. In this case, the actual need of the recipients could have been addressed. It was admitted during the exit conference that indeed, this was not considered during the planning stage. It is acknowledged that the agricultural machineries/equipment were intended for processing of white corn and cassava, but these could have efficiently and effectively helped solve the problem on staple food sufficiency, had the actual need of farmers been considered before the procurement. Management of RFU III commented that they will be stricter in the evaluation of beneficiaries to ascertain that they are capable of sustaining and maintaining the facilities donated by the agency. Management also informed the team that the 2012 programmed hermetic cocoons will be realigned to other projects because it was observed that stocking of corn is not feasible in Region III. The management of RFU VI commented that: a. The flatbed dryer is most needed during rainy/wet season to save palay and avoid deterioration. Immediate drying after harvest is required in order to improve grain quality using biomass-feed furnace flatbed dryer which will result to lower drying cost as comparable to solar drying cost. Solar drying will require bigger area and drying temperature cannot be controlled that will result in grain breakage if exposed to high temperature, thus resulting to low germination rate of palay seeds and low recovery of milled rice. b. The project is given to a group of farmers in order for them to meet the minimum capacity requirement for the dryer. During the operation and
76

5.14

5.15

5.16

maintenance training conducted, before they can fully operate the unit, it was clarified to them that members with less than 120 cavans of palay to dry, which is the maximum capacity of the dryer, should meet even just the minimum capacity of the dryer by finding another partner and using a portion of the drying bin. Management will continue and strengthen the conduct of assessment and consultation meetings with the recipients of the flatbed dryers to be able to improve their drying operations and management. c. It is stipulated in the memorandum of agreement (MOA) signed by DA-RFU VI, PhilMech and the recipients of flatbed dryers under the role of the recipient in Item No. 10 stating that the recipient is responsible and accountable for the security of the facilities while in their custody and must ensure the high utilization of the unit. Also, the recipient is responsible for proper maintenance of the flatbed dryer. Regular technical assistance for proper utilization of the flatbed dryer and retooling on the maintenance shall be provided. d. Damage on the perforated screens is due to normal wear and tear especially if it is being utilized for a series of cropping. It was recommended to the recipients who cannot afford to replace the perforated screens to temporarily use the bamboo slats as flooring in the drying bin. Metal perforation screens are corrosive materials when exposed to high moisture and heat, thus it shortens the service life of perforated screens. While bamboo slats become a practical solutions and inexpensive substitute material is being recommended by PhilMech. Technical assistance by PhilMech and DA-RFU VI had been extended to the recipients. e. Cracks on the furnace are just a normal occurrence especially if it is often utilized by the recipients. Contraction and expansion occurs when it is exposed to high temperature. For those units under warranty, recipients of flatbed dryers were advised to inform the DA Office so that they could indorse it to the supplier/contractor for repair. Almost all damaged furnaces had been repaired by the supplier as part of the warranty. The recent design of the furnace intended for this year was already improved by PhilMech. f. To date, management is closely monitoring the utilization of the dryers. For those with lost engines, time frame was given for them to replace it and if they cannot utilize the unit, DA plans to pull-out the unit and give it to the interested and qualified Associations. ANOCA IA, Inc. of Anonang, Leon had already replaced the engine and Belen ISA, Almeana FA, Pughanan FA and Egaa FA had also committed to replace the engine immediately. g. Management will strengthen the conduct of assessment and consultation meeting and closely monitor project and if the unit is not properly utilized, it will be transferred to other sites. Recipients will also be encouraged to improve the access road going to the locations of the flatbed dryers.
77

h. Management had already met those recipients with problems on the complaint of the residents and made measures to minimize the pollution and noise. Those problems and observations will be considered in the next project to be implemented. During validation of sites, emphasis on the distance of the site to the houses/residence shall be given priority.

No Clear Guidelines in the Tramline Projects 6. There are no clear guidelines established for the operation and maintenance of the tramline projects in CAR that would ensure maximum operation of the project and assure effective utilization and accounting of the P22.542 million intended for the project. The agricultural tramline is an alternative transport system for farmers in areas isolated from road network because of ravines, rivers and dense vegetation. It is a hauling facility using cables and pulleys to transport agricultural products and inputs from isolated farms to the nearest roads. In CY 2009, the Bureau of Postharvest Research and Extension, now the Philippine Center for Postharvest Development and Mechanization (PhilMech), and DA RFU CAR entered into a MOA for the establishment of 13 agricultural tramlines in the region. Funds for this project amounting to P22.542 million, which include administrative cost of P442,000.00, were received by RFU CAR on February 8, 2010. As of December 31, 2011, RFU CAR reportedly completed six tramline facilities while seven facilities are still being constructed, details are shown below:
Status Completed 1 2 3 4 5 6 On-going 1 2 3 4 5 Location Cadad-anan, Tadian, Mountain Province Bila, Bauko, Mountain Province Balawis, Banaue, Ifugao Bocao, Atok, Benguet Lower Uma, Lubuagan, Kalinga Subagan, Licuan-Baay, Abra Total Completed Lias, Barlig, Mountain Province Taang, Aguinaldo, Ifugao Mayoyao Proper, Ifugao Banengbeng, Sablan, Benguet Lilit, Sebang, Buguias, Benguet
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6.1

6.2

Contract Amount P 1,734,723.85 2,036,279.28 1,360,291.50 1,781,437.60 2,087,120.88 1,761,201.25 10,761,054.36 1,844,313.44 1,403,046.77 1,149,892.89 1,345,650.89 1,489,380.43

Amount Paid P 1,734,723.85 1,705,448.00 1,360,291.50 977,540.71 926,919.05 1,275,775.82 7,980,698.93 1,745,273.81 908,220.70 148,938.84

Status

Location 6 Nangalisan, Tuba, Benguet 7 Taga, Pinukpuk, Kalinga Total On-going Grand Total

Contract Amount 2,103,468.44 1,279,304.36 10,615,057.22 P21,376,111.58

Amount Paid 210,346.84 3,012,780.19 P10,993,479.12

6.3

Perusal of the MOA showed that it covered only the construction of the tramlines from technical specifications, Program of Work, release of funds, disbursements and financial reporting; and the transfer or donation of the completed tramline facilities to recipients identified/designated by the Project Management Committee. Nothing in the MOA provides for the operation of the tramline facilities and the criteria in the selection of recipients. As observed, the facility requires people with the right skills to operate it and the financial resources to maintain the facility. For the completed tramline in Cadad-anan, Tadian, Mountain Province, it was the Barangay LGU that accepted the facility as shown in the Certificate of Project Acceptance signed by the Barangay Chairman or the Punong Barangay. On the Certificate of Project Acceptance, there was no mention of transfer of ownership of the tramline facility to the LGU including the consequent recording of the property in the books of accounts and property records of the LGU. There was also no mention of the facilitys operating and maintenance requirements. If the RFUs intent was to transfer ownership and responsibility over the operation and maintenance of the property to the LGU, a formal contract or agreement in support of this arrangement is more appropriate than just the Certificate of Project Acceptance. The formal agreement would also serve as a control measure to ensure that the purpose of the project shall be sustained. In the absence of clear guidelines on the operation and maintenance of the tramline facilities, it is possible that the operational capability of the facilities will not be maximized. There is, therefore, no reasonable assurance that the funds for the tramline projects were effectively utilized. We recommended that DA RFU CAR, in consultation with the PhilMech, formulate guidelines on the operation and maintenance of the tramline facilities including the criteria in the selection of the agencies or organizations to operate the facilities. Transfer of facilities to LGUs should be covered by formal contracts. Management informed that DA RFU CAR will be requesting for the official copy of the Guidelines from PhilMech.

6.4

6.5

6.6

6.7

No Physical Accomplishment for the SCHARMP

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7.

The Second Cordillera Highland Agricultural Resource Management Project (SCHARMP) continues to have zero physical accomplishment in Rural Infrastructure due to lack of counterpart funding from the LGUs. Moreover, four checks totaling P1.67 million ready for issuance to certain LGUs from October to December 2011 for the implementation of civil works projects remained with the Project Support Office (PSO) as of year-end, thus further delaying the implementation of the project. In the previous year, the SCHARM Project programmed to implement farm to market road projects, domestic water supply systems and other community infrastructures with a total budget of P79,358,000. In 2010, none of these projects were implemented because the LGUs could not afford to provide their required counterpart funds of at least 50% of the project cost. For CY 2011, the Project targeted in its Annual Work Plan and Budget to implement several infrastructure or civil works projects with a total budget of P372,823,000, broken down as follows:

7.1

7.2

Particulars Indicator Target Budget Farm-to-market roads rehabilitated No. of kms 100 P250,000,000 Footbridges rehabilitated No. of kms 210 8,400,000 Footpaths rehabilitated No. of kms 842.3 8,423,000 Community irrigation systems No. of kms 300 36,000,000 constructed/rehab Domestic water supply No. of units 40 40,000,000 constructed/rehabilitated Community infrastructures constructed/rehab No. of units 10 30,000,000 Total P372,823,000 7.3 The Registry of Allotment and Obligations for Capital Outlay shows that the PSO obligated during the last quarter of the year a total of P64,158,579.99 for the implementation of infrastructure projects, 99.98% or P64,148,517.79 of which was charged against the allotment received in 2010. This means that only some P10,000.00 or 0.0027% of the CY 2011 allotment for infrastructure projects amounting to P372,823,000 was obligated as of year-end. The projects with obligated funds are as follows: Prior Year Appropriation LP GOP P39,577,785.18 143,930.00 3,048,399.55 1,200,000.00
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Infrastructure Project Farm-to-market roads Footpaths Domestic water supply Irrigation systems

Current Year GOP P 992.20 9,070.00 -

Total P41,286,880.89 153,000.00 3,104,399.55 1,200,000.00

P1,708,103.51 56,000.00 -

Community infrastructures Total

16,623,073.16

1,791,226.39

P10,062.20

18,414,299.55 P64,158,579.99

P60,593,187.8 P3,555,329.90 9

Legend: LP Loan Proceeds

GOP- Government of the Philippines

7.4

Perusal of the Approved Sub-projects and signed MOA containing detailed information of the projects for which obligations were made, showed that 30% of the project cost was shared by DA OSEC, thereby reducing the funding counterpart of the LGUs to 20%. Verification disclosed, however, that DA OSEC has yet to release the necessary allotment advice to cover for the 30%. Because of this, none of the above-listed projects was implemented as of year-end. In addition to the above obligations for infrastructure projects, the PSO has approved to issue four checks totaling P1,674,270.24 in the last quarter of 2011 for the construction of footpath, water system and irrigation system in three municipalities, with the particulars shown below:
Payee Municipality of Barlig, Mountain Province Municipality of Barlig, Mountain Province Municipality of Besao, Mountain Province Municipality of Pasil, Kalinga Project Sarakon-Fiangtin Footpath Mongkingob Domestic Water System Irrigation System Concreting of Bawi-Pua Footpath Total Amount P 340,000.00 560,000.00 526,913.10 247,357.14 P1,674,270.24

7.5

Date 10/27/11 10/27/11 11/21/11 12/16/11

7.6

Verification showed, however, that the above-mentioned checks remained with the PSO as of year-end, and released to the concerned municipalities only in the ensuing year, particularly on the following dates:
Check Number Date 888861 10/27/11 888862 10/27/11 888989 11/21/11 889220 12/16/11 Payee Municipal Gov't of Municipal Gov't of Municipal Gov't of Municipal Gov't of Total Barlig Barlig Besao Pasil Amount P 340,000.00 560,000.00 526,913.10 247,357.14 P1,674,270.24 Official Receipt Number Date 3351454 01/11/12 3351457 02/07/12 unreleased as of 02/13/12 7397480 01/18/12

7.7

The delayed issuance of the checks to the municipalities and the nonimplementation of the farm to market roads and other infrastructure projects under the Rural Infrastructure Development component of the SCHARM Project resulted in zero physical accomplishment in infrastructure projects. This may also result in the low utilization of the total funds programmed for infrastructure projects under the SCHARM Project amounting to P1.898 billion, broken down as follows:
Funding Source Amount Percent

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IFAD ADB/OPEC LGUs Beneficiaries Government Total

P 117,517,000.00 910,275,000.00 442,636,000.00 238,207,000.00 189,848,000.00 P1,898,483,000.00

6.2 47.9 23.3 12.5 10.0 100.0

7.8

In their comments, management claimed that the delayed issuance of checks to the concerned LGUs will not necessarily be contributory to non-implementation of infrastructure projects. In fact, as soon as the certificates of availability of funds are issued to them by PSO for the Project counterpart funds (loan proceeds plus GOP funds), they can go ahead and bid their projects. The initial cash release will only be required when they complete the bidding process, award the contract and then pay the mobilization fee. There is no mention in the MOA between DA RFU CAR and the concerned LGU on the bidding of the projects at the LGU level even before the funds are released. We recommended that DA RFU CAR thru the DA secure the conformity of the IFAD in requiring the LGU lesser counterpart funding in the implementation of the SCHARMP to abolish the main cause for the delay in the implementation of such project. Thereafter, after approval of IFAD, request DA to facilitate the release of additional allotments to ensure the immediate implementation of the project. We also recommended that, for upcoming fund transfers, the PSO facilitate the release of checks to the concerned LGUs for the implementation of infrastructure projects as soon as these are signed.

7.9 7.10

7.11

Slippage of 15% to 45% Incurred by Five NGOs 8. Five of the six NGOs hired by the SCHARM Project to render community mobilization and participatory planning services incurred delays in performing their obligations, ranging from 15% to 45% of the required accomplishment; hence, the deliverables required of the NGOs may not be fully accomplished within the contract period. As of November 30, 2011, the SCHARM paid the six NGOs hired by the project, a total of P28,718,118.93 as progress payments for community mobilization and participatory planning services. Below are the terms of reference of the contracts with the six NGOs:
Expected Output 1. NGO Inception Report 2. Barangay SocioEconomic Profiles Duration after NTP* (in months) 1 3 CPA** 0 20

8.1

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Expected Output 3. Final PPIP 4. List of POs organized/strengthened 5. PMET organized 6. Revised PPIP 7. NGO Phase-out/ LGU Phase-in Plan 8. Project Phase-out Plan 9. Terminal Report

Duration after NTP* (in months) 5-6 9 9 13 15 18 24

CPA** 40 55 70 80 85 90 100

* Notice to Proceed **CPA - Cumulative Percentage of Accomplishment

8.2

Review of the NGOs last progress billings showed that the NGOs had already rendered services for 11 to 17 months from the effectivity of their respective contracts, as follows:
Contract Effectivity 06/17/10 06/01/10 06/04/10 06/15/10 06/02/10 06-02-10 Contract Expiry Date 06/17/12 06/01/12 06/04/12 06/15/12 06/02/12 06/02/12 Date of last Billing 10/08/11 10/14/11 05/16/11 11/03/11 06/30/11 09/13/11 Time Elapsed 16 months 16 months 11 months 17 months 13 months 15 months Terms of Reference No. of Months Output CPA 15 Phase out/in 85 Plans 15 9 15 13 15 Phase out/in Plans PMET organized Phase out/in Plans Revised PPIP Phase out/in Plans 85 70 85 80 85

Non-Government Organization Concerned Citizens of Abra For Good Government Igorota Foundation International Association for Transformation, Phils. Inc. Montaosa Research Development Center Peoples Organization for Social Transformation Save the Ifugao Terraces Movement

8.3

Considering the time elapsed from effectivity of the contracts to the dates of last billing, four of the five NGOs should have already accomplished the NGO Phase out/ LGU Phase in Plans, one NGO should have already reviewed and revised the Participatory Project Investment Plans (PPIP), and one should have already organized the Project Monitoring and Evaluation Teams (PMET), based on the Terms of Reference (TOR) with the NGOs. Comparison between the actual accomplishments of the NGOs as accepted by the Project in the Certificates of Acceptance and the expected accomplishments of these NGOs as stipulated in the TORs showed slippage ranging from 15% to 45%. Below are the details:
Non-Government Organization Expected Accomplishment Actual Accomplishment CPA 85 Output PMETorganized % 70 Slippage as of billing date Output % PPIP Review 10

Output Concerned Citizens of Abra Phase out/in Plans

83

Non-Government Organization for Good Government Igorota Foundation, Inc.

Expected Accomplishment Actual Accomplishment Output CPA Output %

Phase out/in Plans

85

POs strengthened

55

Montaosa Research & Development Center

Phase out/in Plans

85

Final PPIP

40

People's Organization for Social Transformation Save the Ifugao Terraces Movement

Revised PPIP

80

POs registered

55

Phase out/in Plans

85

PMETorganized

70

Slippage as of billing date Output % Phase out/in Plans 5 Total 15 PMET organized 15 PPIP Review 10 Phase out/in Plans 5 Total 30 POs organized 15 PMET organized 15 PPIP Review 10 Phase out/in Plans 5 Total 45 PMET organized 15 PPIP Review 10 Total 25 PPIP Review 10 Phase out/in Plans 5 Total 15

8.4

Because of the delay in accomplishing the outputs required in the contracts, the deliverables required of the NGOs may not be fully accomplished within the contract period. Management informed that the delay in the accomplishments of the NGOs was caused by factors beyond the control of these NGOs, as follows: Planning workshops could not be scheduled due to leadership transition in the barangays; Participation of some MMG and BMG in data gathering and analysis and planning is inadequate; Incorporation of data gaps took time; In the absence of secondary data, CMOs did the data collection. We recommended that the Project Support Office evaluate the accomplishments of the NGOs vis--vis the expected outputs and the time frame for the delivery of such outputs, and determine if the contracts with these NGOs are still feasible without sacrificing the efficiency of project implementation.

8.5

8.6

Unutilized Water Pumps for El Nio Program 9. Eight hundred forty units of water pump sets and open source pump (OSP) accessories with a total cost of P22.310 million out of the 2,235 units amounting to P46.577 million, procured by RFU II and farm equipment
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amounting to P2.368 million procured by RFU IV-A to mitigate El Nio Phenomenon in 2010, were not utilized and distributed to farmer beneficiaries, thereby defeating the purpose for which these were procured resulting in the inefficient use of government resources. 9.1 In 2010, the effect of El Nio Phenomenon was greatly felt in Region II rendering insufficiency of water from irrigation systems to sustain the daily crop requirement. This affected significant hectarage of rice, corn and high value commercial crops in the dry season 2009-2010. In order to lessen the effects of drought, the DA undertook mitigation and rehabilitation measures to minimize yield reduction and to ensure the recovery of standing crops of affected farmers. One of the measures carried out was the procurement of pump sets and OSP accessories with a total cost of P23,191,590.00 to be distributed to farmers who had standing crops during the calamity and those who meet the conditions under the program. The Region also received 300 units of pumps and engines from BSWM costing P23,385,000. For the distribution of pumps and engines, the DA entered into a MOA with the different LGUs in the region. It was agreed in the MOA that the units will just be borrowed and these shall be returned to DA not later than April 30, 2010. The distribution was based on the listings, given by the Municipal Agriculturists (MAs), of farmers who meet the conditions to be a bonafide recipient. This is a reiteration of last years observation, and at the end of 2011 the water pumps and accessories were still idle and undistributed and were merely kept in the operating stations. Some of the municipalities failed to submit the list of the qualified recipients resulting to undistributed pumps and accessories in RFU II. The table below presents the details at the end of the year:
Particulars DA RFU II Procurement Pump set 3 inches set 2 inches OSP Accessories Received from BSWM Pumps TOTAL No. of Units 1,023 612 300 300 2,235 Total Cost Distribute d ( Quantity) 684 499 106 106 1,395 Undistributed Quantity Amount 339 113 194 194 840 P4,301,058.65 1,254,300.00 1,632,842.00 15,122,300 P22,310,500.65

9.2

9.3

9.4

P 13,485,490.00 6,793,200.00 2,912,900.00 23,385,000.00 P 46,576,590.00

9.5

Aside from the undistributed brand new pump set and accessories, there were also 378 units retrieved from the LGUs in 2010 and in 2011 which were also in the operating stations and were not being used. These were both from the procurements of DA RFU II and from BSWM. Various farm equipment totaling 219 units were procured and delivered in CY 2010 at the Quezon Agricultural Experiment Station (QAES) at Tiaong, Quezon.
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9.6

A total of 128 units were distributed from April 2010 (procurement date) to March 19, 2012 to farmer beneficiaries in CALABARZON affected by the El Nio, leaving 91 units undistributed costing P2,368,400.00; details shown as follows:
Farm Equipment Quantity Delivered in 2010 Quantity Distributed to date Balance 3-19-2012 Unit Cost Total amount (Not distributed)

Shallow Tube Wells (STW Rice Thresher Drum Seeder Total

100 9 110 219

83 8 37 128

17 8 73 91

P85,000.00 135,000.00 10,800.00

P 1,445,000.00 135,000.00 788,400.00 P 2,368,400.00

9.7

The delayed distribution of the farm equipment to farmer beneficiaries defeated the purpose of procuring the same which was for the mitigation of the drought due to El Nio phenomenon in 2010. Considering the significant amount of the procured equipment, their prolonged idleness may cause their condition to rust, thereby entailing waste of government funds if these farm equipment are unutilized. According to management, the excess pump sets in 2010 may still be used in the future. It is to be pointed out, however, that in the present scheme on the distribution of pump sets through the LGUs, the farmers only borrow the equipment thus, the pumps released will be retrieved and will again be stored in the DA for future use and in the event of a similar calamity. We recommended that DA-RFU II and IV-A management: a) exercise prudence in the use of government resources. Procurement should be limited to those immediately needed or for the current year/cropping season; b) cause the speedy disposal/distribution of the procured equipment to the intended beneficiaries so as to avail their maximum utilization. c) look for other Regions in need of water pumps and transfer those received from BSWM to be used efficiently for the program; d) coordinate with other Bureaus in planning and implementing the programs of the DA to ensure that only the needed assistance for the particular region is given to minimize government losses and prevent wastage of government resources; e) maximize the use of the idle pump sets in the other programs of the agency, where the equipment could best be utilized; and

9.8

9.9

86

f) if warranted, dispose the idle equipment in a manner that will best protect the interest of the government. 9.10 Management commented that there is an on-going preparation of guidelines for the transfer without cost of the pumps. They are also drafting and reviewing possible guidelines on the distribution of the new units to qualified applicants. RFU IV-A commented that the remaining 91 units are ready for distribution by the end of April 2012.

9.11

Irregular Utilization of Malampaya Funds 10. Of the total P463 million Malampaya Fund received by DA-RFU II in CY 2008-2010, P5.6 million was utilized for activities under the regular program of the agency and P74.8 million was utilized for projects and allowances of employees, contrary to the purpose of the fund, which is for the rehabilitation of areas damaged by typhoons Ondoy and Pepeng. Administrative Order (AO) No. 244 dated October 23, 2008 authorized the Department of Agriculture (DA) to use P4B from fees, revenues and receipts from Service Contract (SC) No. 38, or the Gas-Malampaya Collection, otherwise known as the Malampaya Funds, for the rice self-sufficiency programs of the government. Section 1 thereof provides for the establishment of a P2B Agricultural Guarantee Fund Pool (AGFP) under AO 225-A, Series of 2008, which shall be used to mitigate the risk involved in agriculture lending by providing guaranteecover to unsecured loan financing extended by financial institutions and other parties to new farmers engaged in rice and food production projects/activities, thereby facilitating the provision of credit in the sector. Accordingly, the other P2B shall be used for the Rice Sufficiency and Other Commodity Program to augment DA Funds to provide seeds and location specific interventions in addressing rice self-sufficiency targets and securing availability of food commodities at stable prices. (Emphasis provided) The cited Administrative Order was anchored on Section 8 of Presidential Decree No. 910 and Executive Order No. 683 series of 2007 which authorized the use of fees, revenues and receipts from SC 38, the latter issuance being specifically for the implementation of development projects for the people of Palawan. From 2008 to 2010, DA RFU II received allotments from the Malampaya Fund amounting to P164,564,200.00 and P298,908,995.43 under SARO No. E-0808906 and SARO No. E-09-08047, respectively, purposely for the rehabilitation program of damaged areas caused by typhoons Ondoy and Pepeng.
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10.1

10.2

10.3

10.4

10.5

Below are the Advice of Sub-Allotments (ASA) under the two SAROs received by the agency:

ASA No. Date Amount SARO No. E-08-08906 dated November 3, 2008 101-2008-1052 12/9/08 P 2,937,000.00 101-2008-1072 101-2008-1092 101-2008-968 101-2008-1198 101-2008-1207 101-2008-1265 101-2008-1250 12/9/08 12/10/08 11/27/08 12/15/08 12/16/08 12/22/08 12/22/08 1,275,000.00 7,033,000.00 140,705,200.00 324,000.00 6,166,250.00 1,000,000.00 465,000.00

Purpose Support to LGU Extension workers GMA Rice October-December 2008 Support to LGU Extension workers-GMA Corn October December 2008 Support for the implementation of various noncommodity program for vegetable and rootcrops For GMA Rice Program for Dry Season November December 2008 Support to LGU Extension workers -4th quarter 2008 Support to Fertilizer Discount coupons in 2008 Additional Program Management Fund Support to mass production of cassava seed prices and post harvest equipment Farm Mechanization Gawad Kalinga Gawad Kalinga Bayan- Anihan

101-2009-019 1/13/09 2,400,000.00 101-2009-460 8/11/09 1,924,000.00 101-2009-055 2/13/09 334,750.00 Sub-Total P164,564,200.00 SARO No. E-09-08047 dated October 30, 2009 101-2009-629 11/6/09 P84,638,490.00 101-2009-661 101-2009-680 101-2009-692 101-2009-703 101-2009-715 101-2010-559 101-2010-407 101-2010-542 Sub-Total Grand Total 11/17/09 11/24/09 12/1/09 12/8/09 12/16/09 7/2/10 5/21/10 6/29/10 2,325,500.00 10,000,000.00 76,030,560.00 34,872,000.00 39,271,000.00 76,479,600.00 (86,010,235.09) 61,302,040.52 P 298,908,995.43 P 463,473,195.43

Rehabilitation Program of Damaged Areas caused by Typhoon Ondoy and Pepeng under GMA Rice Program Purchase of native chicken for the rehabilitation plan for typhoon Ondoy and Pepeng affected areas For the rehabilitation plan for damages caused by typhoon Ondoy and Pepeng under GMA HVCC program. Additional funding support for the rehabilitation program of the damaged areas caused by typhoon Ondoy and Pepeng under GMA Rice program For the rehabilitation program of the damaged areas caused by typhoon Ondoy and Pepeng (corn) Additional Funding support for the rehabilitation program of the damaged areas caused by typhoon Ondoy and Pepeng (Rice) Additional support to GMA Rice Rehab. Program per memo dated 6/24/10 Withdrawal of Allotment For rehabilitation program of damaged areas caused by typhoons Pepeng and Ondoy

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10.6

It was also observed that the Malampaya Funds were not strictly utilized in accordance with the purpose of the fund as stated in the ASA. Below is the actual utilization of the fund in the region:
Actual Fund Utilization A. Program Related Expenses Farm Mechanization Program: Tractor/Tires Construction of Greenhouses Farm Inputs: Certified seeds Fertilizer discount Fertilizer subsidy Fertilizer refund Seed subsidy Vegetable seeds Native Chicken Program Management Sub-Total B. Regular DA Expenses LGU Incentives Cellphones Security Services Catering Services (including sportsfest) Regular Maintaining and Operating Expenses C. Not Project Related Expenses Multi Purpose Drying Pavement Farm to Market Roads (FMRs) Small Water Impounding Project (SWIP) CNA Incentives Pumps/Engines (For the El Nino) Honorarium Total Utilization 1,599,000.00 118,210.00 167,900.00 1,008,928.95 2,768,482.13 875,000.00 42,420,003.00 14,000,000.00 4,880,967.91 12,634,314.00 7,500.00 5,662,521.08 P196,793,555.00 1,800,052.50 3,773,345.40 90,286,804.00 45,010,362.96 12,462,887.42 2,319,198.00 352,446,205.28 6,729,011.56 359,175,216.84 Amount

P165,435.72 507,300.00

74,817,784.91 P440,328,258.55

10.7

As can be gleaned from the data above, the fund was used for the regular operating expenses of the Department and for the procurement of pumps, engines and accessories for the El Nio Phenomenon in 2010. A total of P57 million was transferred to the different operating stations and further transferred to various Local Government Units (LGUs) for the implementation of projects like FTMR, Small Water Impounding Projects (SWIP) and Multi Purpose Drying Pavements (MPDP). Moreover, the Collective
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10.8

Negotiation Agreement (CNA) incentive of DA RFU II employees in 2009 was charged against the Malampaya Funds. 10.9 It was noted in CVIARC Ilagan, Isabela, that the P33 million Malampaya Fund received from the DA Regional Office which was intended for GMA Rice was included in the regular allotments received in 2008.

10.10 We recommended that DA RFU II management utilize the Malampaya fund solely for the specific purpose for which it was released, unless otherwise authorized to be reprogrammed by proper authorities.

10.11 Below are the comments of management: Utilization of Malampaya Fund


FMR and SWIP

Management Comments
The interventions are part of the GMA Rice Program funded under ASA No. 101-2009-629 and ASA No. 101-2009-692 whose purpose is Rehabilitation program of the damaged areas caused by Typhoon Ondoy and Pepeng. The procurement of pumps and accessories are part of the activities/interventions of the office under the GMA Rice Program in order to mitigate the effects of El Nio phenomenon. An authority was granted by the Secretary of DA for re-alignment of the unutilized fund under the GMA Rice Program to mitigate/rehabilitate the effect of El Nio in Region II. The office is allowed to allocate 5% to 10% of the allotments received to be used for program management to defray expenses for MOOE which include but not limited to the aforementioned findings. Additional fund was released for Program Management as per ASA No. 101-2008-1255 dated 12/22/08. The office is allowed to pay CNA benefits to employees of DA RFU II as provided in the CNA that was approved by the Secretary to be charged from the savings of the office. From the savings generated on the Malampaya Fund, the office allocated for CNA.

Pumps and Accessories for El Nio in 2010

Regular MOOE, Purchase of Equipment, Cellphones, totaling to P5,662,521.08

Collective Negotiation Agreement (CNA)

10.12 While the agency asserted that the Malampaya Fund releases under PD 910 were not specifically identified, and these were regarded as regular fund, the audit
90

team of the DA RFU-II and stations still maintain their position that funds are to be utilized in accordance with the purpose of the allotment, unless authorized to be reprogrammed by proper authorities. The team emphasized the following: a) The construction of FMR, SWIP and MPDPs are regular programs of the DA are not among those funded under the Malampaya Funds; b) The Malampaya Funds used for the purchase of pumps for the El Nio in 2010 was requested by the Regional Executive Director and approved by the OICSecretary of DA, not the DBM; c) The regular operating expenses of the agency are funded under the regular allotments; and the Project Management Fund is included in the project related expenses; and d) The Malampaya Funds are not released for the payment of employees allowances like the CNA, but for the rehabilitation of damages from Typhoons Pepeng and Ondoy. Excess Procurement of Bamboo Sticks 11. The procurement of 1,706,000 pieces of bamboo sticks by DA RFU V in the total amount of P801,820.00 under the ABAKADA Project was found to be excessive and unnecessary in violation of COA Circular No. 85-55A dated September 8, 1985, resulting in the wastage of government funds. The Fiber Industry Development Authority (FIDA), a national government agency attached to the DA, is a recipient of the funds from the DA- High Value Commercial Crop (HVCC) program entitled Abakabuhayan sa Unang Distrito ng Albay or ABAKADA Project. The project aims to address the shortage of fiber supply, inadequate source of healthy abaca planting materials, lack of post harvest facilities and value adding technologies at farmers level with the endview of rehabilitating the abaca industry and enhancing the income and productivity of the abaca farmers in the Bicol Region more particularly in the First District of Albay. One of the objectives of this project is to treat 1,777 hectares of virus diseaseinfected abaca plantation in the first district of Albay and minimize the incidence of virus disease at manageable level. The beneficiaries of this program are farmerowners of not less than 1.0 hectare abaca farm with a virus incidence of 10-12%. Based on the implementing guidelines of the project, the recommended number of shade trees for abaca should have a plant population of 1,600 plants per hectare at 2.5 x 2.5 meters plant spacing.

11.1

11.2

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11.3

In connection with this project, 1,706,000 pieces of bamboo sticks were purchased at P0.47 per stick or a total amount of P801,820.00. The procedure for the treatment of virus disease- infected abaca plantation is thru the use of bamboo sticks soaked in pure herbicide. Dried bamboo sticks measuring 6 x .5 x 1 pointed at one end will be soaked in pure concentration of herbicide for about 2 to 3 days estimated at an absorption of 8 to 10ml of herbicide. These chemically soaked bamboo sticks are impregnated on the abaca suckers/hills which are infected with diseases. During the eradication method, the standing diseased abaca plants in a hill are impregnated with dried matured bamboo sticks soaked in pure herbicide at least one in a small plant and more than three sticks in big stalks. If the estimated disease incidence for abaca infestation ranges from 10-12%, the targeted 1,777 hectares planted with abaca at 1,600 trees per hectare would only need more or less 341,184 bamboo sticks (1,777 x 1,600 =2,843,200 x 12%) as against the purchased 1,706,000 pieces. Ocular inspection made by the audit team on September 7, 2010, revealed that the 1,706,000 pieces of bamboo sticks were piled and stored in an open bodega at the FIDA Regional Office at the Bicol University Compound, Daraga, Albay. Due to the enormous quantity of stocks, the piling of the sticks even reached the ceiling of the open walled bodega. To affirm that the procurement was really excessive, an ocular inspection was again conducted in June 2011, one year after the duration of the project, and it was found out that there were still unused bamboo sticks which were more or less 70% of the purchased 1,706,000 pieces. The percentage of sticks still on stock was based on the estimate given by the Project Coordinator. It was observed that the bamboo sticks were already starting to decay due to pest infestation and exposure to the natural elements. Therefore, the estimated number of 341,184 bamboo sticks for the treatment of 1,777 hectares of abaca plant is sufficient and the quantity purchased of 1,706,000 was excessive and immoderate in violation of COA Circular No. 85-55A dated September 8, 1985, which prohibits the excessive use of government funds and property. Section 3.3 of this rule defines excessive expenditures as unreasonable expenses incurred at an immoderate quantity. Thus, on July 1, 2011, Notice of Suspension (NS) No. 2010-036-101 was issued requiring the persons responsible to explain the immoderate quantity of items purchased which was beyond reasonable limits or than what was required/needed by the agency for a determinable period resulting in overstocking. On December 1, 2011, a letter from the Officer-in-Charge (OIC) of FIDA Regional Office, Legazpi City was received by our office explaining the purchase of 1,706,000 pieces of bamboo sticks. According to her, the quantity of bamboo sticks
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11.4

11.5

11.6

11.7

11.8

11.9

requisitioned were not solely intended for one operation in the disease treatment of 1,777 hectares but also included the post operation activity after the completion of the ABAKADA project. Their office is advocating a sustainable disease treatment of 1,777 hectares of abaca plantations in five municipalities and one city in the First District of Albay. Henceforth, the remaining bamboo sticks are intended for post treatment of the abaca plantations so as to eliminate regrowth and re-occurrence of the virus diseases. 11.10 During the exit conference on February 20, 2012, Mrs. Lomerio informed us that the estimated number of bamboo sticks (1,706,000 pieces) for the targeted area of 1,777 hectares were based on the 1,706,000 plants from the 10 % of 17,059,200 plants from the estimated 2,843,200 hills at 6 plants per hill. 11.11 The above contention of the OIC, FIDA, although partly valid, does not, however, justify the remaining quantity of bamboo sticks still in the bodega which is more or less 1,339,581 or 78.52 %. Only 366,419 or 21.48% bamboo sticks were used during the eradication process from the period July 2010 to March 2011. These data were gathered from the Summary Report on Abaca Disease Eradication Component. 11.12 Based on the pacing of the utilization of the bamboo sticks, we have reason to believe, therefore, that the remaining 1,339,581 sticks will be consumed for the next three years. (1,339,581/336,419 = 3.98 x 9 months = 35.82 months /12 =2.99 years) 11.13 We recommended that management always undertake a comprehensive feasibility study and proper planning prior to the implementation of programs/projects to avoid wastage of government funds and resources. 11.14 Management commented that there was no wastage of government funds because the excess bamboo sticks out of the ABAKADA project were requested and granted by the Regional Executive Director to be used in the non-target abaca diseased areas with disease incidence ranging from 5.0-26.0% totaling 4,514.90 hectares in the provinces of Albay, Sorsogon, Camarines Sur and Catanduanes out of the total areas of 50,212.34 hectares (FIDA, 2010) requiring 28,895,360 bamboo sticks following the Package of Technology on Disease Eradication. 11.15 The audit team maintained its stand on the NS issued on the transaction, until the submission of the distribution list to the provinces of Albay, Sorsogon and Camarines Sur. Unutilized Farm Equipment 12. The objective of providing adequate water to increase the productivity of the farmers involved in the production of HVCC in the different municipalities of Region V thru the installation of 40 units Drip Irrigation System (DIS)
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amounting to P1.381 million, was not fully attained because majority of the 40 DIS units installed were not functional due to the failure of the LGUs to provide their counterpart contribution to ensure the success and continuity of the project. Moreover, two units of Mango Hot Water Tank amounting to P676,000.00 procured in RFU X remained non-operational due to lack of tank component which was not adequately identified/considered during the planning stage resulting in wastage of government resources. a. 12.1 DIS in Region V

The main objective of the DIS is to increase productivity of high value commercial crops (HVCC) which offer alternative profitable opportunities to small farmers. With the aid of this system, watering their crops will be facilitated, thus, abundant harvest of these crops is expected. During the first quarter of CY 2010, 40 units DIS costing P1,380,956 (at P34,523.90 per unit) were installed in the different municipalities of Region V. The recipients of these systems are listed below:
Recipient A. Camarines Sur 1. LGU Lupi 2. LGU Libmanan 3. LGU Pamplona 4. LGU Naga City 5. LGU Canaman 6. LGU Tigaon 7. LGU Baao 8. LGU Iriga City 9. Central Bicol SUA 10. Bicol Integrated Agricultural Research Center (BIARC) 11. Bicol Experiment Station (BEST) B. Camarines Norte 12. LGU Sta. Elena 13. LGU Capalonga 14. LGU Paracale 15. LGU Labo 16. LGU Daet 17. LGU Talisay 18. LGU San Vicente 19. LGU San Lorenzo 20. Labo Multi-Purpose Cooperative C. Albay 21. LGU Oas 22. LGU Ligao 23. LGU Camalig 24. LGU Legazpi City 94 Location Brgy. Colacling, Lupi Brgy. Planca, Libmanan Pamplona Pacol, Naga City Canaman LGU Compound Tigaon Sta. Teresita, Baao Iriga City San Jose, Pili DA Compound DA Compound LGU Compound Nursery Tabas, Paracale Nursery GK, Bibirao, Daet Talisay Municipal Nursery Municipal Nursery LPMP Coop. Compound Brgy. Manga, Oas Municipal Nursery Camalig Legazpi City

12.2

Recipient 25. PLGU Albay 26. LGU Tabaco City D. Catanduanes 27. PLGU Catanduanes 28. Virac Seed Farm 29. Vegetable Grower of Virac 30. LGU San Andres 31. LGU San Miguel 32. LGU Panganiban E. Masbate 33. LGU Uson 34. LGU Cawayan 35. LGU Aroroy F. Sorsogon 36. PLGU Sorsogon City 37. LGU Castilla 38. LGU Sorsogon City 39. LGU Irosin 40. LGU Casiguran

Location Provincial Nursery Provincial Nursery Capitol Compound Casoocan, Virac Magnesia Norte, Virac Municipal Nursery DA/LGU Compound Panganiban DA/LGU Compound Nursery Nursery Juban Municipal Nursery Sorsogon City Municipal Nursery Casiguran

12.3

Ocular inspections made by COA Technical Audit Specialists on November, December 2011 and January 2012 of the 30 out of 40 DIS revealed the following: a) In Camarines Sur, ten irrigation units, overhead tanks, pipes and fittings were already removed from the original location, rendering the system nonfunctional. Consequently, manual watering was being resorted to due to lack of stable water supply or absence of adequate water pumping equipment; b) In Catanduanes, three out of six installations were found to be non-functional. Per interview with LGU personnel, the unit installed at LGU San Miguel was dismantled due to the damage it sustained from typhoon Juaning in July 2011. Likewise, the units installed at LGU San Andres and Panganiban are no longer functional. Only the three units installed at PLGU Catanduanes, Virac Seed Farm and Vegetable Grower of Virac are functional. c) In Sorsogon, four out of five installations were having problems with regard to water supply. Only the unit installed at the provincial nursery was functional during the inspection. Moreover, the unit allocated for LGUCasiguran, Sorsogon was installed at a private farm owned by a certain Mr. Amador Masarate, thus only one person is being benefited by the unit and not the LGU. d) In Camarines Norte, from the nine units installed, eight were inspected and only one unit previously installed at Barangay Tabas, Paracale was found to be unserviceable. According to the Municipal Agricultural Officer, the unit was used by Barangay Tabas Vegetable Growers Association. It was, however, destroyed by several typhoons. Lately, the unit was transferred to
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the Municipal Nursery at Barangay Dalnac, Paracale, Camarines Norte but remained non-functional as of this report. 12.4 In view thereof, the objective of installing 40 units DIS in the different municipalities of Region V was not fully attained because majority of these units were not functional, thus defeating the purpose of the system resulting in the wastage of government funds. b. 12.5 Hot Water Tank in Region X

In line with the mentioned thrusts, the Department and the General Administration of Quality Supervision, Inspection and Quarantine of the Peoples Republic of China formulated a Protocol of Phytosanitary requirement for the export of mango from the Philippines to China. Articles 4 and 5 of such Protocol provide, in part, that the mango-producing places should be pest-free area for Sternochetus Frigidus (a type of quarantine pest) and that the mango fruits shall undergo heat treatment shown to be effective against fruit flies. It is on this premise that the High-Value Crop Development Program (HVCDP) of DA-RFU X procured two sets of hot water tank for mango production in CY 2008 in the total amount of P676,000.00 intended for the following mangoproducing NGOs/POs: (a) Iligan Mango Growers Association, Iligan City; and (b) Cagayan-Misamis Oriental-Bukidnon Mango Growers Association, Cagayan de Oro City

12.6

12.7

12.8

Field inspection conducted by the Team aimed to evaluate the effectiveness of the HVCD Program after two years of the supposed equipment operation disclosed that the unit in the custody of Cagayan-Misamis Oriental-Bukidnon Mango Growers Association was non-operational and was just lying idle in an openwalled roofed structure, and almost corroded. The unit was observed to be incomplete. The electrical and other components of the unit were accordingly kept by the caretaker for safekeeping in the meantime that the required tank component had not yet arrived. Interview with an official of the proponent association revealed that the unit delivered to them had not been made to operate since the time it was delivered pending the delivery of an additional tank component. According to the HVCDP personnel who accompanied the Team, the other unit in Iligan City is also nonoperational for the same reason.

12.9

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12.10 Considering the foregoing circumstances, vital information relative to the necessity of the required additional component should have been considered in the planning stage and in the project proposal to make the equipment useful. The proponent farmers have, therefore, been deprived of the needed support from DA as contemplated in the AFMA of 1997. 12.11 We recommended that DA RFU V management: a. undertake a preliminary assessment or evaluation of applicants to the program based on the criteria established to ensure that these applicants have the capability to implement the project; and require the HVCC Coordinator and the Regional Agricultural Engineering Department to coordinate with the concerned LGUs and conduct a preliminary survey on the source of adequate water supply and the availability of water pumping equipment before awarding the project to the intended beneficiaries so as to maximize utilization.

b.

12.12 We also recommended that DA RFU X management take the necessary steps to repair and make the two unutilized Mango Hot Water Tanks costing P676,000.00 operational and test the same in coordination with the supplier to maximize utilization of the same by the beneficiaries. 12.13 The management of DA RFU V stated that the obligation of the agency is only to install the DIS while the counterpart of the LGU recipient is to provide the water source or water pumping equipment. As a result, the systems were installed but majority are non-functional due to the failure of the LGU to provide the agreed counterpart. 12.14 During the exit conference, RFU X management stated that tests of the equipment were conducted by the supplier in the DA premises and they were found to be operating. The unit in Iligan City was devastated by Typhoon Sendong that hit the area in December 2011. 12.15 The one in-charge of the HVCC project further stated that the proponent NGOs were not able to procure as yet the cooling tank necessary in their operation, which is supposedly their counterpart for the project to be operationalized. Likewise, it was emphasized that a computer is required to run the system, thus, the proponents requested fund support from the Districts House Representative for the laptop, however, due to the recent calamity, their request was not given priority. Delayed Implementation of SWIP/SSIP

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13.

The delayed implementation of Small Water Impounding Projects (SWIP)/Small Scale Irrigation Projects (SSIP) in Region VI totaling P14,500,000.00 defeated the purpose of providing timely supply of irrigation water to farmers particularly during the dry season and consequently resulted in the delayed delivery of programmed benefits to intended beneficiaries. One of the interventions of the DA RFU is the provision of the SSIP particularly in the construction of small water impounding project/diversion dams to mitigate the effects of drought and flooding. The Small Water Impounding Projects (SWIP) and Diversion Dams are primarily aimed at supplementing the supply of irrigation water in selected Key Grain Areas (KGAs) under the Grain Productivity Enhancement Program particularly during the dry season. These are also aimed at improving the cropping intensity and increasing crop yield of the KGAs which are rain fed but have the potential for small scale irrigation development. The SWIP highlights the establishment and maintenance of water impounding systems to harness and store rainfall and other water resources for irrigation and other uses by farmer-beneficiaries. Water resources from mountains, creeks and other natural resources are channeled to Diversion Dams while rainfall and spring waters are impounded and stored in Small Water Impounding Projects. The fund for the implementation of SWIPs was sourced from ASA No. 101-2010157 dated March 24, 2010 amounting to P14,500,000. The purpose of this ASA was for the implementation of GMA-Rice Program for the wet season, MarchSeptember 2010. The amount of P13,800,000.00, however, was reprogrammed for the implementation of five irrigation projects in 2011. Based on the Status Report of Funded Irrigation Projects as of December 31, 2011 prepared by the Regional Agriculture Engineering Group (RAEG), all the five projects were not yet fully implemented. The following are the details of the projects:
Project Cost P2,000,000.00 Target Date of Completion 11/26/11 % of Completion Remarks Ready for implementation, for issuance of Notice of Award (NOA) and Notice to Proceed (NTP). 15%, 1st tranche of P300,000.00 was released to the Province of Iloilo on 5/30/11. Ready for implementation, for issuance of Notice of Award (NOA) and Notice to Proceed (NTP). 15%, 1st tranche of P300,000.00 was

13.1

13.2

13.3

13.4

13.5

Name of the Project Calaboa Este Check Dam, Sta. Barbara, Iloilo

Bayabas IP, Don Salvador Benedicto, Negros Occidental

2,000,000.00

10/3/11

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Barbaza CIS, Barbaza, Antique Mantangingi SWIP, East Valencia, Buenavista, Guimaras Igcabano Check Dam, San Lorenzo, Guimaras Total

4,500,000.00

8/17/11

91.1% as of August 15, 2011

3,000,000.00

10/30/11

2,000,000.00

10/30/11

released to the Provincial Government of Negros Occidental on 4/6/11. 15%, 1st tranche of P675,000.00 was released to the Municipality of Barbaza under check number 2437850 dated 12/30/10. For bidding. 15%, 1st tranche of P450,000.00 was released to the Province of Guimaras on 5/3/11. For bidding. 15%, 1st tranche of P450,000.00 was released to the Province of Guimaras on 5/3/11.

P 13,500,000.00

13.6

The BSWM had also transferred funds to the DA RFU VI in the amount of P2,000,000.00 for the construction of SSIP under check number 491715 dated April 29, 2009. The details of the projects are presented below:
Project Cost P 1,000,000.00 Target Date of % of Remarks Completion Completion 3/4/12 15%, 1st tranche of P150,000.00 was released to the City of La Carlota under check number 238065 dated July 8, 2011. 3/8/11 100% Completed on March 14, 2011.

Name of the Project Construction of Batuan SSIP, La Carlota, Neg. Occ. Construction of Manalad SSIP, Ilog, Neg. Occ. Total

1,000,000.00 P 2,000,000.00

13.7

The MOA between the DA RFU VI and the implementing LGUs required the LGU to complete the project within 180 days as indicated in the Approved Program of Work after the release of the first tranche. The MOA between the BSWM and the DA RFU VI also required the DA RFU VI to advise the LGUs to complete the project within 180 calendar days upon their receipt of the Notice to Proceed (NTP) from the DA RFU VI. Interview with the Engineer In-Charge from the RAEG disclosed that the implementations of the projects were delayed because the implementing LGUs were waiting for the harvest of the standing crops in the area so that it would not be affected by the construction of the irrigation projects. The nonimplementation of the Batuan SSIP in La Carlota, Negros Occidental was caused by the transfer of site; hence, the execution of the Deed of Usufruct took a longer period to accomplish.

13.8

13.9

13.10 The delayed implementation and completion of the irrigation projects hindered the attainment of the program objective, the improvement of farmers farm income and the generation of work opportunities.

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13.11 We recommended that the DA RFU VI management require/compel the implementing LGUs to fast-track the implementation of the projects and formulate catch up plan to ensure completion of the same within deadlines/timelines. 13.12 Management justified that the LGUs concerned failed to implement the rehabilitation of various Small Scale Irrigation Projects within the specified number of days due to the following reasons: a. The date of receipt of 15% mobilization cost of four out of five projects was between the months of April and May 2011 which was quite untimely to start the construction due to the onset of the rainy season and the first cropping season; b. Procurement activities of the concerned LGUs required a specific number of days to be followed; thus, implementing the project upon receipt of 15% mobilization cost was quite impossible; c. Supply and delivery of water to the service area will be disrupted by the construction and growth of standing crops will be greatly affected if rehabilitation will be done during the first and second cropping; d. Unfavorable weather condition caused the inaccessibility of access roads for heavy equipment and delivery of materials to the project sites; and e. Problems on the execution of the Deed of Usufruct also contributed to the delay in project implementation. Unutilized Shallow Tube Wells in BSWM 14. A total of 166 units of Shallow Tube Wells (STWs) costing P12,939,700.00 distributed by the BSWM had not been fully utilized to provide irrigation needed to intensify rice production in areas affected by the El Nio phenomenon because they remained undistributed to farmer-beneficiaries as of December 31, 2011 due to the failure of the RFUs to submit the names of qualified beneficiaries, thus, negating the very purpose of the program and exposing the equipment to natural elements and pilferages resulting in wastage of government funds. Moreover, the distribution of 725 units of STWs costing P56,513,750 was not properly supported with distribution report/list of beneficiaries to prove receipt of the items. As the lead agency in implementing the El Nio Mitigation Program and Small Water Impounding Projects (SWIP) of the DA under the agencys Rice Program, the BSWM implements and monitors the construction, rehabilitation and operation of all SWIPs nationwide. As such, the BSWM accepts, reviews and
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14.1

recommends for funding proposals/endorsements coming from the DA RFUs. The funds for the implementation of SWIPS are approved and released by the DA to the BSWM which in turn releases the funds or equipment directly to the DA RFUs and other agencies/organizations such as the LGUs. 14.2 The SWIPs aim to generate additional rice producing areas and rehabilitate existing irrigation systems for intensive rice production through the provision of irrigation is one of the important interventions to achieve the DAs target of rice self-sufficiency by 2011. The STWs project is a component of the program and involves the procurement and distribution of STWs to intended beneficiaries/proponents in rice producing areas within the proposed shallow groundwater sites with a potential well discharge of about 7.5 liters per second. Individual farmers and/or a group of three to five farmers with at least three hectares of irrigable rice area are eligible for the program. A counterpart contribution in the form of drilling cost of tube wells and accessories and operation and maintenance of the tube wells system representing 20% to 50% of the project shall be provided by the eligible beneficiaries. In CY 2010, the DA issued ASA Nos. 101-2010-414 and 101-2010-500 to BSWM for the procurement of 1,875 units of STWs in the amount of P146,156,250.00 or P77,950.00 per unit particularly in support of the agencys El Nio Mitigation Program and SWIP under the GMA Rice and High Value Commercial Crops Program. The STWs were distributed as shown below: Office
I II III IV-A IV-B V VI VII VIII IX X XI XII XIII CAR ARMM NCR BSWM
101 CY 2010 Quantity Allocation

14.3

14.4

14.5

208 312 185 117 89 123 102 100 60 71 76 72 136 40 93 52 22 17

Total

1,875

14.6

The STWs were procured through negotiated purchase as recommended by the Bids and Awards Committee (BAC) thru BAC Resolution No. 079-10 dated March 25, 2010 because of the immediate need to distribute these equipment to the identified end-users nationwide to address immediately the adverse effects on agriculture of the El Nio phenomenon in 2010. Reports submitted by the different RFUs disclosed that 166 units of STWs costing P12,939,700.00 were still unutilized as of December 31, 2011, while 725 units costing P56,513,750.00 were without distribution report/list despite the span of more than one year from delivery, as summarized on the next page.

14.7

RFU/Office I II IV-A IV-B V VI VII VIII IX X XI XII XIII ARMM NCR BSWM Total Units Total Cost

No. of Units Undelivered/Unutilized No Distribution Report/ STWs List Submitted 29 171 0 322 22 0 0 80 19 0 0 5 9 0 10 0 0 7 29 24 0 22 15 22 16 0 0 50 0 22 17 0 166 725 P12,939,700.00 P56,513,750.00

14.8

Our validation and inquiry disclosed that the need to purchase STWs were not based on the number of actual requisitions/users because some of the units delivered to the DA RFUs were still undistributed, or if delivered to some beneficiaries, were not yet installed and remained unutilized. The brand new equipment were kept idle for quite some time, thus, exposing them to natural elements thereby deteriorating their condition/value and negating the very purpose of providing the much needed assistance to farmers by irrigating agricultural areas much affected by the El Nio phenomenon. It is apparent that management did not properly monitor and analyze the actual needs and the capability/readiness of the intended beneficiaries for the proper

14.9

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maintenance of such equipment, thus 166 units of STWs remained undistributed and unutilized as at year-end. 14.10 Further, we also noted that the 1,875 units of STWs already distributed to the RFUs/beneficiaries were still recorded in the books of accounts of BSWM as Other Machineries and Equipment. Moreover, no Delivery Receipts, Invoice of Property and/or Certificates of Acceptance or MOA supported the distribution of the STWs by the BSWM to the LGUs/end-users/farmers associations. We also noted that the responsibilities of all the involved parties in the implementation of the STW project were not clearly and properly defined in a MOA to establish the accountability and control over the project as well as the distribution and use of the STWs. 14.11 Section 2 of PD 1445 establishes the responsibility of the chief or head of government agency in managing government resources, and states that: It is the declared policy of the State that all resources of the government shall be managed, expended or utilized in accordance with law and regulations, and safeguarded against loss or wastage through illegal or improper disposition, with a view to ensuring efficiency, economy and effectiveness in the operations of government. The responsibility to take care that such policy is faithfully adhered to rests directly with the chief or head of the government agency concerned. 14.12 We recommended that BSWM management (a) conduct a full inventory of all the STWs nationwide to completely account those that were not distributed and those distributed to RFUs, LGUs, farmer cooperatives and private organizations and other beneficiaries; (b) require them to support the distribution and receipt with approved MOA and property acknowledgement receipts and other necessary documents to facilitate dropping of the same from the account Other Machineries and Equipment; (c) institute control measures in order to safeguard assets against losses and improper disposition thereof; (d) submit justifications/reasons for nondistribution/non- utilization of 166 units of STWs; and (e) instruct the immediate distribution to the farmer beneficiaries who need the units. 14.13 Management commented that the procured STWs were distributed to the RFUs based on the distribution list approved by the DA and properly received by the Regional Directors. On the 725 units reported not supported with distribution list, management stated that these were supported with Invoice Receipts signed by the RFU Regional Directors for distribution to beneficiaries. Management also mentioned that the agency is formulating guidelines on STWs not yet distributed or utilized. They will be transferred to those areas where there is a need for it. The Accounting Section and Water Resources Division will conduct an inventory of the STWs (both distributed and undistributed) nationwide to fully account the STWs purchased by the agency and to establish the officials/employees
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accountable thereof, and submit all the supporting documents required by the auditors. 14.14 As of this writing, the distribution list and other supporting documents mentioned above were not received by this Office. Vermi Composting Facilities not fully utilized 15. The Vermi Composting Facilities (VCF) for the implementation of the Organic Fertilizer Production Project (OFPP) with an initial investment of P952.700 million, had not been fully utilized by the beneficiaries to achieve the objectives of the project and to produce sufficient vermicasts due to lack of adequate support from LGUs in terms of budget and personnel and training of shredder operators. Moreover, of the 986 samples of vermicasts taken for examination, only 52 or 5.27% passed the standard for pure organic fertilizer and soil conditioner nutrients. As stated under Administrative Order No 09 Series of 2006, it shall be the declared policy of the State to promote, develop and sustain organic agriculture as a farming technology in agricultural communities, establish effective networking and collaboration with stakeholders in the organic agriculture supply chain, guarantee food and environmental safety by means of an ecological approach to farming and ensure the integrity of organic products through approved certification procedures. The OFPP is one of the banner programs of the DA which includes, as one of its components, the operation of the Vermi Composting Facility. The facility was launched by BSWM in CY 2009-2010 with the general objective of building the capability of farmers through an effective and sustainable approach to food production, sound soil and water resources management, cash generating and savings formation strategy, and production of pure/fortified organic fertilizer and compost/soil conditioner which could help beneficiaries maximize production of organic products. Thru the approved MOA executed between parties, the OFPP was implemented with the participation of LGUs in collaboration with Farmer Cooperatives and Associations, State Universities and Colleges, NGOs/POs with the objective of assisting them to become commercial organic fertilizer producers. As a counterpart contribution to the project, the concerned LGU will provide the operating fund and personnel to ensure the continuous operation of the Vermi Composting Facility while the BSWM provides the equipment, technology and training.

15.1

15.2

15.3

15.4

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15.5

A total allotment of P952.700 million was released by DBM thru SARO-BMB-E 09-5354 and SARO-BMB-E-10-0001123 dated June 30, 2009 and March 17, 2010, respectively, for the purchase and supply of 1,380 and 1,342 units of shredders in 2009 and 2010 respectively, for the Technology Package on Community-based Composting Facility. The Technology Package (TP) for the OFPP was composed of the following:
a) b) c) d) Shredder Tea Brewer Vermi Bed African Knight Crawlers (worms) The package also includes technical consultancy service, repair and maintenance of shredder and its accessories and set-up of Vermi beds on site.

15.6

15.7

The total TP purchased under the OFPP in CYs 2009 and 2010 were distributed to the different regions based on the list of beneficiaries identified by the BSWM thru the DA RFUs. The shredder is used in vermicomposting, a process by which worms are used to convert organic materials (usually wastes) into humus-like material known as vermicompost. The community-based composting facility is not only capable of producing organic compost but also capable of producing foliar fertilizer, bio-pesticides and microbial inoculants through nature farming system that makes use of readily available raw materials such as agricultural/farm wastes, domestic and market wastes, animal manures and all other indigenous biodegradable materials found in the locality. As a result, it offers more job opportunities and enhances the economic activity in the rural farming communities. The Organic Fertilizer Production Report for CYs 2010 and 2011 submitted by management showed that the total production of vermicasts using the 1,380 composting facilities/shredders purchased in 2009 was 1,680,373 kilos while the total production of vermicasts for the 1,342 organic composting facilities/shredders purchased in 2010 was 7,801,345 kilos, as follows:
Production in Production in Production Shredder Shredder Total 2010 2011 1st & 2nd Per Shredder 1st Batch 2nd Batch Shredders 1st Batch Batch (kilos) (in kilos) (kilos)
76 65 93 190 59 75 95 161 85 53 59 65 47 39 55 95 149 89 80 100 158 90 80 60 54 90 115 120 188 339 148 155 195 319 175 133 119 119 137 28,333 123,538 203,690 292,765 14,434 38,522 42,015 54,877 77,350 25,650 115,961 47,800 132,650 102,602 607,552 950,075 316,780 284,959 259,624 324,711 244,295 343,350 524,484 765,950 333,303 853,473 892.19 5,062.93 5,053.59 934.45 1,925.4 1,674.99 1,665.18 765.81 1,962.00 3,943.49 6,436.55 2,800.86 6,229.73

15.8

Region
CAR Region I Region II Region III Region IV-A Region IV-B Region V Region VI Region VII Region VIII Region IX Region X Region XI

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Region
Region XII CARAGA ARMM Total

Shredder Shredder Total nd 1st Batch 2 Batch Shredders


127 86 44 1,380 87 55 61 1,342

Production in Production in Production 2010 2011 1st & 2nd Per Shredder 1st Batch Batch (kilos) (in kilos) (kilos)
399,949 56,913 25,926 1,680,373 1,303,113 399,428 187,646 7,801,345 6,089.31 2,832.82 1,787.10

214 141 105 2,722

15.9

The aforementioned data showed that Regions IX, XI and XII were able to produce more than 6,000 kilos of vermicasts per shredder/composting facility while Regions I, II, IV-A and B, VII,VIII, X, Caraga and ARMM produced less than 6,000 kilos of organic fertilizer and CAR, Regions III and VI produced less than 1,000 kilos.

15.10 The low production of vermicast in twelve regions was attributed to the lack of full support from LGUs in assigning personnel to operate the shredder and perform vermicomposting, and in allocating sufficient budget to sustain the continuous operation of the facility. 15.11 Organic Fertilizer Production involves the following processes:
a) b) c) d) e) f) g) h)

Acquisition/purchase of the Technology Package with shredders by BSWM Training of shredder operators initiated by BSWM Gathering/Mixing of Raw Materials - 75% Carbon Sources and 25% Nitrogen Source Shredding Pre-Composting Stocking Harvesting Packaging

15.12 The activities from letters c to h are performed by the personnel/shredder operators to be provided by the LGU. To be effective, at least a minimum of three persons are assigned to perform the whole process of vermicomposting with the use of the shredder. With no adequate personnel, the production of vermicast would suffer even resulting in low quality organic fertilizer. 15.13 Verification conducted in LGUs located in Bohol and Cebu, where shredders were issued, disclosed that the successful process of vermicomposting to produce high quality organic fertilizers could only be attained if there is full support from the involved LGUs and Farmers Association/Cooperatives particularly on the allocation of sufficient budget and personnel to collect and gather compost materials for the production of Vermicast and Vermi tea. The Vermicomposting Facility in the Municipality of Jagna, Bohol revealed positive production result because the facility was assigned with five persons or more to perform the whole
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process of vermicomposting. The facility in the Municipality of Lila, Bohol, where only one person was assigned who had no proper training on vermicomposting, yielded poor results and consequently death of the worms. 15.14 Because of the abovementioned deficiencies, the quality of produced organic fertilizers did not pass acceptable standards, as shown in the following data:
Validated Result of Vermicast Analyzed Pure Organic Soil Conditioner Failed due to high Failed due to Passed moisture Passed high moisture 0 3 0 12 1 3 13 18 0 2 2 8 0 0 1 3 3 1 6 18 0 0 4 4 1 0 3 13 0 1 4 15 0 0 3 9 0 0 0 3 5 0 2 3 0 0 0 0 0 0 0 0 1 0 2 5 0 0 0 5 0 0 1 2 11 10 41 118

Region CAR Region I Region II Region III Region IV-A Region IV-B Region V Region VI Region VII Region VIII Region IX Region X Region XI Region XII CARAGA ARMM Total

No. of Samples Analyzed 64 137 69 45 61 56 107 95 88 24 59 0 9 19 77 76 986

15.15 Out of the 986 vermicasts analyzed, only 11 samples passed the condition of pure organic fertilizer while 10 failed the standard moisture content using the minimum total 4.5 NPK result. For the Compost/Soil Conditioner analysis, only 41 samples passed and 118 failed due to high moisture content using the minimum total 2.5 NPK result. 15.16 To assure the effectiveness of the Pure/Fortified Organic Fertilizer and Compost/Soil Conditioner, the following standards must be met:
Particular Nutrients Total NPK * C:N ** Moisture Content Organic Matter Pure Organic Fertilizer 7% maximum 12:1 35% 20% Compost/ Soil Conditioner 3-4% 12:1 35% 20% Fortified/Enriched Organic Fertilizer 8% minimum 12:1 35% 20%

*Nitrogen Phosphorus Potassium **Carbon and Nitrogen Ratio

15.17 The foregoing data showed that despite expenditures of P952.700 million spent for the purchase of shredder equipment and P122.000 million released in CY 2011 for various trainings, monitoring of the results, advocacy and promotions,
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the OFPP had not achieved its objective of producing high quality/pure organic fertilizers that would promote organic farming after two years of implementation. 15.18 To avoid wastage of government funds, the agency must address the problems/issues confronting the implementation of the program and ensure that all the involved parties especially the LGUs fully commit to provide its part in the program to ensure the continuous operation of the OFPP. 15.19 The objectives and purpose of the government to promote Organic Agriculture by providing facilities to the farmers are good and favorable; however, if the technology is not provided with adequate budget and properly disseminated thru proper training, and the farmers are not properly informed to improve the formulation and gathering of good quality materials for vermicomposting, the implementation of OFPP would only result in wastage of government funds. 15.20 Moreover, in the LGU of Lila, Bohol, one of the two units of shredders provided/awarded to the Municipality was not used/utilized and was found in the stockroom. 15.21 Ocular inspection in the Municipality of Batuan and the Bilar Island State University in Bohol revealed that the shredders were not kept/housed in a safe/protected place to prolong the life of the equipment. Each shredder costs P320,000.00 and the government already spent P1.075 billion (P952.700 + P122.000 million) to purchase these shredders and promote the program. Because of the huge amount involved in procuring these shredders and implementing the OFPP, it is but prudent for the recipient to take care of the equipment so that the farmer-beneficiaries will continuously benefit from its operation.

15.22 We recommended that management: a) ensure the effective and efficient operation of the OFPP by: (i) properly evaluating the need and capacity of the intended beneficiary/LGU in sustaining the implementation of the project; (ii) extending assistance only to those LGUs and agencies that are committed to provide adequate counterpart fund and personnel to sustain the continuous operation of the program; and (iii) ensuring that the guidelines and the MOA contain provisions to pinpoint responsibility; require the LGUs/beneficiaries to provide proper care and adequate protection to the subsidized equipment in order to prolong its life and prevent its loss due to exposure to the elements; compel/request the LGU/beneficiaries to return the unutilized shredders for non-compliance with the requirements of the OFPP, and distribute the same to those prospective beneficiaries who are willing and committed to achieve the objectives of the program; and
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b)

c)

d)

require the LGU/beneficiaries thru its Municipal Agriculturist to submit production/accomplishment reports on the OFPP for evaluation purposes on the extent of its implementation, and consolidate and conduct a comprehensive evaluation of the same to see the overall impact of the program on the lives of the farmers.

15.23 In response to the recommendations, management held the Vermicompost Congress where they encouraged the LGUs to organize themselves and to share their experiences and success stories on the OFPP. They requested the LGUs to share the technology among the barangay-members to maximize the benefits derived from it. With regard to the unutilized shredders, management explained that they were pulling out the equipment from the LGUs and planned on giving them to capable beneficiaries who are ready to implement the program. On the low production of vermicasts and low quality of organic fertilizer and soil conditioner produced, management said that there were various contributory factors such as the availability of substrate materials. These would be considered in the launching of the OFPP for the second batch of beneficiaries which are the farmer associations and cooperatives. Delayed Implementation of the Goat Production Project for the Accelerated Hunger Mitigation Program under the PL 480 Title I Program 16. A major component of the Goat Production Project under the Accelerated Hunger Mitigation Program of the agency involving procurement of imported 6,000 does and 480 bucks originally scheduled on the 2 nd to the 3rd quarter of CY 2009, was still not implemented as of the end of CY 2011 despite the release of P475 million proceeds from the commodity loan program granted by the Government of the United States of America under the Public Law (PL) 480 Title I Program. The DA pursues livestock industry development to increase agricultural production and profitability to ensure food sufficiency for the Filipino people. The Government of the United States of America (GUSA), under Public Law (PL) 480 Title I Program, has made available a commodity loan program at concessional terms to the Government of the Philippines to promote export of U.S. Agricultural commodities and to foster broad-based and sustainable development of Philippine agriculture and fisheries. The proceeds sourced from PL480 Title I Program shall be utilized to promote rural development and the competitiveness of the countrys agricultural and fishery sector. It shall finance programs and projects that are supportive of the

16.1 16.2

16.3

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DAs thrust and priorities as indicated in the Medium Term Agricultural Development Plan (MTADP). 16.4 DA issued Administrative Order No. 16, series of 2008 authorizing the National Agricultural and Fishery Council (NAFC) to facilitate the utilization of the PL480 Title I Program funds for agriculture and fishery projects. BAI submitted to NAFC a project proposal entitled: Goat Production Project for the Accelerated Hunger Mitigation Program, for funding assistance under the PL480 Title I Program. The project will support the farmers in areas where the Accelerated Hunger Mitigation program is implemented by providing them with genetically improved goats. A MOA dated February 25, 2010 was entered into by and between BAI and NAFC to undertake a three year project which aims to (1) alleviate poverty and promote food nutrition by providing meat that is high in protein and low in cholesterol; (2) capture the global market by exporting goats and goat products; and (3) contribute to the Accelerated Hunger Mitigation Program and food security in the Philippines. The amount of P475 million sourced from the proceeds of the PL480 Title Program was appropriated by NAFC to support the three year project. The obligations of NAFC are the following: a. Appropriate and release the amount of P475 million out of the peso proceeds of the PL480 Title I Program; b. Validate from time to time the implementation and progress of the various activities of the project following the approved Work Plan (WP); c. Encourage the participation of the local agricultural and fishery councils in project activities, particularly validation/monitoring as well as Information and Education Campaign(IEC)/advocacy activities; and d. Ensure timely release of funds to BAI based on the approved budgetary requirements of the project and availability of funds. 16.10 On the other hand, the obligations of BAI are the following: a. Issue official receipt in favor of NAFC upon receipt of every fund release;

16.5

16.6

16.7

16.8 16.9

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b. Deposit the fund in a separate trust account with an authorized bank from where disbursements and releases of funds shall be made in accordance with existing government accounting and auditing procedures; c. Spearhead the implementation of the project in collaboration with the other concerned agencies and the private sector; d. Submit accomplishment reports and financial status to NAFC on a semestral basis or any other relevant report that may be requested by NAFC as the need arises as well as the terminal report of the project; e. Make available all project papers, including financial documents, and related documents to authorized NAFC representative(s) for monitoring and evaluation purposes; f. Submit expenditures and liquidation report of the fund transfer attested to by its Resident Auditor as a condition for the release of another requirement; and g. Return to NAFC any unexpended balance of the grant at the end of the project life. 16.11 The MOA shall take effect upon signing of the parties and shall continue in force and effect for a period of three years unless sooner terminated, extended or amended by mutual consent of both parties. 16.12 As per approved Work Plan of NAFC, there were six identified Nucleus Farms to be established/maintained where the procured animals shall be delivered and maintained, as enumerated below: a. b. c. d. e. f. Nueva Ecija Stock Farm, General Tinio, Nueva Ecija Luna Breeding Station, Apayao Romblon State College San Miguel Breeding Station, Leyte ASEAN Goat and Sheep Center, Zamboanga del Sur National Center for Forage and Pasture , Zamboanga del Sur

16.13 The major component of the project pertains to the Selection and Importation of Breeder Stocks for CY 2009 which involves the procurement of 6,000 does and 480 bucks on the 2nd to 3rd quarter of CY 2009. 16.14 The selection/procurement of the 6,000 does and 480 bucks, whereby succeeding activities should have anchored, had not been done as of December 31, 2011.
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16.15 BAI already received the amount of P349,354,200.00 per OR No. 897211 dated March 9, 2010 for the implementation of the program. 16.16 The Physical Target prepared by the BAI Project Manager and approved by the BAI Director showed that although the selection and importation of the breeder stocks was scheduled in CY 2009, no annual physical and financial targets for the three-year duration of the project were prepared. 16.17 For purposes of monitoring the implementation of the project, the audit team issued Audit Observation Memorandum (AOM) No, 2011-19-102(10) dated July 25, 2011, requesting management to submit the (1) semestral report on the project; (2) justification on why there were additional activities to be undertaken in pursuance of the project which were not in the approved Work Plan; and (3) reason/s for the delay of undertaking several activities as per approved work plan. 16.18 Management, however, had not yet submitted the aforestated documents except for the Statement of Disbursements and Status of Fund Transfer (SDSFF) from June 2010 to December 31, 2011. 16.19 Likewise, management transferred funds totaling P8,400,000.00, allegedly for the pasture and development of forages and other activities, to several NGAs not identified in the approved work plan, as follows:
NGAS DA-RFU V DA-RFU V1 Central Luzon State University DA Reg. IV B Total Date 8/18/11 8/18/12 9//11/11 12/19/11 Amount P1,200,000.00 Purpose

Pasture development of Sorsogon Stock Farm Pasture development of 2,400,000.00 Concepcion Livestock Project 2,400,000.00 Pasture development of CLSU Pasture development of 2,400,000.00 Livestock Resources Center P8,400,000.00

16.20 Review of the MOA covering the fund transfers disclosed that the implementation of the project will be for a period of six months; confirmation, however, of the account Due from NGAs as of December 31, 2011 disclosed that all the funds were still intact/ unutilized. 16.21 The delay in the implementation of the procurement activities for the project delayed the delivery of the programmed benefits to the intended beneficiaries. 16.22 We recommended that management (a) revisit the approved WP and prepare a separate schedule/timeline covering the revised three-year implementation period; (b) ensure that expenses for all activities to be implemented for the program are provided in the approved WFP, and
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refrain from granting fund transfer for activities not covered by the approved WP; (c) establish close coordination with the RFUs/LGUs and strengthen linkages between the farmers to ensure success of the project; and (d) monitor closely the implementation of the project to ensure delivery of activities within the approved timelines. 16.23 Management commented that the delay in the implementation of the project was due to some policy changes. Delayed Implementation of the Accelerating the Genetic Resources Improvement Program for Beef Cattle and Small Ruminants Project 17. The procurement of imported 1,200 heads of Brahman Heifers and 25 heads of Beef Sires for the Accelerating the Genetic Resources Improvement Program for Beef Cattle and Small Ruminants, was still not implemented as of the end of CY 2011 despite the release of P203.667 million resulting in delayed benefits for the farmers and the countrys livestock industry and economy. The project was originally scheduled in the 2nd and 3rd quarters of CY 2009. The BAI in support of the DAs thrusts is implementing a project entitled Accelerating the Genetic Resources Improvement Program for Beef Cattle and Small Ruminants under the PL 480 Title I Program. It is a four-year project which aims to (a) upgrade and strengthen the government and private farms through the infusion of genetically superior stock, equipment and facilities; (b) strengthen the National Artificial Breeding Program through the production of good quality semen and provision of equipment; and (c) improve the economic condition of small-hold farmers through creation of job opportunities. The coordination of the project was transferred from the DA-OSEC to the NAFC by virtue of Administrative Order No. 16, dated May 20, 2008. The amount of P203,667,018.00 sourced from the proceeds of the PL480 Title I Program was appropriated by NAFC wherein the first fund transfer amounting to P186 million was transferred to BAI per Check No. 187234, dated December 29, 2009 to support the scheduled activities based on the approved Work and Financial Plan (WFP) submitted to the Department of Budget and Management. A MOA dated December 29, 2009 was entered into by and between NAFC and BAI to implement this program. Review of the Work Plan for Fiscal Year 2009, prepared and recommended by NAFC, disclosed that animal importation from the United States of 1,200 heads
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17.1

17.2

17.3 17.4

17.5 17.6

Brahman Heifers and 25 heads Beef Sires were to be procured in the 2nd and 3rd quarter of 2009. 17.7 While some activities of the project had been undertaken, such as purchase of machineries and equipment; conduct of consultative meetings and year-end assessment, the selection and importation of the Brahman Heifers and Beef Sires, which is a major component of the project, had not been done. The delay in the procurement was attributed to the non-availability of stocks in the US farms in addition to the health protocol requirement imposed by BAI to ensure that the animals procured have no foot and mouth disease. Other causes of delay may be attributed also to the failed biddings on such procurement and protests filed by some bidders which had to be deliberated and resolved by the BAC of DA, where the public bidding was conducted. As of December 31, 2011, out of the P186 million and P12.937 million funds transferred by NAFC to BAI on December 29, 2009 and March 24, 2010, respectively, P20,099,614.77 or 10% of the total amount transferred were disbursed leaving a balance of P178,837,385.23 for the payment of the imported animals.

17.8

17.9

17.10 It was observed that management had not prepared/submitted a separate WP specifying the revised timelines to be followed for the implementation of the project as a result of delayed procurement. 17.11 The delay in the procurement of imported animals resulted in delayed attainment of the objectives of the project and the benefits to the intended beneficiaries, the livestock industry and the countrys economy. 17.12 We recommended that management (a) revisit the approved WP and prepare a separate timeline covering the four-year implementation schedule; (b) monitor closely the implementation of the project to ensure that they are operating within the approved procurement timelines; and (c) fast track the procurement of high-breed cattle and ruminants in accordance with the revised implementation schedule to fully achieve the objectives of the project that will benefit the farmers, livestock industry and the countrys economy.

B.

FINANCIAL AND COMPLIANCE AUDIT

Incorrect Cash Balances P8.735 B 18. The reported cash balance of DA totaling P8.735 billion was incorrect due to accounting errors resulting from unrecorded collections, deposits, interest income, and other reconciling items in the books of OSEC, BPI, BSWM, RFUs V to VIII which understated the Cash-in-Bank account balances by
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P18.081 million. Moreover, deficiencies were noted in the audit of the cash accounts such as unidentified reconciling items in BPI and BSWM of P1.044 million; non-preparation/submission of Bank Reconciliation Statements (BRSs) and other deficiencies in BAR, BSWM, RFUs II, IV-B, V, VI, VII, VIII and XII for various bank accounts totaling P432.698 million. a) 18.1 net understatement in Cash in Bank accounts P18.081 million

Audit of the cash accounts as of December 31, 2011 of the OSEC, BPI, BSWM, and RFUs V to VIII in various government depository banks disclosed several accounting errors resulting in the understatement of Cash-in-Bank balances by a net amount of P18,081,032.48, as shown below:
Office DA-OSEC Account Name CIB- LCCA Bank Account No. 3212-1099-40 Over/(Under) P (1,862,187.10) (2,529.00) (2,645,657.67) (6,345,094.13) (2,620.89) (50,577.04) (69,198.43) (26,958.88) (16.37) (226.84) 4,200.00 350.00 (9,138,329.25) (97,891.42) (15,444.08) (113,335.50) (10,000.00) (434,659.38) (40,000.00) (149,850.00) (37,754.23) 5,250.00 (667,013.61) (74,933.61) (5,000,000.00) Remarks/Deficiencies Unrecorded LBP Current Account No. 3212-1099-40 for DAGeneral Payroll Fund Unrecorded collections/deposits

BPI

CIB- LCCA

LBP 1772-1029-05 LBP 1772-1016-40 LBP 1772-1017-55 LBP 1772-1029-05 LBP 1772-1016-40 LBP 1772-1017-55 PNB 584-525393-7 UCPB 108-141989-4 LBP 1772-1035-10 LBP 1772-1016-40 LBP 1772-1035-10

Unrecorded interest income, net of withholding taxes

Unrecorded debit memos/bank charges Unrecorded interest income Stale checks in prior years still reflected in the BRS as outstanding checks Unrecorded deposits

Sub-total BSWM

Not specified Sub-total CIB- LCCA

Various accounts

RFU V

PNB CA # 377-84008-0 PNB CA # 445-840039 PNB CA # 445-8400-10 LBP CA # 2702-1005-70 LBP CA # 2702-1016-81 DBP CA # 630-006137-080 Various LBP 3172-10-20-84

Unrecorded debit memo for the cost of check booklet Unbooked and unremitted interest income, net of withholding taxes Transfer from DBP to LBP Bidders Bond account erroneously debited to Performance/Bidders/Bail Bonds Payable instead of Cash-in-BankLCCA account Unrecorded interest income Stale checks still reflected in the BRS as outstanding checks

Sub-total RFU VI RFU VII

CIB- LCCA CIB- LCCA

Sub-total RFU VIII

CIB- LCCA

PVB Acct No. 02501-001051-20

(2,483.16) (5,002,483.16) (13,753.82)

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Office

Account Name

Bank Account No. PVB Acct No. 02501001048-3 PVB Acct No. 02501000214-7 PVB Acct No. 02501000167-8 PVB Acct No. 02501000167-8

Over/(Under) (339,824.00) (22,605.69) (108,000.00) (738,566.74)

Remarks/Deficiencies

Unrecorded refund from excess or unused fund transfers to LGUs and NGAs and reflected as reconciling items in the BRS

Sub-total Grand Total

(1,222,750.25) P(18,081,032.48)

18.2

We recommended that the DA management instruct the Accountants of the OSEC, BPI, BSWM and RFUs concerned to adjust the erroneous recording and non-recording of cash transactions to correct the balances of the affected accounts. During the exit conference, the management accepted and duly noted the recommendation. They replied that adjustments were already taken up in the books of accounts in CY 2012. b) unidentified reconciling items - P1.044 million

18.3

18.4

Section 181 (c), GAAM, Vol. I, requires that the accountable officer shall reconcile the book balance with the cash on hand daily. He shall foot and close the book at the end of each month. The Accountable Officer and the Accountant shall reconcile their books of accounts at least quarterly. Review of the BRSs revealed that there were Unidentified Reconciling Items of P1,043,756.02 in the BPI and BSWM, as follows:
Reconciling Items Account Per Books Per Bank Identified * Unidentified Number BPI PNB 584-525393-7 P 25,423,212.73 P 25,461,223.54 P 79,657.01 P 41,646.20 LBP 1772-1016-40 48,470,646.54 51,317,911.90 3,799,504.70 952,239.34 Sub-total 73,893,859.27 76,779,135.44 3,879,161.71 993,885.54 BSWM Various Accounts 79,028,242.58 85,537,266.34 6,459,153.28 49,870.48 Total unidentified reconciling items P 1,043,756.02 * - Identified reconciling items include outstanding checks, unrecorded interest income, bank charges, etc. Office

18.5

18.6

We recommended that management instruct the Accountants of the concerned offices to identify and analyze all the reconciling items on all cash accounts and immediately record the adjustments to correct the balances of the affected accounts. c) non-preparation/submission of BRSs and other deficiencies

18.7

Section 74 of PD 1445, otherwise known as the State Audit Code of the Philippines provides that, At the close of each month, depositories shall report to
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the agency head, in such form as he may direct, the condition of the agency account standing on their books. The head of the agency shall see to it that reconciliation is made between the balance shown in the reports and the balance found in the books of the agency. 18.8 Section 12 of the New Government Accounting System (NGAS) Manual, Volume II provides that the SL is a book of final entry containing the details or breakdown of the balance of the controlling account appearing in the GL. Posting to the SL generally come from the source documents. xxx. The totals of the SL balances shall be reconciled with their respective control account regularly or at the end of each month. Likewise, pertinent provisions of COA Circular 92-125A dated March 4, 1992 require the submission of BRSs within 15 days after the end of each month to the COA Resident Auditor.

18.9

18.10 Verification of cash accounts disclosed that BRSs were not prepared and submitted for some bank accounts in BAR, RFUs II, V, VI, VII, and XII while other deficiencies were also noted in BAR, RFUs II, IV-B, V, VI, VIII and XII, as shown below:
Office BAR RFU II RFU IV-B RFU V RFU VI Account Affected CIB- LCCA CIB- LCCA CIB- LCCA CIB- LCCA CIB- LCCA Per Book P 29,981,533.40 123,270,595.84 73,819,938.93 430,746.98 132,694,005.97 Deficiencies No subsidiary ledgers (SLs) or schedules containing the breakdown or composition of the account balance and no BRS prepared Unreconciled general ledger (GL) and subsidiary ledger (SL) balances of P17,645,008.98 and no BRS prepared No SLs maintained for each depository bank account to support the GL balance No available ledgers, SL, bank statements or any other documents that could support the balance of unidentified bank account No SL maintained for each bank account; unreconciled per books and per bank balances amounting to P1,092,814.55 and late submission of BRS No BRS for 20 bank accounts for the months of October to December 2011 and six bank accounts for CY 2011 were submitted and a variance of P2,811,610.33 between the GL and SL balances Late submission of BRS for four MDS bank accounts and unreconciled GL and SL balances of P22,658,345.05 No BRS submitted and no SL maintained

RFU VII

CIB- LCCA

24,275,323.00

MDS RFU XII CIB- LCCA Total cash account balances without BRS and with various other deficiencies

22,654,322.73 25,571,701.43 P 432,698,168.28

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18.11 RFU V management reiterated their request for the write-off of the unidentified bank account which was submitted to COA on August 22, 2011 but the Office of the COA Regional Director returned the said request before the end of last year requesting them to exert more effort in the verification of the account. 18.12 In RFU VII, the failure to update the postings in the SLs resulted in unreconciled balances of P22,658,345.05 between the GL and SL balances which affected the reliability and propriety of the MDS account balance. 18.13 Audit also disclosed various errors in posting entries/amounts in the SLs supporting the GL balance of the CIB-LCCA account of BSWM, although amounts recorded in the GL were correct, as shown on the next page.
Amount per SL Fund/Account Regular Trust Month August Source Cash Receipts Journal (CRJ) CRJ Cash Disbursements Journal P 1,007,058.39 Correct Amount per GL P 1,002,689.64 Discrepancy Overstated (Understated) P 4,368.75

SSIP

October August

33,581.00 1,147,985.70

39,581.00 391,471.30

(6,000.00) 756,514.40

18.14 Likewise, the Regular Trust accounts were not supported with a schedule of the composition or detailed breakdown to facilitate proper accounting and reconciliation of the liabilities accounts. 18.15 Moreover, in view of the initial report alleging a huge amount of cash shortage in the DA-RFU XIII, Butuan City, a special audit team was created by the Regional Director, COA, Regional Office No. XIII to conduct a special audit at the Cashiering Section, from the date of last cash examination to the date that Ms. Mariza B. Salise, Administrative Aide and Disbursing Officer, absconded on June 23, 2011. The audit on the cash and accounts from CY 2000-2009 is currently on-going to continue the determination of the exact and final amount of the deficiency which constitute a shortage of the accountable officer. The initial reported cash shortage of P53,371,979.81 as of December 31, 2011 was the difference between the adjusted cash balances per book totaling P59,167,295.94 against the adjusted cash balances per bank totaling P5,795,316.13. The final cash shortage shall be determined after the completion of the special audit. 18.16 Reconciliation of the balances of Cash-in-Bank accounts with book balances provides a periodic determination of the validity of the cash balances reflected in the financial statements. The BRS is a tool for determining whether the cash inflows and outflows are properly recorded and accounted for. It provides
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information to management on its liquidity status which is vital in decisionmaking process on financial matters. 18.17 We recommended that management enforce the preparation/submission of the monthly BRSs for all bank accounts to identify immediately deficiencies that need adjustments for accurate reporting of cash in bank balances at any given time; and prepare/update SLs of all cash accounts which should be reconciled with the GL balance regularly or at the end of each month.

Unremitted Cash Balances to the National Treasury - P201.643 M 19. Unutilized/excess cash balances and income totaling P201.643 million as of December 31, 2011 were not remitted to the Bureau of Treasury (BTr) by the DA-OSEC, RFUs VI, VIII, X, XI, BSWM and ATI contrary to Section 2 of EO 338, Section 44, Chapter 5, Book VI of EO No. 292, and Section 3.4 of DBM Circular Letter No. 2011-8. Section 2 of EO No. 338 requires all government offices and agencies to transfer public moneys deposited with the Authorized Government Depository Banks (AGDB) to the Bureau of Treasury (BTr) to rationalize cash management in the government while COA Circular No. 97-001 dated February 5, 1997 provides that when funds are non-moving for five consecutive years, the Chief Accountant or other officials concerned shall initiate/cause the verification of the nature or purpose of the fund, and if the purpose of the fund is found fully completed and no financial transactions are expected, remittance of all cash balances to the BTr is required. Section 44, Chapter 5, Book VI of EO No. 292 and Section 65 of PD 1445 mandate that all income accruing to the department, offices and agencies shall be deposited in the National Treasury. Section 3.4 of DBM Circular Letter No. 2011-8 dated September 28, 2011 provides that In no case shall NCAs issued pursuant to the provisions of this Circular Letter be transferred by the Operating Units (OUs) to a current account. Verification of cash accounts in DA- OSEC, RFUs VI, VIII, X, XI, BSWM and ATI disclosed that dormant bank accounts, collection from sale of bid documents, refund of travels, unutilized/excess fund transfers, withheld amount in general payroll fund, remaining balance of closed or terminated projects, and other collections totaling P201,643,434.77 were not remitted to the BTr as of December 31, 2011. Details are shown below:
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19.1

19.2

19.3

19.4

Office OSEC

Account Affected CIB LCCA

Per Book P 11,942,019.32 1,862,187.10 591,146.02

Particulars Recorded cash-in bank balances of two closed or terminated foreign-assisted projects in CY 2011 Unremitted taxes withheld for DA-General Payroll Fund Excess bank balance over the book balance of PNB Account No. 210-840167-5, remitted to the BTr on March 1, 2012 under Check No. 26977 Unremitted interest income Income from dormitory facilities Unaccounted collections deposited under the regular trust fund account Interest earned from various bank accounts Refund of fund transfers from LGUs and NGAs Excess NCA requirements transferred to LBP Current Account No. 2412-1032 in CY 2009 to avoid lapsing No authority or legal basis to maintain CIBLCCA

BSWM ATI RFU VI RFU VIII RFU X RFU XI Total

CIB LCCA CIB LCCA CIB LCCA CIB LCCA CIB LCCA CIB LCCA

97,891.42 1,310,875.00 2,092,690.00 74,933.61 738,566.74 28,171,243.70 154,761,881.86 P201,643,434.77

19.5

For the year 2011, the ATI earned a total of P1,310,875.00 from dormitory facilities and spent a total of P953,707.95 leaving a net income of P357,167.05. Disbursements included those for maintenance and other operating expenses needed in the daily operation of the dormitory facilities. The cash balance of P1,309,586.21 from dormitory fees at the end of the year representing accumulated balances thru the years should be remitted to the BTr for reversion to the general fund in accordance with Section 65 of PD 1445 and Section 44, Chapter 5, Book VI of EO 292. Management of ATI, however, has the option to request from the DBM the usage thereof for projects/repairs/construction of the dormitory facilities pursuant to Section 5 of the General Provisions of the General Appropriations Act of 2011 or RA 10147. In RFU VIII, refund from LGUs and NGAs represents unused NCA; hence, should be deposited directly to the BTr pursuant to the pertinent provisions of Budget Circular Letter No.2011-8. In RFU X, the excess NCA of P28,171,243.70 in CY 2009 which was deposited in LBP-Current Account remained idle since June 2011 causing concern due to the materiality of the amount. Considering that the validity of the CY 2009 SAROs covering these various NCAs had already lapsed by CY 2011, the use of these funds is no longer justifiable. RFU XI continued to maintain CIB-LCCA without authority or legal basis. This cash account was originally an accumulation of non-income collections and other unidentified cash sources being carried in the books upon conversion to the New Government Accounting System. Over the years, this account had been used when NCAs were late and withdrawals were then replenished upon receipt of
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19.6

19.7

19.8

19.9

NCAs. Maintaining this account had created more available cash than actual needs; thus, exposing the funds to irregular use. 19.10 We recommended that management remit to the BTr the remaining balances of bank accounts and other cash balances totaling P201,643,434.77 as required by existing rules and regulations. 19.11 We also recommended that management of ATI to secure authority from the DBM to use collections from dormitory fees and other facilities as revolving fund to finance the operation thereof. 19.12 The management of OSEC, ATI, BSWM, RFUs VIII, X, and XI replied that they had already remitted to the Bureau of Treasury the balances of the bank accounts totaling P157,948,554.71 in CY 2012. 19.13 The management of ATI commented that under Republic Act 6831, ATI was given authority for the creation and operation of a Revolving Fund in relation to the income derived from the use of dormitory and other facilities of which a subsequent COA Circular No. 91-349 was issued to set up the accounting system and procedural guidelines. Based on the general provisions of the FY 2011 GAA, revolving funds already in existence shall continue their operations. Therefore, this was the basis of ATI for the maintenance of the revolving fund for dormitory operations. The cash balance as of December 31, 2011 for income derived from the use of dormitory can no longer be remitted in full due to payments made in CY 2012, pertaining to CY 2011 expenses. A proposed provision was already submitted to the DBM dated July 18, 2012, as part of the CY 2013 ATI Budget Proposal for the continued use of income derived from dormitory operations and other facilities. 19.14 The ATI audit team maintained its observation and recommendation that the cash balance from the operations of the dormitory facilities be remitted to the BTr. Management, however, has the option to request the usage thereof from the DBM for projects/repairs/construction of the dormitory facilities. Unreliable Receivables from Officers and Employees - P 386.249 M 20. The balances of the accounts Advances to Officers and Employees and Due from Officers and Employees totaling P264.677 million and P121.572 million, respectively, were unreliable due to the (a) recorded liquidation without supporting documents totaling P4.976 million; (b) unsubstantiated/ unsupported receivable balances of P22.314 million; (c) unrecorded liquidation of P17.961 million; (d) unreconciled difference between the GL and the SL balances of P711,362.50; (e) net overstatement due to various accounting errors of P1.027 million; (f) Advances to Officers and Employees

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account with negative balances of P3.902 million; and (g) misclassification of cash advances amounting to P17.271 million. 20.1 Section 5.1 of COA Circular No. 97-002 prescribes the period within which to liquidate cash advances granted to accountable officers. Cash advance for salaries and wages shall be liquidated within five days after each fifteen day/end of the month pay period and cash advance for official travel shall be liquidated within sixty days after return to the Philippines in the case of foreign travel or within thirty days after return to the permanent official station in the case of local travel. Moreover, Section 5.8 requires that all cash advances shall be fully liquidated at the end of the year. Section 89 of PD 1445 and Section 4 of COA Circular No. 97-002 dated February 10, 1997, states that: No additional cash advance shall be granted to any official or employee unless the previous cash advance given to him is first settled or proper accounting thereof is made. Audit of receivable accounts disclosed unliquidated balances of Advances to Officers and Employees of P264,677,330.95 and the Due from Officers and Employees of P121,571,987.51, or a total balance of P386,249,318.46 as of December 31, 2011. Audit of the above accounts revealed the following: a) 20.5 recorded liquidation without supporting documents P4.976 million

20.2

20.3

20.4

Section 47 of the GAAM, Volume III provides that documentation of transactions and other significant events should be timely, complete and accurate and should facilitate tracing of a transaction or event from its occurrence in processing until completion or recording in summary books. Further, Section 5.10 of COA Circular No. 97-002 requires reports and documents to support the liquidation of regular and special cash advances. The BAR and ATI reported a total of P4,976,205.46 cash advances to officers and employees as liquidated in the books of account even if no documents were submitted to support liquidation. Details are shown below:
Date Granted 06.10.11 Purpose Launching of the Techcom project on Technology Utilization and Commercialization for a Sustainable AgriPinoy Program in Quezon Province on May 8-July 6, 2011 Amount P462,200.00

20.6 20.7

122

08.05.11 08.10.11 08.10.11 11.24.11 11.24.11

Conduct of 7th Agriculture & Fisheries Technology Forum and Product Exhibition Fair on August 11-14, 2011 at SM Mega Trade Hall 2 -doConduct of BAR Institution Building on August 18-19, 2011 at Antipolo Rizal Conduct of DA-BAR Year End Activity

632,500.00 266,200.00 613,500.00 616,000.00 316,800.00 105,600.00 724,000.00 821,773.46 263,200.00 154,432.00 P 4,976,205.46

Techcoms conduct of Review and Evaluation of NAFC-2KR Funded Proj., 11.22.11 Technology Management for Competitive Agriculture and Fisheries Sector in Clark on December 5-8/, 2011 12.12.11 Conduct of DA-BAR Year-End Activity Credited from the account of AOE without Liquidation Reports and supporting documents submitted by the accountable officers TOTAL

20.8 We recommended that management stop the practice of recording the liquidation of cash advances without supporting documents and restore the accounts affected on the recorded liquidation of cash advances despite lack of supporting documents totaling P4.976 million. b) 20.9 unsubstantiated/unsupported receivable balances - P22.314 million

Section 12 of the NGAS Manual, Volume II provides that the SL is a book of final entry containing the details or breakdown of the balance of the controlling account appearing in the GL. Posting to the SL generally come from the source documents.

20.10 Further, Section 111 (1) of P.D. 1445 states that the accounts of an agency shall be kept in such detail as necessary to meet the needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government. 20.11 The amount of P22,313,846.23 representing prior years balance of the cash advances to officers and employees in RFU IV-A and BAI were not supported with SLs.
Office Due from Officers and Employees BAI Advances to Officers and Employees RFU IV-A BAI Total Amount P 111,641.62 22,188,919.01 13,285.60 P22,313,846.23 123 Remarks Not supported with a list of accountable officers and employees Prior years balance not supported with SL Carry-over balances from DAOSEC with no identified debtor

20.12 We recommended that management assign a staff in the Regional Accounting Unit and BAI to specifically perform the maintenance of subsidiary ledgers for the account Advances to Officers and Employees and ensure that the SLs are regularly updated and the posting of entries are correct to present a reliable balance of the account in the financial statements. c) unrecorded liquidations - P17.961 million

20.13 Verification of the submitted schedule of details of the account Advances to Officers and Employees at RFU IV-A revealed that a number of the liquidation reports totaling P17,960,511.57 were already submitted to the Accounting Unit in CY 2011 but the same were not yet credited to the subsidiary ledger balance resulting in the overstatement of the account by the same amount. 20.14 We recommended that management instruct the Accountant of RFU IV-A to immediately record in the books of accounts the liquidations made in the amount of P17.961 million. d) unreconciled difference between the GL and SL balances P711,362.50

20.15 Section 12 of the NGAS Manual, Volume II provides that The totals of 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. 20.16 The account Advances to Officers and Employees of RFU IV-B had a GL balance under Fund 101 of P2,906,809.60 as of December 31, 2011. The submitted aging schedule/SL balances of the same account amounted to P3,618,172.10 as of yearend, showing a discrepancy of P711,362.50. 20.17 We recommended that management instruct the Accountant of RFU IV-B to reconcile the subsidiary and general ledger balance of the Advances to Officers and Employees account. e) overstatement due to various accounting errors- P1.027 million

20.18 Accounting errors in recording cash advances resulted in a net overstatement of P1,026,526.71, thereby affecting the accuracy of the account. The details are shown below:
Office DA-OSEC Over(Under) statement P 3,399,000.00 Causes of over/(under)statement CY 2011 incentive recorded as Advances to Officers and 124

Office

Over(Under) statement (2,986,000.00) (410,803.43) 140,490.00

Causes of over/(under)statement Employees (AOE) instead of Payroll Fund (PF) Liquidation erroneously recorded as AOE instead of PF Refund for various allowances which was originally taken up as expense was credited to account AOE Payment of plane fare treated as cash advance instead of direct charge to the NAFC-EHRDP TF Due to Other NGAs account Recorded as Due to Other NGAs instead of AOE -doHonorarium recorded as PF instead of AOE -doReimbursement of travelling expenses recorded as AOE instead of Traveling Expenses-Local

ATI-CO

RFU VIII Net Overstatement

(2,180.00) (8,118.00) (40,634.32) (3,056.14) 937,828.60 P 1,026,526.71

20.19 We recommended that management require the Accountants to review and analyze the erroneous recording of transactions and effect the necessary adjustments. f) Advances to Officers and Employees account with negative balance P3.902 million

20.20 Audit disclosed a negative balance in Advances to Officers and Employees account totaling P3,901,896.21 thereby casting doubt on the reliability and correctness of the account balance, to wit:
Office RFU IV-B RFU VII BAI TOTAL Amount 135,053.00 3,649,303.25 547.00 116,992.96 P3,901,896.21 Remarks Erroneous credit to AOE Overliquidation of working fund and TEVs Erroneous adjustments made in the AOE account resulting in negative balances

20.21 We recommended that management require the concerned Accountants to review and analyze the negative balances of the account and effect the necessary adjustments in the books of accounts. g) misclassification in recording cash advances P17.271 million

20.22 Audit also disclosed that there were misclassifications in the recording of individual receivable accounts, which although did not affect the total receivables still need to be adjusted to present fairly the balance of the affected receivable accounts in the financial statements, as shown below:

125

Agency DA - OSEC BAI

Amount P5,425,686.39 11,701,426.03

BAR

7,509.02

136,569.03 TOTAL P17,271,190.47

Nature Cash advances of separated/retired and four deceased accountable officers were still recorded as AOE instead of Other Receivables. Receivables from officers and employees who are no longer connected with BAR were not reclassified to the Other Receivables account. Erroneous recording of AOE as Due from Officers and Employees.

20.23 We recommended that management (a) reclassify to the Other Receivables account the unliquidated cash advances of retired/separated from service/deceased personnel and provide adequate disclosure in the Notes to Financial Statements; (b) refrain from issuing clearance to retirable BAI employees before they have first settled their accountabilities with the agency, otherwise, hold responsible those officials who granted clearance to these accountable officers and employees prior to full settlement of their accountabilities; and (c) adjust the erroneous recording of AOE as Due from Officers and Employees. Doubtful Loans Receivables-GOCCs/LGUs/Others P 8.067 B 21. The reported total balance of Loans Receivable accounts of P8.067 billion is doubtful due to (a) unsupported loans receivable of P979.570 million; (b) discrepancies between the books and the results of confirmation of P7.614 million; (c) net understatement due to accounting errors of P344,404.25; and (d) misclassification in recording loans receivable accounts amounting to P4.592 million. The Loans Receivable accounts presented in the DA consolidated financial statements showed a total balance of P8,066,753,497.65 as of December 31, 2011, broken down as follows:
Office DA-OSEC RFU I CAR RFU II RFU III RFU IV RFU V RFU VI GOCCs (124) P1,659,290,011.21 Loans Receivable LGUs (125) P 49,345,820.00 8,031,506.70 154,707,172.84 3,216,450.00 47,686,836.82 Others (126) P 4,017,647,942.87 221,910,595.07 93,787,894.98 284,167,826.29 322,806,775.94 158,741,062.92 192,356,960.02 11,323,322.66 TOTAL P 5,726,283,774.08 229,942,101.77 93,787,894.98 438,874,999.13 326,023,225.94 206,427,899.74 192,356,960.02 11,323,322.66

21.1

126

Office RFU VII RFU VIII RFU IX RFU X RFU XI RFU XIII ATI BAI NIA TOTAL

GOCCs (124)

Loans Receivable LGUs (125)

18,121,126.00

P 1,659,290,011.21

P 281,108,912.36

Others (126) 66,200,650.47 14,103,197.00 121,498,915.45 269,665,555.61 233,275,169.20 94,984,553.67 21,981,929.25 322,000.00 1,580,222.68 P 6,126,354,574.08

TOTAL 66,200,650.47 14,103,197.00 139,620,041.45 269,665,555.61 233,275,169.20 94,984,553.67 21,981,929.25 322,000.00 1,580,222.68 P 8,066,753,497.65

21.2

In DA-OSEC, P5,018,589,143.03 pertains to loans granted to the proponents of the ACEF. Through this project, the DA granted loans to proponents at zero interest and without collateral. In RFU I, loans receivable pertains to post harvest equipment, facilities and shallow tube wells loaned to cooperatives/individual farmers which are payable within ten consecutive cropping seasons and counter-parting with LGUs. It also include breeder stocks loaned to farmer recipients and soft loan-lump sum provided to farm owners affected by the Ebola Reston Virus. In RFU II, the Loans ReceivableOthers account pertains to the dispersal of animals in prior years which remained unpaid. The Loans Receivable-LGUs were tractors and other farm implements loaned to different LGUs covered by a MOA. These have been in the books for more than five years and are already dormant. The Loans Receivable-Others account in RFU VII pertains to various equipment and shallow tube wells purchased by DA for the period from 1995 to 2001 which were distributed to various farmer organizations and payable without interest within five years. The Loans Receivable-Others account in RFU XIII pertains to shallow tube wells, farm equipment and post harvest facilities which farmers will pay in the form of palay/cash equivalent in ten cropping seasons. These are aged 9 to 16 years. Audit of the above accounts revealed various accounting errors and deficiencies: a) unsupported loans receivable P979.570 million

21.3

21.4

21.5

21.6

21.7

21.8

Section 12 of the NGAS Manual, Volume II provides that the SL is a book of final entry containing the details or breakdown of the balance of the controlling account appearing in the GL. Posting to the SL generally come from the source documents. Dormant accounts refer to individual or group of accounts whose balances remained non-moving for more than five years.
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21.9

21.10 COA Circular No. 97-001 dated February 5, 1997 prescribes the guidelines in the proper disposition/closure of dormant funds and/or accounts of national government agencies. 21.11 Item B.1-2 of Paragraph III of the Circular states that dormant accounts in an active fund shall be reviewed, analyzed and reconciled together with other related accounts in the Trial Balance. After the review and validation of accounts, the procedure for adjustment and proper disposition of reconciled account, i.e. enforcement of collection of loans receivables shall be observed. 21.12 Item A.10, Paragraph III of the same Circular further states that if the analysis and review of the account is not possible due to absence of records and documents, the Agency Head concerned should request for write-off and/or adjustment of account balances from COA, supported by 1) list of available records and extent of validation made on the accounts and 2) certification and reasons why the books of accounts/records, financial statements/schedules and supporting vouchers/documents cannot be located.
Office DA-OSEC Account Name Loans Receivable LGUs Loans Receivable Others RFU II RFU IV-A Loans Receivable GOCCs Loans Receivable LGUs Amount P 2,162,000.00 2,665,708.35 707,694,631.05 154,707,172.84 603,906.00 Remarks SL marked with For Reconciliation Dormant for more than five years Dormant for more than ten years due to lack and unavailability of supporting documents Remained unreconciled and unaccounted No SL maintained

RFU VI RFU VII RFU XIII

Loans Receivable Others

11,323,322.66 5,428,755.25 94,984,553.67 P979,570,049.82

TOTAL

21.13 We recommended that management instruct the concerned Accountants to intensify the analysis, review, verification and validation of the loans receivables and if found uncollectible, the Agency Head concerned may request for write-off and/or adjustment of account balances from COA supported by available records and extent of validation/review as required under COA Circular No. 97-001 dated February 5, 1997. b) discrepancies between the books and the results of confirmation P7.614 million

21.14 In DA-OSEC, of the 26 replies to 100 confirmation inquiries sent to proponents to confirm the existence and correctness of SL balances as of October 31, 2011,
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nine reported a discrepancy in the balance totaling P7,014,934.95; 13 confirmed the correctness of the balance; and four were returned to sender. Details shown below:
Proponent (a) With discrepancy in the balance 1) Mindanao Rubber Development Industries Corporation Balance Per Book Per Confirmation Difference

P 3,750,000.00 13,124,562.50 3,644,000.00 7,270,854.00 9,155,901.35 9,750,000.00 1,500,000.00 14,155,000.00 4,309,760.00 P 66,660,077.85

0.00 12,624,562.50 2,733,000.00 7,020,854.00

P 3,750,000.00 500,000.00 911,000.0 250,000.00 678,214.95 750,000.00 900,000.00 282,500.00 (1,006,780.00) P 7,014,934.95 -

2) B & V Trading 3) Local Government of Bayawan,


Negros Oriental

4) International Training Center on Pig


Husbandry (ITCPH)

5) 6) 7) 8)

GH Foods, Inc

Davao Cresta Farms, Incorporated Anjo Farms Incorporated Freezon, Inc 9) Southern Poultry Farm Sub-Total (b) Confirmed the correctness of the balance 1) Batangas Integrated Sugarcane Planters Multi-Purpose Cooperative 2) Albur Broiler Poultry Farm 3) RTG Poultry Farm 4) Tabog Hog Farm 5) Maligaya Farmers MPC 6) Trinity Oil Palm Industry 7) Moraleda Farms 8) R.M. Gatchalian Piggery Farm 9) Juanito Samson Welding Shop 10) Bustos Marketing Coop, Inc 11) Naragan Valley MPC, Inc. 12) Gold Chick Hatchery 13) Gemsum Marketing Sub-Total (c) Returned to Sender 1) Divent Corporation 2) YEF Poultry Farm 3) O'Mark Enterprise 4) Reyta Integrated Farms Sub-Total Grand Total

8,477,686.40 9,000,000.00 600,000.00 13,872,500.00 5,316,540.00 P 59,645,142.90

12,000,000.00 11,508,520.00 11,990,522.00 13,245,705.00 19,370,000.00 11,684,200.00 14,750,000.00 14,242,515.00 4,385,177.42 1,940,000.00 4,222,335.00 28,500,000.00 11,930,750.30 159,769,724.72 11,362,200.00 13,600,000.00 9,600,000.00 4,410,000.00 38,972,200.00 265,402,002.57

12,000,000.00 11,508,520.00 11,990,522.00 13,245,705.00 19,370,000.00 11,684,200.00 14,750,000.00 14,242,515.00 4,385,177.42 1,940,000.00 4,222,335.00 28,500,000.00 11,930,750.30 159,769,724.72

219,414,867.62

21.15 Moreover, letters were sent to the GOCCs by DA-OSEC to confirm the validity and existence of the account, but no replies were received to confirm nor deny the correctness of the balance.
129

21.16 In RFU VII, the book balance of P66,200,650.47 included an amount of P599,503.00, which was the difference between the SL balances and the confirmed account balances as of July 31, 2010 from seven loan recipients. 21.17 We recommended that management make the necessary reconciliation of accounts and/or adjustments in the books of accounts for balances confirmed. c) net understatement due to accounting errors P344,404.25

21.18 COA Circular 2003-001 dated June 17, 2003 provides for the proper accounting of all financial transactions. 21.19 Under the NGAS, negative balances of accounts are considered abnormal and should have been immediately adjusted by the Accountant upon occurrence in the books. The negative balances/entries have the subsequent effect of reducing the overall balance of the account, making it inaccurate. 21.20 In RFU IV-A, seeds/seedlings procured at the Quezon Agricultural Experiment Station (QAES) from 1992 to 1998 and distributed to farmers amounting to P105,351.00 were erroneously recorded in the Loans Receivable -Others account instead of Donations account resulting in the overstatement of the receivable account and understatement of prior years expenses by same amount. 21.21 In RFU VII, the Schedule of the Account contained negative balances totaling P449,755.25. 21.22 We recommended and management agreed to require the concerned Accountants to analyze the accounting errors and negative balances and effect necessary adjustments. d) misclassification in recording loans receivable accounts P4.592 million 21.23 Section 112 of P.D. 1445 provides that Each government agency shall record its financial transactions and operations conformably with generally accepted accounting principles and in accordance with pertinent laws and regulations. 21.24 In DA-OSEC, the account of the Cooperative Finance Group-Central Bank of the Philippines, which is a GOCC, with an outstanding balance of P4,592,150.00 was erroneously included in the Schedule of Loans Receivable-LGUs instead of Loans Receivable-GOCCs. 21.25 We recommended that management instruct the Accountant to effect the necessary adjustments for the misclassified loans receivable accounts.

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Unreliable Due from NGAs/GOCCs/LGUs and NGOs/POs/ROs/SBs Accounts P16.501 B 22. The balance of the accounts Due from NGAs/GOCCs/LGUs, NGOs/POs and ROs/SBs totaling P16.501 billion cannot be relied upon due to the (a) long outstanding balances of P11.877 billion aged one year to over five years; (b) unreconciled difference of P732.862 million between the balance per books and the results of confirmation from the proponents; (c) unsupported fund transfers of P94.720 million; (d) unreconciled difference of P61.137 million between GL and SL balances; (e) misclassification of receivables totaling P54.708 million; and (f) overstatement of receivable accounts of P3.350 million due to various accounting errors. To ensure the attainment of the objectives of the DAs various poverty alleviation and food security programs, the DA secured, through a MOA, the participation of other NGAs, GOCCs, LGUs, and NGOs/POs, to facilitate the implementation of various activities and projects. Financial assistance/contributions are extended by the DA to these agencies in the form of fund transfers and/or seed money for projects that will benefit the farmers and fishermen who are mostly the beneficiaries of the DAs programs and projects. Section 4.6 of COA Circular No 94-013 provides that within ten days after the end of each month/end of the agreed period for the project, the implementing agency (IA) shall submit the Report of Checks Issued (RCI) and the Report of Disbursement (RD) to report the utilization of the funds. Only actual project expenses shall be reported. The reports shall be approved by the Head of the IA. Section 5.4 of COA Circular No 94-013 states that the Source Agency shall require the IA to submit the reports and furnish the IA with a copy of the journal voucher taking up the expenditures. Upon receipt of the copy of the Certificate of Settlement and Balances (CSB) and the Credit Notice (CN) issued by the IA Auditor, the Accountant shall draw a journal voucher restoring back the amount previously credited for any disallowance. He shall furnish the IA with a copy of the JV. Section 5.4 of COA Circular No. 2007-001 requires that within sixty days after the completion of the project, the NGO/PO shall submit the final Fund Utilization Report certified by its Accountant and approved by its President/Chairman to the Government Organization (GO), together with the inspection report and certificate of project completion issued by the GO authorized representative, list of beneficiaries with their acceptance/ acknowledgement of the project funds/ goods/ services received. The validity of these documents shall be verified by the internal auditor or equivalent official of the GO and shall be the basis of the GO in recording the fund utilization/expenses in its books of accounts.

22.1

22.2

22.3

22.4

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22.5

The provisions of the aforecited COA Circulars on the grant and liquidation of fund transfers were not followed resulting in the accumulation of huge amount of unliquidated fund transfers in the books of the Department. Other documents that are used to determine compliance with the conditions on fund transfers include the approved MOA between the parties, Terms of Reference and the Work and Financial Plan. The DA had a total outstanding balance of P16,500,705,908.48 for receivable accounts Due from NGAs/ GOCCs/ LGUs, NGOs/POs and ROs/SBs as of December 31, 2011. a) long outstanding balances aged more than one year to over five yearsP11.877 billion

22.6

22.7

Audit of the Due From accounts showed that out of the GL balances of P16,500,705,908.48 as of December 31, 2011, the amount of P11,876,665,138.17 or 71.98% were outstanding for one year to over five years; thus, management failed to strictly enforce liquidation of fund transfers upon completion of the projects in violation of Section 5.4 of COA Circular No. 2007-001, summarized as follows:
Account SL Balance as of 12/31/11 P 3,922,492,241.48 6,521,053,388.26 4,333,165,414.77 1,579,286,009.30 144,708,854.67 P16,500,705,908.48 100% Aging of Unliquidated fund transfers Less than 1 yr. 1 - 3 Yrs. Over 3 yrs. P 1,185,778,652.59 P 694,981,127.42 P 2,041,732,461.47 699,745,926.99 183,970,265.69 5,637,337,195.58 2,294,599,624.46 1,119,407,650.46 919,158,139.85 443,916,566.27 182,966,879.92 952,402,563.11 67,127,295.77 77,581,558.90 P4,624,040,770.31 P2,248,453,219.26 P9,628,211,918.91 28.02% 13.63% 58.35% P11,876,665,138.17

Due from NGAs Due from GOCCs Due from LGUs Due from NGOs/ POs Due from RO/SB Total Percent

22.8 22.9

Of the total reported balances of these accounts, the amount of P1,622,643,416.20 pertains to the balance of fund transfers from ACEF aged over three years. Despite prior years recommendations, the unutilized balance of fund transfers granted to NABCOR in CYs 2007 and 2008 totaling P1,001,982,198.95 and to the Sugar Regulatory Authority (SRA) totaling P198,202,924.05 in CYs 2002 and 2003, were neither liquidated nor returned to the Department for remittance to the Bureau of Treasury.

22.10 The following observations contributed to the long outstanding fund transfers to various agencies:

132

a.

Completion date was not indicated in the MOA; thus, the implementing agency was not bound to accomplish the project at a certain date; The MOA did not provide penalty for delayed implementation of the project; Additional funds were released even without fund utilization reports and monitoring/accomplishment reports of previous advances; and The agency had weak monitoring policy over the project implementation and utilization of funds.

b. c.

d.

22.11 We recommended and management agreed to (a) strictly enforce and monitor the liquidation of fund transfers to implementing agencies and strictly adhere to the provisions of COA Circular No. 94-013 to avoid the accumulation of huge unliquidated/long outstanding balances; and (b) stop the release/transfer of additional funds until such time that the regular monitoring/accomplishment reports on the use and implementation of the projects are submitted to ensure that specific activities are implemented within the designated timelines to prevent delays in the implementation of projects. 22.12 Management commented that the Audit Team Leader of NABCOR had issued Credit Notices totaling P6,416,550.00 and Notice of Suspensions amounting to P207,468,450.00 as of April 30, 2012 as part of the liquidation documents of NABCOR. 22.13 The management of DA-OSEC and RFU VI commented that they have already recorded liquidation totaling P1,387,346,404.89 in CY 2012. 22.14 RFU II management commented that: They observed the policy on the grant and utilization of fund transfers. They are enforcing the policy that there should be a liquidation report submitted prior to new fund transfer. They are regularly sending demand letters to respective NGOs/POs but some could no longer be located, however, the office is exerting all efforts to locate them. They are also sending demand letters to LGUs.

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22.15 The management of DA-OSEC, BAI, RFUs CAR, V and VII commented that they have already sent demand letters to concerned offices in CY 2012. 22.16 While management claim that they are enforcing the policy that there should be liquidation report submitted prior to a new fund transfer, there are still fund transfers made to recipients with unliquidated balances. b) unreconciled difference of P732.862 million between the balance per books and the results of confirmation from the proponents 22.17 Confirmation of receivables of the following DA Offices to determine the existence and validity of SL balances from the IAs, disclosed that of the 431 confirmation inquiries sent to proponents only 154 or 35.73% replied, of which 121 reported a discrepancy in the outstanding balance totaling P732,862,111.87; thirty-two confirmed the correctness of the balance; and one was returned to sender, as summarized below:
Office DA-OSEC 12 3 1 Sub-T o t a l BAI Sub-total BAR 16 10 10 52 2 4 16 Sub-T o t a l RFU VII Sub-T o t a l RFU XI Sub-T o t a l Grand Total 74 7 7 14 14 121 Due NGO/POs from Due from GOCCs (including FAPs) Due from NGAs (FAPs) Due from ROs/Staff Bureaus Due from NGAs P1,269,896,111.32 179,187,828.57 15,863,547.49 1,464,947,487.38 5,964,856.03 5,964,856.03 173,878,161.97 2,490,646.40 6,205,401.50 120,959,239.23 303,533,449.10 1,021,840.00 1,021,840.00 30,342,197.82 30,342,197.82 P1,805,809,830.33 P756,000,937.85 53,187,649.57 0.00 809,188,587.42 2,708,667.66 2,708,667.66 146,494,680.78 1,837,835.59 5,844,468.00 87,404,904.57 241,581,888.94 175,000.00 175,000.00 19,293,574.44 19,293,574.44 P1,072,947,718.4 6 P513,895,173.47 126,000,179.00 15,863,547.49 655,758,899.96 3,256,188.37 3,256,188.37 27,383,481.19 652,810.81 360,933.50 33,554,334.66 61,951,560.16 846,840.00 846,840.00 11,048,623.38 11,048,623.38 P732,862,111.87 No. of IA Accounts Affected Per Book Per Confirmation Reply Difference

Due from NGAs Due from GOCCs Due from LGUs Due from NGO/POs

Due from LGUs

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22.18 The discrepancy between the records of DA and those of the implementing agencies is so material that it affects the accuracy and the existence of various receivable accounts. 22.19 We recommended and management agreed to require the Accountants of both the DA and the IAs to conduct reconciliation of balances in their respective books of accounts and perform regular confirmation and effect the necessary adjustments to ensure correctness of balances. 22.20 During the exit conference, the management replied that partial adjustments have been made and they are continuously verifying and reconciling affected receivable accounts. Demand letters were already sent to the concerned offices with unliquidated balances. c) Insufficient documents to support fund transfers P94.720 million

22.21 Review of the fund transfer accounts also disclosed that there were individual accounts in the SL that were not supported with sufficient documents to prove its existence and validity, while others were only classified as For Reconciliation or with negative balances. These accounts were not reconciled since the conversion of the Old Government Accounting System to the New Government Accounting System, as shown on the next page.
Offices DA-OSEC Account Name Due from NGAs Due from GOCCs Due from ROs/SBs Due from GOCCs Due NGOs/POs from Amount P 1,433,867.36 3,299.97 643,398.39 594,150.00 50,000,000.00 42,440,550.00 (395,007.90) P 94,720,257.82 Remarks S/L marked For Reconciliation

DA-OSEC RFU IV-A RFU VIII BAR

with incomplete documents with balances negative

Due from NGAs Grand total

22.22 Various observations were also noted in the fund transfers to NABCOR totaling P50,000,000.00, as follows:
Particulars Check No. : Date : Amount : 640306 December 28, 2011 P 10 million Observations a. Professional fees for the project personnel were not supported with documents showing the current industry rate as basis for the computation of the same; and b. The allotment of 10% administrative cost (AC) of P1 million is excessive. Reason for the provision of the AC and breakdown of expenses were not submitted.

Fund transfer for the implementation/ operationalization of Agri-Pinoy Trading Centers (APTCs)

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Particulars Check No. : 640307 Date : December 28, 2011 Amount : P 30 million Fund transfer for the strengthening of the operations of the Agribusiness Development Center and focus in on the management of the Agribusiness Export Showroom a.

Observations Plan or lay-out for the other building renovation was not provided. Management explained that the amount of P1 million would be incurred in the improvement of the building to adhere with the required specifications of possible locators for restaurant and coffee shop. The specific lay-out or plan will depend on the requirements of the locators; b. Professional fees for the project personnel were not supported with documents showing the current industry rate as basis for the computation of the same; and c. There were errors in computation in the Breakdown of Expenses in the Work and Financial Plan. In Part A-Donation, the total budget for two computers with unit cost of P30,000 was computed at P90,000 instead of P60,000. In Part B-Other Professional Services, the total budget for one Marketing Officer with monthly salary of P33,000 was stated at P792,000. a. The MOA did not indicate the timelines to perform the various activities of the project; the officials responsible for the overall monitoring and evaluation; and the frequency of the submission of Status of Funds Report; and b. The provision in Article 3, Paragraph 9 of the MOA which states that NABCOR shall, within ten days after project termination, submit to DA the Reports on Checks Issued (RCI) and the Report of Disbursement (RD), contradicted the following provisions in COA Circular No. 94-013 which states that: 6.4. within five (5) days after the end of each month, the Accountable Officer (AO) shall prepare the RCI and RD and shall submit them with all supporting vouchers/payrolls and documents to the Accountant. These reports shall be approved by the Head of the Agency. 6.5. within ten (10) days after receipt from the AO, the Accountant shall verify the Reports, provide accounting entries, record and submit the duplicate copies of the Reports with all the originals of vouchers/payrolls and all supporting documents to the IA Auditor. The Accountant shall ensure that only expenses for the project are included in the Reports. He shall submit the original copy of the Reports to the Source Agency.

Check No. : Date : Amount :

640338 December 29, 2011 P 10 milion

Fund transfer for Agri-Pinoy Framework Promotion and Information Dissemination

22.23 Also, of the total fund transfer of P594,150.00 granted to the Philippine Postal Corporation (PPC) on October 22, 2009, a liquidation of P594,150.00 was made by PPC per JEV 2011-11-009036 dated November 29, 2011. Only the delivery receipts totaling P593,600.00 were submitted by the Acting Manager of the Postage and Philatelic Department of PPC to support the liquidation report of the fund transfer. 22.24 According to the MOA entered into by and between the DA and PPC on July 24, 2009, the fund transfer was intended for the latter to issue, circulate and sell commemorative stamps and other philatelic products on the Philippines-Brunei
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Darussalam Agricultural Cooperation Project, particularly on the cooperation on rice research and development toward rice self-sufficiency of the two countries. 22.25 Section 6 of the said MOA provides that, PPC shall submit a liquidation report duly verified and found correct by its resident auditor to the DA within thirty (30) days after completion of this commemorative stamp project. 22.26 Moreover, funds transferred to the following NGOs/POs totaling P42,440,550.00 in CY 2011 were not supported with complete documents and the selection process was not in conformity with the guidelines as prescribed in COA Circular No. 2007-001 dated October 25, 2007:
Name of NGO/Particulars Consortium for the Advancement of Peoples Participation Through Sustainable Integrated Area Development (CAPP-SIAD) Amount P432,750.00 Observations a. b. The Work Plan from February 1- May 31, 2011 submitted by CAPP-SIAD was not signed by their official nor approved by DA The source/s of the CAPP-SIAD equity or costsharing for the project was not specified in the project proposal nor in the Work Plan submitted as required in Item 4.4.5 of COA Circular No. 2007001; The effectivity of the MOA dated February 14, 2011 is for a period of two months from the date of the signing or until May 31, 2011 as indicated in Article VII of the MOA. However, there was no information on the actual period of project implementation because the latest Status Report was submitted only on August 18, 2011; and The Fund Disbursement Report and Physical Accomplishment Report submitted on August 18, 2011 were not certified correct by the CAPP-SIAD Accountant nor verified by the external auditor in consonance with Item 4.5.5 of COA Circular No. 2007-001 dated October 25, 2007. The photographs submitted were not labeled; The list of current officers and members with their office address and telephone numbers was not attached; The following were not submitted for the project proposal: A certification executed by the President and Treasurer of the NGO that the documents are genuine and/ or true copies of the original, and the statements and data provided are true and correct; and Notarized board resolution authorizing an identified official representative to transact with the DA with regard to the proposed project.

c.

d.

Philippine Maize Federation, Inc. (PMFI)

375,000.00

a. b. c.

d.

The PMFI was the one who received the fund and not the National Corn Devt. Project. Consequently, it should be the PMFI that should be obliged to liquidate the fund transfer.

137

Name of NGO/Particulars University of the Philippines Los Baos Foundation, Inc. (UPLBFI) -1 UPLBFI-2

Amount 1,500,000.00

10,000,000.00

National Corn Competitiveness Group, Inc. (NCCGI) Batangas Egg Producers Cooperative (BEPCO)

4,222,800.00 20,000,000.00

Observations No inspection report on the deliveries of the seeds by DA authorized representative was submitted as required in Item A.3 of the MOA; and b. The list of the recipients duly verified by the internal auditor or equivalent official of DA was not attached. a. Advances to Project amounting to P398,500 were not supported with a Credit Notice; b. A project entitled Packaging and Promotion of Selected Corn Technologies was indicated in the Secretarys Certificate instead of Seed Production of High Yield and Protein Corn as stated in the Project Proposal; c. A sworn affidavit of the Secretary of UPLBFI that none of its incorporators, organizers, directors or officials is an agent of or related by consanguinity or affinity up to the fourth civil degree to the officials of DA authorized to process and/or approve the proposal, including the MOA and the release of fund was not submitted as provided in Item No. 4.4.8 of COA Circular No. 2007-001 dated October 25, 2007; and d. The list of beneficiaries of the 6,572 bags of IPB Var 6 duly verified by the internal auditor or equivalent official of DA, as a supporting document in the partial liquidation of the fund transfer was not attached. The selection process of NCCGI for beneficiaries did not follow the guidelines as prescribed in COA Circular No. 2007-001 dated October 25, 2007. The NGO did not comply with the eligibility requirements specified in COA Circular No. 2007-001, most significant of which were on the equity requirement of 20% of total project cost of P60 million, audited financial statements for the past three years, and maintenance of financial and accounting records for the funds granted. a.

138

Name of NGO/Particulars Roman Catholic Archbishop of Palo, Inc. (RCAP, Inc.) DA Regional Employees of Multipurpose Cooperative (DAREMCO)

Amount 5,000,000.00

Observations The purposes of RCAP, Inc. and DAREMCO were not within the context or definition of an NGO or PO as provided for in COA Circular No. 2007-001, as follows: 1. RCAP, Inc. was incorporated or created as a Corporation Sole per its Articles of Incorporation, to administer the temporalities and the management of the estates and properties of the Roman Catholic Church. 2. DAREMCO was registered as a cooperative on January 27, 2010 by the Cooperative Development Authority (CDA). Among its many purposes were to (a) undertake canteen operation, lending, catering services, check encashment and t-shirt printing; (b) generate funds and extend credit to the members for productive and provident purposes; and (c) provide goods and services and other requirements to the members.

200,000.00

Palo Natural Farming Society (PNFS)

710,000.00

Likewise, non-compliance with the other provisions of the circular relative to the fund transfers to the three organizations, most particularly the non-liquidation of P5,200,000 even after the completion of the projects, were noted.

P42,440,550.00

22.27 The absence of such information and other supporting documents violates Items 4.5.1 to 4.5.3 of COA Circular No. 2007-001 dated October 25, 2007 which provides, that: 4.5.1 The GO shall identify the priority projects under its WFP which may be implemented by the NGO/PO, their purpose/s, specifications and intended beneficiaries as well as the time frame within which the projects are to be undertaken. To ensure transparency, the foregoing information shall be made via newspapers, agency websites, bulletin boards and the like, at least three months prior to the target date of the commencement of the identified projects. 4.5.2 For each project proposal, the GO shall accredit the NGO/PO project partners through the Bids and Awards Committee (BAC), or a committee created for the purpose, which shall formulate the selection criteria. The Committee shall perform the selection process, including the screening of the qualification documents, ocular inspection of the NGOs/POs business site, and evaluation of the technical and financial capability of the NGO/PO. 4.5.3 Upon proper evaluation, the GO, thru the Committee, shall award the project to the NGO/PO which meets the minimum qualification requirements and the specifications for the project and which can satisfactorily undertake the project at terms most
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advantageous to the beneficiaries, taking into consideration the cost effectiveness of the project. 22.28 Given the above purpose for which RCAP, Inc. and DAREMCO were created, they do not fit into the category as NGOs/POs as defined in Section 2.4 of COA Circular No. 2007-001 dated October 25, 2007 which states that A NonGovernmental Organization (NGO) is a non-profit, voluntary organization committed to the task of socio-economic development and established primarily for services such as assisting citizens or peoples organizations in various ways by educating, training, or giving funds to them. This shall include foundations created for the same purpose. 22.29 We recommended that management require the Accountant to (a) ensure that all fund transfers are fully supported with complete documentation; (b) analyze the SL balances marked For Reconciliation and those with negative balances of Due from NGAs, GOCCs, NGOs/POs and ROs/SBs accounts and effect adjustments, if necessary; and (c) strictly adhere with the guidelines embodied in COA Circular No. 2007-001 on the selection procedures for the availment and releases of funds to NGOs/POs.

22.30 The management commented that partial adjustments had already been made in CY 2012 and they are continuously analyzing and reconciling the affected receivable accounts. 22.31 The management of RFU IV-A commented that BEPCO already submitted all the required eligibility documents in 2012. 22.32 The management of RFU VIII commented that RCAP can be considered as a Church-based NGO with its main purpose of administering and managing as trustee, in the affairs, property and temporalities of religious denomination, sect or church, per Chapter II, Sections 109-110 of the Corporation Code of the Philippines. On the other hand, DAREMCO is a duly registered cooperative with the Cooperative Development Authority. Pursuant to the Implementing Guidelines for the establishment of the Barangay Food Terminal (BFT), a cooperative is eligible to be a recipient/operator of the BFT. As such, DAREMCO is an eligible recipient to the BFT. 22.33 The auditor maintained the observation that RCAP and DAREMCO were not within the context or definition of an NGO as provided for in COA Circular No. 2007-001. d) unreconciled difference between GL and SL balances - P61.137 million

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22.34 Comparison of the receivable balances as of December 31, 2011 between the GL and SL balances in RFUs II and IV-B, showed a difference of P61,137,336.29, summarized as follows:
Account Name II Due from NGAs Due from LGUs Due from NGOs/POs Sub-total IV-B Due from NGAs Due from LGUs Due from NGOs/POs Sub-total Grand Total P 74,219,034.03 249,421,840.74 43,793,271.41 367,434,146.18 P 73,137,464.99 217,843,258.39 27,146,000.00 318,126,723.38 P 1,081,569.04 31,578,582.35 16,647,271.41 49,307,422.80 692,534.52 11,129,044.97 8,334.00 11,829,913.49 P61,137,336.29 Per GL Per SL Variance

33,220,596.29 188,986,810.89 506,817,512.45 729,024,919.63 P1,096,459,065.81

32,528,061.77 177,857,765.92 506,825,846.45 717,211,674.14 P1,035,338,397.52

22.35 We recommended that management analyze the cause/s of the variance and ensure that errors and reconciling items are promptly cleared and that necessary adjustments/corrections are effected in the books. 22.36 RFU II management commented that the SL balances of the Due from NGAs, LGUs and NGOs/POs were already updated and reconciled with the general ledger. 22.37 RFU IV-B management admitted that the discrepancy arose from errors and reconciling items such as double recording/or wrong reclassification of receivables and erroneous recording of liquidation. e) misclassification of accounts- P54.708 million

22.38 Moreover, misclassifications in the recording of the transactions were also noted among the individual receivable accounts, which although did not affect the total receivables but still need to be adjusted to present fairly the balance of the affected Due From accounts in the financial statements, as follows:
Office RFU VII BAI BPI P Amount 912,888.12 10,000,000.00 5,000,000.00 4,469,978.96 26,226.40 666,559.05 330,759.33 33,301,162.09 P54,707,573.95 Recorded as Due from LGUs Due from NGAs Due from NGAs Due from NGAs Due from NGOs/POs Due from LGUs Due from NGOs/POs Due from ROs/SBs Should Be Due from NGAs Due from GOCCs Due from LGUs Due from NGOs/POs Due from GOCCs Due from NGAs Due from NGAs Due from NGAs

Total

22.39 We recommended and management agreed to require the concerned Accountant to prepare the necessary adjusting entries and reclassify the
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affected receivable accounts and effect the necessary adjustments to correct the balances. 22.40 The management of BAI commented that the Accounting Section made the adjustment of P5,000,000.00 payable to Provincial Government of Negros Oriental with check no. 569250 dated December 16, 2010 from Due from NGAs to Due from LGUs as per JEV No. 2011-07-308 dated July 31, 2011. f) overstatement of receivable accounts due to accounting errors P3.350 million -

22.41 Receivable accounts such as Due from NGAs, Due from LGUs and Due from NGOs/POs are used to record amount of advances granted to NGAs/ LGUs and funds entrusted to NGOs/POs for the implementation of government projects. The Accounts Payable account is credited for the amount of liabilities arising from goods delivered or services rendered. 22.42 Review of the subsidiary ledgers of the above receivable accounts at the RFU IV-A disclosed that a total of P3,350,000.00 were recorded at year-end for the release of funds to the following recipient agencies/cooperative:
Recipient of Fund transfer Phil. Rice Research Institute Barangay Government of San Vicente, Cavite Limcoma Multi-purpose Cooperative Total Account Due from NGAs Due from LGUs Due NGOs/POs from Amount P 2,000,000 150,000 1,200,000 P 3,350,000

22.43 Simultaneously, the above were recorded as Accounts Payable due to the nonpayment of the same. There being no release of funds to the recipient NGA, LGU and NGO and no delivery of goods yet; the recording of the same to the receivable and payable accounts resulted in the overstatement of the accounts by P3,350,000.00. 22.44 We recommended that management require the Regional Accountant to prepare the adjusting entries by debiting Accounts Payable and crediting the appropriate asset accounts. 22.45 As recommended by the audit team, a journal entry was prepared in January 2012. Unreliable of Balance of Due from NGAs- PS - P105.290 million 23. The reported balance of Due from NGAs- Procurement Service (PS) representing deposits to the PS totaling P105.290 million was
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unreliable/doubtful due to the long outstanding balance of P101.688 million of which 85.98% or P87.436 million was already dormant and unsupported with documents. 23.1 The breakdown by fund of the reported balance of the account Due from Other NGAs (PS) of DA-OSEC totaling P105,289,633.76 is shown below:
Funds Regular Fund 101 Infrastructure for Rural Productivity Enhancement Sector Government of the Philippines (InfRES-GOP) InfRES LP Diversified Farm Income and Market Development Project (DFIMDP) Philippine Climate Change Adaptation Project (PhilCCAP1) Agricultural Competitiveness Enhancement Fund (ACEF) Central Cordillera Agricultural Programme (CECAP) Southern Mindanao Agricultural Programme (SMAP) Amount P 105,193,800.29 15,005.71 21,907.95 (675.86) 434.04 74.05 27,429.69 31,657.89 P 105,289,633.76

23.2

Of the total deposits made to the PS in CY 2010 and prior years totaling P207,362,118.21, only P105,674,373.52 or 50.96% were liquidated, leaving a balance of P101,687,744.69, as presented on the next page.
Year 2010 2009 2008 2007 2006 2005 2004 2003 & PYs Total Amount of Deposits P 8,616,628.50 43,815,295.51 22,148,238.80 12,034,013.90 19,930,372.00 6,542,460.96 6,839,024.73 87,436,083.81 P207,362,118.2 1 Liquidations/ Deliveries P 8,404,934.89 36,580,350.65 21,803,356.31 11,652,249.97 15,103,818.43 6,244,032.36 5,885,630.91 0.00 P105,674,373. 52 Balance 211,693.61 7,234,944.86 344,882.49 381,763.93 4,826,553.57 298,428.60 953,393.82 87,436,083.81 P101,687,744.6 9 P

23.3

Included in the outstanding balance of P101,687,744.69 are dormant balances totaling P87,436,083.81 representing deposits in CY 2003 and prior years with no breakdown nor any document to support and establish the validity of the deposits. We recommended that management require the Chief Accountant to: a. locate the pertinent documents supporting the outstanding deposits/advances to PS from CY 2003 and prior years; and record the necessary adjustments to reflect the correct balances of the receivable account; b. request the PS to deliver the office supplies procured by DA and its agencies to fully close/liquidate its long outstanding obligations with DA and its attached bureaus and offices; and
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23.4

c. make representation with the PS for the reconciliation of the Due from NGAs (PS) account. Incorrect balance of Inventory Accounts P 991 M 24. The balance of Inventory accounts totaling P991 million as of December 31, 2011 was incorrect and of doubtful validity due to the (a) accounting errors resulting in a net overstatement of inventory accounts by P18.677 million; (b) unreconciled difference of P525.697 million between the general ledger and the inventory report; (c) failure of management to conduct physical count of inventories totaling P183.436 million; (d) non-maintenance of supplies ledger cards to support inventories totaling P271.756 million; (e) inventories classified as For Reconciliation and with negative balances in the SL totaling P16.601 million; (f) unsupported credit to the inventory accounts of P68.608 million in CY 2010; (g) non-preparation of Report of Supplies and Materials Issued (RSMI); and (h) purchases directly charged to expense account. Section 43 of the Manual on the New Government Accounting System (NGAS) Volume I prescribes the perpetual inventory of supplies and materials wherein regular purchases shall be recorded under the inventory account and issuances thereof shall be recorded based on the Report of Supplies and Materials Issued (RSMI). Purchases out of petty cash fund shall be directly charged immediately to the appropriate expense account. The Accounting Unit and the Property Office shall maintain Supplies Ledger Cards (SLC) and Stock Cards (SC), respectively. The balance in quantity per SC should always reconcile with the SLC of the Accounting Unit. Section 65 of the Manual on NGAS Volume II requires the preparation and submission of the Report on Physical Count of Inventories (RPCI) which shall be used to report the physical count of supplies by type of inventory as of a given date. It shows the balance of inventory items per cards and per count and shortage/overage, if any. The DA had reported total Inventories of P990,510,341.86 as of December 31, 2011. a. 24.4 accounting errors resulting in a net P18.677 million overstatement of inventories -

24.1

24.2

24.3

Analysis and verification of the Inventory accounts balances showed various accounting errors and deficiencies resulting in a net overstatement of P18,677,191.31, as shown below:
Inventory Account Affected Merchandise Inventory Over/(Under) statement P 173,590.25 Accounting Errors No longer existing and remained dormant since

Office OSEC

144

Office

Inventory Account Affected Office Supplies Other Supplies Construction Materials Sub-total Office Supplies Other Supplies Other Supplies Sub-total Livestock Other Agricultural, Fishery and Forestry Products Sub-total Crops and Fruits Agricultural Supplies Office Supplies Office Supplies Medical, Dental and Laboratory Agricultural Supplies Other Supplies Spare Parts Construction Materials Sub-total

Over/(Under) statement

Accounting Errors

RFU II

RFU III

RFU IV-A RFU VI RFU XI ATI BSWM

1999 244,008.68 No longer existing at the end of the year 2,460,444.16 958,360.49 Farm construction materials in Abulug Seed Farm already used during the year 3,662,813.33 2,835,933.42 No inventory on hand at year-end 4,904,839.65 (39,025.00) Purchase of computer supplies recorded as PPE instead of Inventory 7,701,748.07 396,000.00 Non-moving/dormant for more than ten years without available supporting documents in 55,560.00 STIARC, Lipa City. 451,560.00 2,486,236.00 Non-moving/dormant since 1993. (4,105,921.21) Unrecorded vegetable seeds 78,211.00 Already issued and received by the end-user 1,167,261.83 No longer existing since 2008 680,998.58 628,025.60 4,909,895.00 840,321.35 2,451.51 8,228,953.87 P 18,677,191.3 1

Net Overstatement

24.5

Audit disclosed that the DA RFU XI does not have a systematic and orderly method of dispensing and recording of seeds. Requests from beneficiaries are not all documented and their receipts are not also properly or completely recorded. The file folders containing records of the receipts and issuances of vegetable seeds and disbursement documents and other records yielded an unrecorded P4,105,921.21 worth of vegetable seeds procured. We recommended that management instruct the concerned Accountants to analyze the inventory accounts and prepare the necessary adjustments that will correct the net overstatement of P18.677 million due to accounting errors. b. unreconciled difference between the GL and the Report on the Physical Count of Inventories (RPCI)- P 525.697 million

24.6

24.7

Comparison of the Inventory accounts balances appearing in the books of DAOSEC, RFUs II, IV-B and BAI as of December 31, 2011 as against the balances appearing in the RPCI disclosed an unreconciled difference of P525,696,872.84, as shown below:
DA Office / Inventory Accounts Merchandise Inventory P Per Books 173,590.25 P Per RPCI 0.00 P Variance 173,590.25

OSEC

145

DA Office / Inventory Accounts Office Supplies Inventory Textbooks and Instructional Materials Inventory Other Office Supplies Inventory RFU II Office Supplies Accountable Forms Gasoline, Oil & Lubricant Agricultural Supplies Textbooks and Instruction Materials Other Supplies Spareparts Construction Materials Livestock Inventory Crops Inventory RFU IV-B Office Supplies Accountable Forms Medical, Dental and Laboratory Supplies Agricultural Supplies Other Supplies Livestock BAI Office Supplies Animal/Zoological Supplies Medical, Dental and Laboratory Supplies Other Supplies Livestock Total

Per Books 19,336,125.31 267.05 634,195.94 244,008.68 24,450.50 33,420.00 4,060,435.70 34,924.50 2,460,444.16 53,010.00 958,360.49 6,366,630.00 438,675.00 1,193,573.68 29,250.00 185,487.00 40,434,762.05 80,680.50 66,075,703.55 4,684,601.65 448,430.00 86,529,477.62 1,803,301.65 367,502,534.73

Per RPCI 4,064,263.19 0.00 56,932.84 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5,583,600.00 927,713.00 23,595.00 0.00 0.00 633,171.84 48,273.40 0.00 374,071.42 0.00 3,205,971.70 0.00 64,149,950.78

Variance 15,271,862.12 267.05 577,263.10 244,008.68 24,450.50 33,420.00 4,060,435.70 34,924.50 2,460,444.16 53,010.00 958,360.49 783,030.00 489,038.00 1,169,978.68 29,250.00 185,487.00 39,801,590.21 32,407.10 66,075,703.55 4,310,530.23 448,430.00 83,323,505.92 1,803,301.65 303,352,583.95 P 525,696,872.8 4

24.8

In DA-OSEC, one of the causes of the discrepancy between the two records was the non-compliance of the Property and Supply Section with the provisions of Section 44 of the NGAS Manual, Volume I requiring the use of the moving average method in costing inventories. It was also noted in DA-OSEC that there was an unreconciled difference of 17,578 units of supplies between the Supplies Ledger Cards of 48,150 units with the Stock Cards of 30,572 units.

24.9

24.10 Reconciliation of the accounting and property records is necessary to determine the completeness and accuracy of the recorded balances. The unreconciled difference indicates the presence of errors in either or both the accounting and property records which need to be adjusted. The failure to reconcile the accounting and inventory records rendered the inventory account balances totaling P603,786,340.01 unreliable. 24.11 We recommended that management instruct the concerned Accountants to analyze the variance of the balance per books and RPCI and prepare/record immediately the necessary adjustments that will correct the difference of P525.697 million between the general ledger and the inventory report.

146

c.

failure of management to conduct physical count of inventory items and nonsubmission of RPCI P183.436 million

24.12 In CY 2011, the required physical count of Inventories was not conducted in RFUs II, III, IV-A, VI, XI and BSWM to check on the existence, condition and completeness of the reported inventory balance of P183,436,443.31, as summarized below:
Office RFU II RFU III RFU IV-A RFU VI RFU XI BSWM Total Amount of Inventory P 4,060,435.70 7,740,773.07 11,502,588.67 54,902,753.82 96,949,466.18 8,280,425.87 P 183,436,443.31

24.13 In RFU II, there were still agricultural supplies in the stations at the end of the year but were no longer in the inventory report, an indication that additions and deductions on the inventory accounts during the year were not taken up correctly. Aside from the absence of physical count of inventories, stock cards were not updated. 24.14 Audit also disclosed that the P96,949,666.18 Livestock Inventory of RFU XI were already dispersed to the different LGUs sometime in 1996-2003 under the Barangay Livestock Breeding Loan Program (BLBLP). According to the Accounting Section, they had no basis for the adjustment of the account since the General Services Section did not coordinate with them nor reconciled their records with the Accounting Section. 24.15 The insufficiency of the data on inventory transactions and the absence of the RPCI of RFUs II, III, IV-A, VI, XI and BSWM precluded the confirmation/validation of the existence of the reported inventory balances and their reconciliation between the Property and Accounting records which rendered the recorded inventory balances doubtful/unreliable. 24.16 We recommended that management create an Inventory Committee to undertake the physical count of inventories at least every six months as of June 30 and December 31 of each year pursuant to Section 65 of the Manual
147

on NGAS Volume II in order to validate the existence of the inventory balances. d. non-maintenance P271.756 million of supplies ledger cards and/ stock cards

24.17 In CY 2011, the DA-RFUs IV-A, IV-B, VI, XI and BAR did not maintain the supplies ledger cards and/stock cards for Inventory accounts totaling P271,756,032.18, as summarized below:
Office BAR RFU IV-A RFU IV-B RFU VI RFU XI Total Amount of Inventory 401,766.73 11,502,588.67 107,999,456.78 54,902,753.82 96,949,466.18 P 271,756,032.18 P

24.18 The absence of supplies ledger cards and stock cards contributed to a weak internal control in monitoring the supplies on stock. The procurement of supplies may not be programmed or scheduled effectively due to the unreliable record of balances of stocks on hand. 24.19 We recommended that management instruct the concerned Accountants to maintain/update stock cards and supplies ledger cards for the inventory accounts and reconcile periodically so that necessary adjustments can be effected in the books of accounts.

e.

inventories classified as For Reconciliation and with negative balances in the SL - P16.601 million

24.20 Audit, likewise, disclosed that the following Inventory accounts of DA-OSEC had SLs with balances totaling P16,543,715.20 marked as For Reconciliation and SL with negative balances of P57,371.81, to wit:

148

Account/Code

Fund

Amount For Reconciliation P 173,590.25 15,135,932.76 5,681.78 1,943.74 15,170.00 1,118,296.11 267.05 92,833.51 P 16,543,715.2 0

S/L with Negative Balances

Merchandise Inventory 154-999-999 Regular Office Supplies Inventory 155-999-F101-2 Regular 155-999-F102-2 102 - GSDP 155-999-F183 183 - ACEF 155-999-F159 159 - AAPP 155-999-F102-1 102 - Regular Textbooks and Instructional Materials Inventory 163-999-101-2 101 - Regular Other Supplies Inventory 165-999-9999 Total

57,371.81

P 57,371.81

24.21 The total amount of P16,543,715.20 had been reflected in the books of account since the start of eNGAS in January 2008. 24.22 According to the Accounting Division, some of the causes of the nonreconciliation of the above amounts were the lack of documents to support the analysis and the conversion of the Chart of Accounts under the Old Government Accounting System (OGAS) to the New Government Accounting System (NGAS). 24.23 The inventory items still for reconciliation and items with negative balances cast doubt as to the reliability and accuracy of the account balances. 24.24 We recommended that management instruct the Accountant of DA-OSEC to analyze inventory items with negative balances and balances of SLs with caption For Reconciliation and prepare the necessary adjustments to arrive at the accurate balances of the affected accounts.
149

f.

unsupported credit to inventory accounts and non-preparation of RSMIP68.608 million

24.25 In DA-OSEC, the amount of P68,608,317.08 under JEV-2010-08-006734 on August 31, 2010 was credited to the account without the supporting Report of Supplies and Materials Issued (RSMI), in violation of Section 43 of the NGAS Manual, Volume I, which provides that Regular purchases shall be recorded under the Inventory account and issuance thereof shall be recorded based on the Report of Supplies and Materials Issued. 24.26 Further, it was noted that in BSWM, RFUs II and XII, the required RSMIs were not prepared by the Supply Officer as basis for the issuance of various inventories. 24.27 This deficiency rendered the recorded balances of inventory doubtful, contrary to the provisions of Section 62 of the NGAS Manual, Vol. II. This is also reflective of a weak system of monitoring, controlling and recording of acquisition and utilization/issuance of inventory items. 24.28 We recommended that management submit the RSMI to support the credit of the P68.608 million and require the Property Unit to prepare and submit the monthly RSMI to the Accounting Unit for recording the issuances of inventories in the books of accounts. g. purchases directly charged to expense account 24.29 Audit disclosed that in DA RFUs II, XII and BSWM purchases of supplies and materials were directly recorded to expense instead of recording the same to the Inventory accounts contrary to Section 43 of the Manual on NGAS, Volume I. Also, the usage or issuances of the said inventory items were neither recorded nor reported by the Supply or Property Section. 24.30 We recommended that management instruct the concerned Accountants to use the perpetual method in accounting of inventories and stop the practice of directly charging purchases of supplies and materials to expense accounts. Overstatement of Prepayments accounts- P1.014 million 25. The total reported Prepayments balance was overstated by P1.014 million due to management failure to record the consumed gasoline, oil and lubricants and the expired portion of insurance premiums. Section 61 of PD 1445 provides that the examination of expense accounts shall be undertaken to ascertain that all expenses incurred have been duly authorized; adequately funded and documented; properly recorded; all recorded expenses
150

25.1

have been actually incurred; and the classifications of expenses are appropriate and have been consistently followed. 25.2 Section 4A of the NGAS Manual, Vol. I, provides one of the Basic Features and Policies of the NGAS which states Accrual Accounting. A modified accrual basis of accounting shall be used. Under this method, all expenses shall be recognized when incurred and reported in the financial statements in the period to which they relate. Audit revealed that out of the P32,089,758.91 outstanding balance of Other Prepaid Expenses and Prepaid Insurance accounts as at year-end, P3,682,851.53 includes unrecorded consumed gasoline, oil and lubricants and expired portion of insurance premiums totaling P1,014,471.46, as summarized below:
Office RFU VI RFU XIII BSWM Total Balance as of Dec. 31, 2011 P 2,405,552.67 299,394.60 977,904.26 P3,682,851.53 Consumed/ Expired Portion undetermined 268,653.72 745,817.74 P1,014,471.46 Prepaid Insurance Accounts Affected Other Prepaid Expenses Nature Unrecorded consumed Gasoline, Oil and Lubricants of undetermined amount Utilized Gasoline, Oil and Lubricants Unrecorded expired portion of insurance premiums

25.3

25.4

We recommended that management require the General Services Office/persons concerned in the field offices to submit to the Chief Accountant the required gasoline, oil and lubricants consumption reports at the end of every month; and require the Accountant to record/adjust the expense/expired portion of the Prepaid Insurance.

25.5 The management commented that BSWM and RFU XIII have adjusted the Prepaid Expenses in CY 2012, while RFU VI is regularly sending out reminders to officers and employees concerned to submit fuel liquidation report. Doubtful balances of Deposit on Letters of Credit, Other Current Assets and Other Investments and Marketable Securities accounts P158.552 M 26. The validity and accuracy of the reported balances of the accounts Deposit on Letters of Credit, Other Current Assets, Other Investments and Marketable Securities and Investment in Stocks totaling P158.552 million were doubtful due to (a) lack of supporting schedules to support the GL balances; (b) the PPE items erroneously recorded as Other Investment and Marketable Securities amounting to P3.315 million; and (c) abnormal negative balances totaling P2.366 million in the SL balances of the Other Current Assets account. Audit of the various assets accounts disclosed accounting errors and deficiencies.
151

26.1

a. unsupported various assets accounts - P 158.552 million 26.2 The following assets accounts in the amount of P158.552 million were doubtful because these were not supported by documents, broken down on the next page.

Account Deposit on Letters of Credit Other Current Accounts Other Investments and Securities Sub-Total Investments in Stocks Total

Marketable

Office OSEC OSEC OSEC BAI RFU XI BAI

Amount P108,899,969.05 18,742,405.75 19,000.00 26,195,598.98 4,089,549.10 30,304,148.08 605,740.00 P158,552,262.88

26.3

The above accounts remained unadjusted for such a long time due to lack of manpower who would assist in analyzing/reviewing of the accounts. Also, no documents were available to support the debits to the accounts including details as to the nature of transactions and programs undertaken and whether these transactions/programs/activities were consummated. Moreover, the amounts totaling P 125.387 million marked For Reconciliation remained dormant since the conversion of the OGAS to the NGAS in 2002. The Accountant explained that the unreconciled amounts pertained to the difference between the GL and SL balances of the said accounts during the conversion of the accounting system in CY 2008 from manual NGAS to electronic NGAS (e-NGAS). The COA allowed the use of the temporary SL account For Reconciliation during the transition of Old GAS to New GAS in CY 2002 on the condition that the balance would be eliminated once the Accounting Division had identified the details of the unreconciled accounts and adjusted the same to its appropriate SL accounts. We recommended and management agreed to require the Accounting Unit to analyze the accounts For Reconciliation in the SLs of the various accounts to arrive at the correct balances of the affected accounts.

26.4

26.5

152

26.6

The management commented that DA-OSEC already analyzed the amount for reconciliation and reclassified the account of Deposit on Letter of Credit to the proper accounts under JEV Nos. 2012-03-000983, 2012-03-000988 and 2012-03000909 dated February 1 and 23, 2012. b. PPE items erroneously recorded as Other Investment and Marketable Securities- P3.315 million

26.7

In RFU XI, the account Other Investments and Marketable Securities as of December 31, 2011 amounted to P4,089,549.10. Verification disclosed that the amount of P3,314,600.00 was used to buy agricultural equipment for the LGUs of RFUs XI and XII in CYs 2003-2005, as follows:
Particulars 1 unit Axial Thresher w/o engine & unit kulilig type hand tractor 6 units KMI Mars Corn Sheller 18 units KMI Corn Sheller 14 units Mars Mobile Corn 1 unit Pump & Engine (STW) 1 Length Flexible Hose Total RFU XI 1 P 97,000.00 P 497,700.00 1,545,300.00 1,109,500.00 56,000.00 9,100.00 P562,800.00 RFU XII

P 2,751,800.00

26.8 26.9

The remaining P774,949.10 could no longer be traced despite deliberate efforts to account for such. The account has remained dormant for nine years. We verified the validity of transactions classified as Other Investments and Marketable Securities and extracted its breakdown and we noted that the procurement transpired from CY 2003 to CY 2005 and transactions were recorded under Other Investments and Marketable Securities Account instead of the appropriate PPE account. Under the Chart of Accounts, however, this account is described as the amount placed on other investments and marketable securities.

26.10 Section 112 of Presidential Decree No. 1445 provides thatEach government agency shall record its financial transactions and operations in conformity with generally accepted accounting principles and in accordance with pertinent laws and regulations. 26.11 We recommended that management instruct the Accountant of RFU XI to prepare adjusting entries and furnish a copy of the Deed of Donation to LGUs in recording the donated PPE.
c. negative Balances of Other Current Assets account - P2.366 million

153

26.12 There were abnormal negative balances totaling P2,366,220.96 in the SL Others of the Other Current Assets account of DA-OSEC, which were part of the total amount of P2,208,559.67. 26.13 Moreover, the said account had no movement since January 1, 2008. Under the NGAS, negative balances of accounts are considered abnormal and should have been immediately adjusted by the Accountant upon occurrence in the books. The negative balances/entries have the subsequent effect of reducing the overall balance of the account, making it inaccurate:
Particulars Asia Pacific Air Export Danilo Curativo Filipino Telephone Corp Kital Limited Land Bank of the Philippines Manila Electric Co. Perfect Line Gasoline Station Philippine Air Lines Philippine Long Distance Telephone Sky Cable Central CATV, Inc. Tokwing Construction Sub-total Negative Balances Alcatel Citem Enrique Chua General Construction Municipality of Lingayen Procurement Service Sulo Hotel University Vicars Service Center UPLB-F1 Sub-total Net Balance Positive/(Negative) Balance as of December 31, 2011 P 16,500.00 1,000.00 45,500.00 495,000.00 1,347,880.66 767,930.00 100,035.41 250,000.00 3,963.50 421.66 1,546,549.40 P 4,574,780.63 P (181,500.00) (4,000.00) (153,987.50) (1,596,375.00) (390,347.51) (1,000.00) (38,960.95) (50.00) P (2,366,220.96) P 2,208,559.67

26.14 Because of the above errors, the reported year-end balances of the aforementioned accounts are, therefore, inaccurate and unreliable; thus, affecting their fair presentation in the financial statements. 26.15 We recommended and management agreed to require the Accounting Unit to analyze the abnormal negative balances in the SL of Other Current Assets and prepare the necessary adjusting entries to arrive at the correct balance of the account. Misstated Property, Plant and Equipment Account Balance P91.799 B

154

27.

The reported net total balance of Property, Plant and Equipment (PPE) accounts of P91.799 billion was misstated due to the (a) accounting errors understating the PPE accounts by P1.299 billion; (b) unsupported/doubtful PPE balances of P4.689 billion; (c) non-provision/insufficient depreciation of PPE costing P1.933 billion; (d) unreconciled difference between the balances per books and per Report on the Physical Count of Property, Plant and Equipment (RPCPPE) of P3.864 billion; (e) non-conduct of actual physical count of reported PPE costing P1.396 billion; (f) unaccounted 58 motor vehicles and several PPE totaling P62.904 million; and (g) misclassification of accounts. Audit of the various PPE accounts revealed various accounting errors and deficiencies. a. net understatement of PPE accounts due to accounting errors P1.299 billion

27.1

27.2

Section 63 of PD 1445 states that Except as may otherwise be specifically provided by law or competent authority all moneys and property officially received by a public officer in any capacity or upon any occasion must be accounted for as government funds and government property. Government property shall be taken up in the books of the agency concerned at acquisition cost or an appraised value. Section 79 of PD 1445 requires that When government property has become unserviceable for any cause, or is no longer needed, it shall, upon application of the officer accountable therefor, be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned and, if found to be valueless of unsalable, it may be destroyed in their presence. If found to be valuable, it may be sold at public auction to the highest bidder under the supervision of the proper committee on award or similar body in the presence of the auditor concerned or other duly authorized representative of the Commission, xxx. Likewise, Section 143 of NGAS Manual, Volume III provides that Other Assets account shall be used to record the value of obsolete and unserviceable assets awaiting final disposition as well as those assets still serviceable but are no longer being used. These items are not subject to depreciation. In CY 2011, analysis of the various PPE accounts and the RPCPPE disclosed various accounting errors, resulting in a net understatement of P1,299,406,937.91 of the PPE affected accounts and Government Equity in OSEC, BPI, BAS, BSWM, ATI-CO, and RFUs II, III, IV-A, IV-B, IX, XI, and XII; breakdown is shown below:

27.3

27.4

27.5

155

Office

DA-OSEC

RFU XIII

Accounts affected Office Building Office Equipment Furniture and Fixtures IT Equipment & Software Other PPE Firefighting Equipment and Accessories Motor Vehicles Communication Equipment Medical, Dental and Laboratory Equipment Land

Over/(Under) Statement P (5,651,677.20) (6,109,197.20) (20,094,356.47) (53,252,204.44) (2,062,188.67) (9,721.92) (3,914,451.00) (8,394,204.35) (13,886.00) (74,958,037.12)

Nature of Errors

PPE found during physical count and included in the RPCPPE but not recorded in the books of accounts

DA-OSEC

ATI-CO

Agricultural, Fishery and Forestry Equipment Furniture and Fixtures IT Equipment & Software Other PPE Other Assets Motor Vehicles Communication Equipment Office Equipment Medical, Dental and Laboratory Equipment Furniture and Fixtures Other PPE Motor Vehicles IT Equipment and Software Communication Equipment Office Equipment Various equipment

953,087.00 259,956.00 33,587,148.08 13,137.80 439,463.40 1,522,849.06 44,013,955.69 521,642.66 130,450.00 (45,753.75) 22,835.00 556,893.16 (1,962,659.09) (98,939.00) 200,187.40 282,600.00

transferred/disposed PPE not yet dropped from the books

Procurement of various equipment charged to trust fund from NAFC and BAR erroneously debited to asset account instead of direct deduction from the trust liability

BSWM

Office Equipment Furniture and Fixtures IT Equipment Agricultural, Fisheries and Forestry Equipment Communication Equipment Other Machineries and Equipment IT Equipment Office Equipment Land Improvement

(106,500.00) (218,399.64) (237,694.00) (359,000.00) (102,090.00) (226,295.00) 25,040.00 1,185.00 8,626,844.60

Acquisition of various equipment debited to Other MOOE account instead of PPE accounts

RFU IV-ARegional Crop Protection Center and Quezon Agricultural Experiment Station

Procurement of office supplies debited to PPE accounts instead of Prior Years Adjustments account Construction of multi-purpose drying/solar dryer pavement, installation of water pumps and drilling cost of shallow tube wells already donated to LGUs of Laguna and different barangays in Quezon Province still recorded in the books

156

Office

Accounts affected Agricultural, Fisheries and Forestry Equipment Construction and Heavy Equipment Medical, Dental and Laboratory Equipment

Over/(Under) Statement 5,424,250.00

RFU IV-B RFU IX

(37,600.00)

(17,870.00)

RFU XI DA-OSEC

Motor Vehicles Furniture and Fixtures Office Equipment IT Equipment & Software Motor Vehicles Communication Equipment

(350,000.00) 12,365.00 8,736.00 2,546,739.72 (1,882,255.37) 38,004.00 448,400.00 157,632.00 1,850,752.25 244,243.00 333,600.20 1,281,842.17 21,839.05 62,607,020.30 20,814,458.76 9,536,737.06 2,355,054.00 41,294.52 340,760.00 904,559.66 (939,230.82) (1,318,488,289.41) P(1,299,406,937.91 )

Nature of Errors Agricultural, Fisheries and Forestry Equipment already received by the program beneficiaries still recorded as PPE Purchase of bagger debited to Other Supplies Expense instead of Construction and Heavy Equipment account Fabrication of distilling apparatus debited to Office Supplies Expense instead of Medical, Dental and Laboratory Equipment account Unrecorded Motor Vehicle

Double recording of PPE

DA-OSEC Office Buildings Office Equipment IT Equipment & Software Furniture and Fixtures Communication Equipment Motor Vehicles Other PPE BPI BAS RFU II RFU III RFU IV-A (RCPC) RFU IV-B (ORMAES) Various PPE Various PPE Motor Vehicles Various PPE Various PPE Various PPE Motor Vehicles Various PPE DA-OSEC Other PPE Net Understatement

assets for disposal and destroyed by fire still recorded as PPE

Overstated recording of donated motor vehicle Understatement of CIP- Agency Assets under SAIS-BC Erroneously recorded as Other Assets account instead of Other PPE

27.6

The Toyota Land Cruiser acquired by Food Agriculture Organization of the United Nations (FAO/UN) in December 2002 and donated to DA on February 26, 2010 was recorded at acquisition cost of P1,005,066.29 instead of its salvage value of P100,506.63. The Other Assets account amounting to P1,318,488,289.41 was set-up on July 27, 2011 for the accounts payable in favor of the China National Constructional and Agricultural Machinery Import and Export Corporation under the General Santos Fishport Complex (GSFPC) Expansion/Improvement Project which should have been debited to Other PPE account.
157

27.7

27.8 27.9

Management requested from COA for relief of accountability over the burned equipment, but the same has not yet been granted by COA. We recommended that management instruct the concerned Accountants to prepare adjusting entries to correct the affected accounts since the request for relief from accountability has not yet been granted. The incident should be disclosed in the Notes to Financial Statements.

b.

unsupported/doubtful SL balances of PPE accounts P4.689 billion

27.10 Pursuant to Section 12 of the NGAS Manual for National Government Agencies, subsidiary ledgers for Property, Plant and Equipment Ledger Cards (PPELC-SL) shall be used to record the acquisition, custody, estimated life, depreciation, transfers, adjustments, disposal, maintenance expenses, and other information about the asset. 27.11 Section 43, paragraph 4 of the NGAS Manual, Volume I, also provides that For check and balance, the Property Supply Office/Unit shall maintain Property Cards (PC) for property, plant and equipment. The balance in quantity per PC should always reconcile with the ledger cards of the Accounting Unit. 27.12 Various deficiencies were noted in the audit of PPE in various DA Offices, totaling P4,689,192,759.89, as follows:
Deficiency PPE supported only with SL marked For Reconciliation Property, Plant and Equipment Ledger Card (PPELC) not maintain for each class of asset Office OSEC BAR BAI RFU IV-A RFU V RFU VI BAI RFU I PPE Account Various PPE Various PPE Various PPE Various PPE Various PPEs Various Equipment Land Construction in Progress Land & Land Improvements Other Property, Plant and Equipment Various PPE Various PPE Furniture & Fixtures Construction in Progress Land Other Structures Amount P2,353,370,854.26 44,579,760.91 297,381,850.05 14,053,121.01 708,670,172.92 184,912,519.53 50,884,552.19 1,092,457.05 6,218,272.25 2,197,381.00 245,903,460.10 221,099,423.07 11,564,156.14 321,141.87 3,271,297.08 41,922,399.92

Lack supporting documents to prove ownership and valuation of the property No files/records available

Unreconciled variance between the G/L and PPE schedules and included in the schedule is a negative amount of P7,664,717.19. PPELCs and Property Cards (PC) not updated and SLs not maintained Unreconciled items Reconciling item Undocumented dormant accounts Unidentified structures

RFU II RFU IV-B RFU V RFU VI

158

Deficiency Unreconciled variance between the G/L and S/L Absence of Inventory Report, PPELCs and property cards Total

Office RFU VII RFU XII

PPE Account Various Equipment Various Equipment

Amount 172,401,414.50 329,348,526.04 P4,689,192,759.89

27.13 The unsupported/doubtful balances materially affected the reliability of the PPE accounts, accumulated depreciation, and government equity account balances as of December 31, 2011. 27.14 We recommended that management: a. require the Accountant to substantiate and evaluate all PPE accounts with subsidiary ledgers marked For Reconciliation; and effect the appropriate adjustments in the books; b. submit the necessary and appropriate documents supporting the ownership of BAI and RFU V over several lands, including their valuation; create a Committee to retrieve records to support the dormant accounts and to make proper coordination with those previously in charge, if possible; direct the Accountant to reconcile the schedules of PPE accounts with the the GL; and instruct both the Accountant and the Property Officer to maintain PPELCs and PCs, respectively, which should be reconciled every quarter. non-recognition/insufficient depreciation for PPE costing P1.933 billion

c.

d. e.

c.

27.15 Depreciation is the systematic and gradual allocation of the depreciable amount of assets over its useful life. Sections 67 and 68 of the NGAs Manual, Volume I provide that the cost of Property, Plant and Equipment are allocated to the periods benefited through the provision of accumulated depreciation, and that depreciation shall be computed using the Straight Line Method. Depreciation shall start on the second month after the purchase of the property and equipment, and a residual value equivalent to ten percent of the purchase cost shall be set. 27.16 Audit of PPE accounts disclosed that the following PPE accounts totaling P1,933,148,278.78 were not provided with depreciation at year-end resulting in the overstatement of the total reported PPE and Government Equity accounts by
159

an undetermined amount at DA-OSEC, BAI, RFUs III, IV-A, IV-B, and VI and P595,039.16 at BSWM, presented in the table below:
Office Affected PPE Account Cost of PPE Remarks

DA-OSEC

Office Buildings Office Equipment Furniture and Fixtures IT Equipment and Software Library Books Agricultural, Fishery and Forestry Equipment Communication Equipment Firefighting Equipment & Accessories Medical, Dental & Laboratory Equipment Technical and Scientific Equipment Other Machineries and Equipment Motor Vehicles Watercrafts Other Property, Plant & Equipment Motor Vehicles Land Improvements Other Structures Machineries Construction and Heavy Equipment Firefighting Equipment and Accessories Watercrafts Various PPEs
Other Structures

575,906,706.35 60,279,691.42 1,607,576.62 8,317,596.19 257,388.40 954,832.45 6,357,267.18 19,040.00 34,000.00 81,749,738.02 11,817,296.20 121,981,752.77 13,033,877.64 229,736,013.85 497,545.00
1,112,550,322.09

Only supported with S/Ls marked For Reconciliation and without any data or information such as date of acquisition and no accumulated depreciation provided Nine MVs not provided with allowance for depreciation since their acquisition

Sub total

BAI

4,628,116.73 6,534,607.96 2,800,291.94 1,049,692.91 208,217.15 1,565,072.92


16,785,999.61

Sub total

RFU III RFU VI RFU IVARegional Office

293,606,391.50
41,922,399.92

Other Structures Office Equipment Furniture and Fixtures IT Equipment and Software Agricultural, Fishery and Forestry Equipment Other Structures

1,352,819.16 3,317,111.80 687,407.25 2,735,082.80 5,960,700.00 69,626.00

Quezon Agricultural Experiment Station (QAES) Sub total

14,122,747.01

160

Office

Affected PPE Account

Cost of PPE

Remarks

RFU IVB

Land Improvements Office Buildings Other Structures Office Equipment Furniture and Fixtures IT Equipment and Software Library Books Machineries Agricultural, Fishery and Forestry Equipment Communication Equipment Medical, Dental and Laboratory Equipment Technical and Scientific Equipment Other Machineries and Equipment Oriental Mindoro Motor Vehicles Agricultural Other PPE
Experiment Station

48,086,259.26 22,669,575.85 6,048,572.90 7,065,560.84 27,064,333.80 8,914,187.15 16,644.00 3,993,500.00 34,044,819.30 632,379.00 198,880.00 990,000.00 13,911,427.50 6,347,981.00 34,555.00 25,369,887.17 205,388,562.77 Annual Depreciation (59,721.09) (3,699.90) 377,537.57 (928,054.19) 78,369.59 (57,859.50) (1,611.64) (595,039.16)

Various PPE

Sub total BSWM IT Equipment Furniture & Fixtures Medical, Dental, Laboratory Equipment Office Equipment Agricultural, Fisheries, & Forestry Equipment Communication Equipment Other Machineries and Equipment Sub total
Total

22,419,060.41 8,036,945.10 28,187,400.00 12,598,409.65 11,690,729.59 524,248.59 165,315,062.54 248,771,855.88


P1,933,148,278.78

27.17 We recommended that management instruct the concerned Accountants to provide allowance for depreciation on all depreciable assets to correct their net book value. d. unreconciled difference between balance per books and per RPCPPE P3.864 billion

27.18 Section 490 and 491 of the Government Accounting and Auditing Manual (GAAM), Volume I requires that the inventory report shall be reconciled with the Accounting Offices general ledger accounts and Equipment ledger cards and the Property Offices records, and that any discrepancy between physical and book balances must be investigated and cleared immediately. 27.19 Property management dictates that accounting and property records should always tally. Non-reconciliation of the two records taints the reliability of the recorded

161

balances of both the property and accounting units and is indicative of errors in either or both records. 27.20 Comparison of the balances per books of various PPE accounts with the RPCPPE in the OSEC, RFUs II, III, IVA, IVB, VII, X, BAR, BAS, BPI, and BAI showed an unreconciled variance of P3,863,959,549.87 as at year-end. Details are shown below:
Amount Office OSEC RFU II RFU III RFU IV-A RFU IV-B RFU VII RFU X BAR BAS BPI BAI Total Per Books P 2,954,335,391.57 504,051,966.46 293,606,391.50 22,492,261.64 216,833,218.39 352,656,211.19 272,541,645.01 44,579,760.91 132,707,045.83 805,188,936.49 649,935,803.89 Per RPCPPE P 571,084,270.92 111,994,831.06 241,498,453.86 51,957,870.51 34,897,562.08 174,594,801.43 247,641,293.95 43,924,248.96 132,809,511.36 571,095,322.32 586,163,547.24 Variance P 2,441,860,748.31 392,092,089.40 52,107,937.64 36,421,944.33 181,935,656.31 178,061,409.76 24,900,351.06 23,550,280.35 13,572,881.35 455,683,994.71 63,772,256.65 P 3,863,959,549.87

27.21 Likewise, in DA-OSEC, various equipment totaling P1,494,704,458.52 were recorded in the books of accounts but were not included in the RPCPPE, thus, their existence and condition could not be ascertained contrary to Section 66 of NGAS Manual, Volume II. Details are shown below:
PPE Account Markets and Slaughterhouses Library Books Agricultural, Fishery and Forestry Equipment Communication Equipment Technical and Scientific Equipment Other Machineries and Equipment Watercrafts Other Assets Motor Vehicles Office Equipment Medical, Dental and Laboratory Equipment Furniture and Fixtures IT Equipment & Software Other PPE Total Balance per Books P 11,396,855.58 1,715,388.40 5,824,832.44 91,278.40 81,749,738.02 11,860,884.20 13,033,877.64 1,319,008,669.90 49,452,095.50 71,219.10 38,000.00 38,945.00 311,987.89 110,686.45 P1,494,704,458.52

27.22 Per inquiry with the Property Division, the above PPE items could no longer be found during physical inventory; thus, were not included in the RPCPPE.

162

27.23 We recommended that management require the concerned Accountants and Property Officers to account the discrepancy of P3.864 billion between the book balance and the RPCPPE accounts and effect the appropriate adjustment to correct the information and balances of the accounts; and maintain property, plant and equipment ledger cards and property cards which should be regularly reconciled. e. non-conduct of actual physical count of reported PPE - P1.396 billion

27.24 Section 111.1 and 2 of PD 1445 states that: (1) The accounts of an agency shall be kept in such detail as is necessary to meet the needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government. (2) The highest standard of honesty, objectivity and consistency should be observed in the keeping of accounts to safeguard against inaccurate or misleading information. 27.25 Section 66 of the NGAS Manual, Volume II provides that the RPCPPE shall be used to report the physical count of property, plant and equipment 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. 27.26 Audit disclosed that the following DA Offices had not conducted or completed physical inventory of PPEs; hence, existence and condition of the PPE totaling P1,395,882,289.75 were not ascertained.
Office RFU II RFU IV-B- ORMAES RFU VI RFU XII BSWM Total P Amount 509,378,301.14 25,369,887.17 184,912,519.53 329,348,526.04 346,873,055.87 P 1,395,882,289.7 5

27.27 We recommended that management conduct a complete physical inventory of all properties owned by DA Offices at least once a year pursuant to Section 490 of the Government Accounting and Auditing Manual, Vol. I and submit Inventory Reports in the required form to the Office of the Auditor not later than January 31 and every year thereafter.

163

f.

58 motor vehicles not fully accounted and several PPE not found in the stations P62.904 million

27.28 Audit disclosed that in DA-OSEC, 56 motor vehicles (MV) valued at P49,331,791.72 were recorded under CECAP Fund 173 but were not included in the RPCPPE nor included in the list of MVs that were provided gasoline expenses by the DA. 27.29 Moreover, two motor vehicles with total acquisition cost of P197,790.00 were reported missing, as shown below:
Type of Vehicle TOYOTA CROWN SUPER SALOON PLATE NO. SCC-170(Reported Missing) MOTORCYCLE, YAMAHA SA-9939 SN:F8P (Reported Missing) Total Acquisiti on Date 12/31/99 12/31/94 Acquisition Cost P169,190.00 28,600.00 P197,790.00

27.30 Likewise, we noted that per PPE Inventory Report for CY 2011, several PPE issued to officers and employees of BAI totaling P13,374,428.97 were not found in the BAI stations. 27.31 We recommended that management instruct the concerned Property Officer to reconcile and account the discrepancy between the RPCPPE and the PPE listings; and locate the whereabouts of the 58 motor vehicles amounting to P49.530 million and the PPE in BAI totaling P13.374 million. g. misclassification of accounts

27.32 Section 112 of P.D. 1445 provides that Each government agency shall record its financial transactions and operations conformably with generally accepted accounting principles and in accordance with pertinent laws and regulations. 27.33 Audit disclosed that PPE accounts in OSEC, RFUs IVA, VII, and BSWM were misclassified although it did not affect the overall balance, the individual account balances affected were unfairly presented, as shown below:
Office OSEC Nature Completed project not reclassified or closed to proper PPE Amount P 1,592,863.61 193,410.00 10,806,447.22 38,800.00 67,550.00 570,634.48 Recorded as Construction in Progress Construction in Progress Construction in Progress IT Equipment IT Equipment Office Equipment Should be Other PPE Various PPE accounts Various PPE accounts Office Equipment Communication Equipment

RFU IV-A (RCPC & QAES) RFU VII Dormant since 2003 BSWM Erroneously debited to IT Equipment account Erroneously debited to Office Equipment account

164

Office

Nature

Amount 180,000.00 432,000.00

Recorded as Office Equipment Office Equipment Construction in Progress Irrigation, Canals and Laterals

Dormant for more than ten years Total

20,396,065.80

Should be Medical, Dental, Laboratory Equipment Agricultural, Fisheries and Forestry Equipment Other PPE

P 34,277,771.11

27.34

We recommended that management instruct the accounting section to reclassify all PPE accounts in accordance with proper classification of accounts in the NGAS. The management commented that some of these PPE were already reclassified to the proper PPE account in CY 2012. Further, they will continuously reconstruct and reconcile the PPE because most of these PPE were carry-over balance from OGAS to NGAS. Some of the documents cannot be located due to the transfer of records from one location to another.

27.35

Unserviceable Property not disposed P9.859 M 28. Other Assets Account in RFU XII, BAI and BAR representing unserviceable property in the amount of P9.859 million remained in the books and were not disposed of contrary to Section 79 of P.D. 1445, thus exposing them to further deterioration. It also included unreconciled balances amounting to P9.018 million. Section 79 of PD 1445 provides that When government property has become unserviceable for any cause, or is no longer needed it shall, upon application of the officer accountable therefore, be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned, and, if found to be valueless or unsalable, it may be destroyed in their presence. If found to be valuable, it may be sold at public auction to the highest bidder under the supervision of the proper committee on award or similar body in the presence of the auditor concerned or other duly authorized representative of the Commission xxx. Summarized below are the balances of Other Assets account of RFU XII, BAI, and BAR:
Office RFU XII BAI Amount P 2,656,845.67 4,579,030.04 165

28.1

28.2

BAR Total

2,622,983.75 P9,858,859.46

28.3

Audit of the Other Assets Account in RFU XII disclosed that the balance of P2,656,845.67 as of December 31, 2011 represents unserviceable properties. These were not disposed of and remained in the books of accounts since 2008. Management had not initiated an action for their final disposal, despite not being used. Moreover, interview with the General Services Officer disclosed that the said disposable properties were not itemized in an Inventory and Inspection Report of Unserviceable Property (IIRUP), which should have been the basis in recording in the Other Assets account. In BAI, audit also revealed that there was an unreconciled balance of P9,018,320.97 between the IIRUP of P13,597,351.01 and the book balance of P4,579,030.04. Likewise, verification in BAR revealed that the unserviceable properties/ nonfunctioning equipment totaling P2,622,983.75 were awaiting disposal for almost five years. The Inspection Report on these unserviceable properties prepared by the Property Officer-in-Charge during the year, as a requirement for disposal, was different from the list of unserviceable properties issued before such inspection. Failure of the agency to dispose the unserviceable properties, specifically the valuable ones, exposed them to further deterioration. The agency could have generated additional income had these properties been disposed of through sale by public auction. We recommended that management dispose the unserviceable properties that no longer provide economic benefit to the agencies in accordance with Section 79 of PD 1445; and require the concerned Accountants and the Property Officers to reconcile the accounting and property records on unserviceable properties. Management in its response stated that a new committee was created with the leadership of the newly designated Chief of the General Services to conduct and update inventory of all assets that are unserviceable and take necessary action to dispose them.

28.4

28.5

28.6

28.7

28.8

28.9

Doubtful validity of the liability accounts P9.980 B 29. The total reported balance of the liability accounts of P 9.980 billion as of December 31, 2011 was not valid nor accurate due to the (a) outstanding payables of P1.345 billion aged two years which should have been reverted to the general fund; (b) undocumented liability accounts totaling
166

P982.946 million; (c) misclassification of liability accounts amounting to P46.436 million; and (d) overstatement of P1.247 billion due to accounting errors. 29.1 Section 98 of PD 1445 states that The Commission, upon notice to the head of the agency concerned, may revert to the unappropriated surplus of the general 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. 29.2 Section 12 of the NGAS Manual, Volume II, provides that The SL is a book of final entry containing the details or breakdown of the balance of the controlling account appearing in the GL. xxxx. The totals of 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. The DA consolidated financial statements as of December 31, 2011 showed total Payable accounts in the amount of P9,980,101,989.10. a. payables aged more than two years not reverted to General Fund P1.345 billion 29.4 Analysis of the Accounts Payable in DA-OSEC and RFU XIII disclosed that of the payables of P1,514,096,735.53, the amount of P 1,344,721,611.94 or 88.81% had been outstanding for more than two years as of December 31, 2011, broken down as follows:
Agency DA-OSEC XIII Total Affected Accounts Accounts Payable Account payable Balance P 1,360,338,468.18 153,758,267.35 P 1,514,096,735.53 Less than 2 years P 16,779,498.16 152,595,625.43 P169,375,123 .59 More than 2 years P 1,343,558,970.02 1,162,641.92 P1,344,721,611.94

29.3

29.5 29.6

Section 98 of PD 1445 requires the reversion to the general fund of the national government payables that are more than two years. Analysis of the Accounts Payable aged more than two years revealed the following errors and deficiencies:
Agency RFU XIII Errors/deficiencies No valid claimants or adequate supporting documentation for which no demand for payment has ever been made by LGUs for the rehabilitation of diversion dam and the construction of the farm-to-market road 167 Overstatement of A/P

1,153,000.00

DA-OSEC

Accounts Payable without valid claims Total

131,101,052.82 P132,254,052.82

29.7

We recommended that management require the concerned Accountants to revert outstanding payables aged two years and above and unsupported payables without valid claimants/documents to the general fund. The management commented that DA-OSEC, RFUs II, IV-A and XIII have already reverted/corrected the payable accounts in their books of accounts in CY 2012. b. undocumented liability accounts - P982.946 million

29.8

29.9

Verification disclosed that various payables in the total amount of P982,945,772.17 were not supported with subsidiary ledgers and other pertinent documents, as follows:
Agency BAI Affected Account Due to National Treasury Due to BIR Due to GSIS Due to Pag-ibig Due to Philhealth Due to Other NGAs Due to Other GOCCs Due to LGUs Guaranty Deposits Payable Performance/Bidders/Bail Bonds Payable Other Payables Due to Other NGAs Due to Officers and Employees Due to GSIS Due to BIR Due to Pag-ibig Due to Other NGAs Amount P 2,290,692.30 403,458.55 206,750.78 518,260.80 31,180.07 572,338,708.68 133,027.77 53,385.10 248,815.50 1,763,810.95 38,780,856.07 90,289,525.39 2,485,106.95 830,920.61 3,726,402.35 830,920.61 257,279,101.42 Remarks Not supported with subsidiary ledgers/details of the account

BAR
RFU-II

No details of beginning balance

DAOSEC

Accounts Payable

10,734,848.27

Beginning balance in the schedule of P232 million not supported with details, SLs for each source agency not updated and some liquidations not reflected in the SLs No details/ information on SLs of Accounts Payable marked For Reconcilia-tion under the account of Catanduanes Agricultural Support Programme (CATAG)

Total

P982,945,77 2.17

29.10 These payables were not reverted to the general fund contrary to the provision of DBM-COA Joint Circular No. 99-6 dated November 13, 1999, which requires that all undocumented accounts payable, regardless of the year they were incurred shall immediately be reverted to the Cumulative Results of OperationsUnappropriated.
168

29.11 We recommended that management require the concerned Accountants to maintain SLs and prepare schedules of SL balances to substantiate reported balances of the payable accounts and analyze the payable accounts with SL marked For Reconciliation and make appropriate adjustments to reflect the correct balances of the payables. c. misclassification of liability accounts- P46.436 million 29.12 In RFU II, there were misclassification of liability accounts in the amount of P46,436,251.51, as shown in the table below:
Agency RFU II Amount P 16,524,945.30 11,011,235.21 18,900,071.00 Total P46,436,251. 51 Recorded as Other Payables Due to LGUs Due to Operating Units Should Be Accounts Payable Accounts Payable Accounts Payable Remarks Error in recording restoration of unreleased checks

29.13 The above cited deficiencies rendered the balances of the payable accounts of DA RFU II unreliable for CY 2011. 29.14 We recommended that management require the Accountant of RFU II to make appropriate adjustments to reflect the correct balances of the payables. d. overstatement of liability accounts due to accounting errors- P1.247 billion
Agency RFU IV-A RFU V Affected Account Accounts Payable Due to Other NGAs Overstatement of Payable Accounts P 3,350,000.00 36,974,357.27 Nature The accounts payable was taken up at yearend despite the non-delivery of goods. Pertains to unrecorded liquidations for fund transfers from 2005 to 2008 which were unintentionally overlooked and not debited to the account Due to Other NGAs, instead these transactions were erroneously recorded as debits to the account Prior Years Adjustments. This amount was directly paid by the Foreign Lending Institutions (FLIs) for the services of the suppliers/contractors/ consultants in CY 2011, however, the payments were not yet taken up in the books of accounts of DA resulting in the overstatement of the payable accounts.

DA-OSEC

Accounts Payable

1,206,566,116.69

Total

P1,246,890,473.96 169

29.15 Further examination of related documents in DA-OSEC and interview with the concerned accounting staff revealed that the immediate recording of the various payments made by the FLI is hindered by the delayed/non-issuance by DBM of the required NCAA despite the constant request by DA for the issuance of the same. The DA Accountant does not record direct payments made until the requested NCAA from the DBM are received as basis for recording, thus, the Accounts Payable pertaining to the payment of services of suppliers, contractors and consultants remained unadjusted in the books of DA. Another option considered by DA is to request a JEV from the BTr, which controls the foreign loans, as basis for adjusting Accounts Payable but the receipt of the JEV were also oftentimes delayed. 29.16 We recommended that management require the concerned Accountants to: a) make representation with the DBM for the immediate release of NCAA, and the JEV at the Bureau of Treasury as basis for dropping the Accounts Payable already paid by foreign lending institutions through the direct payment scheme; and b) prepare/update the Subsidiary Ledgers of Due to Other NGAs and record all liquidations made to source agencies to reflect the correct balance of the accounts. 29.17 The management commented that with regard to the NCAA release, the DAOSEC is already coordinating with the DBM for its issuance. Doubtful validity of various expense accounts 30. Accounting errors in the recording and classification of transactions resulted in a net overstatement of P55.042 million of several expense accounts. Further, there were irregularities in expenditures totaling P84.868 million casting doubt on the validity of reported expenditures. a. accounting errors 30.1 A net overstatement of P55,041,941.91 was noted in the expense accounts balances due to various errors, to wit:
Over(Under) statement of Expense Account 19,382,759.00

Office CAR

Particulars/Deficiency Fund transfers to LGUs, GOCCs, and NGOs/POs recorded as

As Recorded Donations

Should Be Due from GOCCs Due from LGUs

Amount 2,450,000.00 7,806,759.00

170

Office

Particulars/Deficiency expense Payment to suppliers for farm inputs, implements and equipment intended for distribution, recorded as expense. No documents showing receipt of items by the beneficiaries. Expenditures for land and building improvements were not capitalized. Purchase of equipment recorded as expense. were

As Recorded

Should Be Due from NGOs/POs

Amount 9,126,000.00 27,452,920.93

Over(Under) statement of Expense Account

Donations

Inventory account

or

PPE

27,452,920.93

RFU III

Other Maintenance & Operating Expenses

Land Improvements Land Improvements Land Improvements Office Buildings Other Structures

72,107.74 1,437,137.72 2,916,431.71 778,960.40 372,170.05 256,055.80 458,035.00 5,424,250.00 458,035.00 (5,424,250.00)

RFU IVB RFU IX

Purchase of ultra low freezer, upright 12 cu. ft. Farm equipment already distributed and received by beneficiaries recorded as PPE Purchase of bagger recorded as expense Fabrication of distilling apparatus was not capitalized. Payment to suppliers for farm inputs, implements and equipment intended for distribution were recorded as expense instead of asset account. No document/s showing receipt of items by the beneficiaries. Payment of contractual fee for 2010 transactions charged to trust fund. Overstatement of recorded liquidation of cash advances for 2010 travel, which was partly funded from trust fund. Electricity consumed by tenants in CY 2010 recorded as expense. Water consumed by ATI totaling P198,685.22 was not taken up in the books. Total

Donations Agricultural, Fishery and Forestry Equipment Other Supplies Expenses Office Supplies Expenses Donations

Med., Dental & Lab. Eqpt. Donations

RFU X

Construction and Heavy Equipment Medical, Dental and Laboratory Equipment Inventory or PPE account

37,600.00 17,870.00 10,048,423.14

37,600.00 17,870.00 10,048,423.14

ATI

Prior Years Adjustments (Other Professional Services) Prior Years Adjustments (Traveling Exp. Local) Prior Years Adjustments (Electricity Exp.) Other Receivables

Due to Other NGAs

3,313.68

3,313.68

Due to Other NGAs

23,596.00 154,432.00 169,495.67 198,685.22

178,028.00

Other Receivables Prior Years Adjustments (Water Expenses)

169,495.67 (198,685.22)

P55,041,941.91

30.2

It was also noted that there were inconsistencies in the accounting treatment of procurement of shredders in BSWM. For CY 2009, the purchase was recorded under Donations account while in CY 2010, procurements were recorded as
171

Agricultural Supplies Expenses. The difference in accounting treatment, however, was not disclosed in the Notes to Financial Statements. 30.3 We recommended that management, Accountants, and personnel concerned in the regional offices and bureaus of the department: a) ensure that expenses are charged to appropriate funds, within the purpose, and in accordance with the provisions of applicable laws, rules and regulations; b) record in the books of accounts, upon payment to suppliers, the costs of agricultural supplies, machineries and equipment that are intended for distribution to farmer-beneficiaries in the appropriate inventory or asset account and that Donations account be taken-up only upon actual distribution and receipt of the items by the beneficiaries, duly supported with appropriate documents evidencing such receipt;

c) drop from the asset accounts the agricultural equipment already distributed and duly received by beneficiaries and record the appropriate expense account which is Donations; and

d) record payments from trust funds as debit or deduction to liability of the implementing agency (IA) and not as expenses as provided under COA Circular No. 94-013 dated December 13, 1994. b. irregularities in expenditures 30.4 In addition, it was observed that there were various irregularities in the disbursement of funds, viz:
Office/Region RFU CAR Account Rent Expenses Deficiency/Observation Overpayment due to the number of days paid on rental of motor vehicles which was more than the actual number of days travelled. Payment for catering services, various disbursements of DA Provincial Offices, extraordinary expenses, LGU incentives, CNA, and accounts payables are not valid charges to the account. No funds were allocated for MOOE in the Agency Budget Matrix of the regional office. Reimbursement of plane fares of DA Central Office personnel were charged to the funds of the region even if the purpose and place of travel is not connected with the Amount P 111,251.00

RFU VII

Other Maintenance and Operating Expenses

59,920,958.87

RFU VIII

Traveling Local

Expenses

56,984.00

172

Office/Region BSWM

Account Other MOE

BSWM

Donations

ATI BAS

Traveling Expenses Petty Cash Fund

Deficiency/Observation operations of the region. Payments of honoraria charged to MOOE were not included in the Work and Financial Plan of the Projects where such expenses were charged signifying that there were no budgets or funds allotted for such purpose. Recording of assets/projects were made upon receipt of liquidation reports from LGUs and not upon issuance of Deed of Donation and Certificate of Turnover by the bureau. Liquidation Reports for travels were recorded in the books without supporting documents. Replenishment of the Petty Cash Fund for the period January 1 to December 31, 2011 included payment for notarial fees despite the hiring of a BAS Legal Consultant.

Amount 5,350,900.00

19,246,322.85

154,432.00 26,900.00

Total

P84,867,748.72

30.5

Furthermore, purchased equipment intended for distribution to Local Government Units, cooperatives and farmer-beneficiaries were taken-up in the books of BSWM as donations even in the absence of documents which shall serve as proof that the items were already received by the intended beneficiaries. Various equipment and projects given/distributed by the agency in the amount of P13,155,000.00 and P 464,097,199.00 for the years 2010 and 2009, respectively, were taken up as expenses even in the absence of ARE, Deed of Donation or Certificate of Turnover, as the case maybe, evidencing the turn-over or distribution and receipt of the equipment/project by the intended beneficiaries. As provided under COA Circular No. 94-013 dated December 13, 1994, the appropriate asset and expense accounts shall be reported in the books of the source agency (SA) upon submission of liquidation by the implementing agency (IA). Assets procured by the IA shall be recorded in the books of the SA until a Deed of Donation/Certificate of Turnover is given by the SA to the IA. We recommended that management, Accountants, and personnel concerned in the regional offices and bureaus of the department require the refund of overpaid claims/expenses. The management commented that: a) b) disallowed payment for notarial services out of petty cash fund will be refunded by the accountable officer; and RFU VIII had refrained from charging plane fares of DA Central Office personnel to the funds of the region since September 2011.

30.6

30.7

30.8

173

Excess Cost in the Procurement of Equipment P4.851 Million 31. The cost of 135 sets of equipment procured by DA-RFU X for the BFT project amounting to P14,627,874.00 was overpriced by P4,851,282.00; thus, considered an excessive expenditure as defined in COA Circular No. 85-55A. Paragraph 3.3 of COA Circular No. 85-55A dated September 8, 1985 defines excessive expenditures" to be those that signifies unreasonable expense or expenses incurred at an immoderate quantity and exorbitant price. It also includes expenses which exceed what is usual or proper as well as expenses which are unreasonably high, and beyond just measure or amount. They also include expenses in excess of reasonable limits. In CY 2010 and during the first quarter of CY 2011, the DA-RFU X procured 135 sets of chillers and freezers in the total amount of P14,627,874.00 for the implementation of Barangay Bagsakan and Barangay Center Projects. The specifications and unit costs of the equipment procured for both transactions are as follows:
Item 1 2 Amount Per Unit (P) 76 59 Chiller 11 cu. Ft glass door, vertical, fully 49,724.00 dynamic R134a Refrigeration system 46,176.00 Freezer 17 cu. Ft glass door, horizontal freezer, 62,404.00 fully static R134a Refrigeration system 57,318.00 Total, for 76 Units Total, for 59 Units GRAND TOTAL Item Description Amount P 3,779,024.00 2,724,384.00 4,742,704.00 3,381,762.00 8,521,728.00 6,106,146.00 P 14,627,874.00

31.1

31.2

31.3

Payment details of the procurement follow:

174

DV No. / Check No. 10-073794 0309475

Dates 07-28-10 07-30-10

Payee

Particulars 59 units

Amount

Filipinas Thermo King, Inc.


(funded under ASA No. 101201-196 dated March 25, 2010)

Net Total Amount 10-1201-07-11 8072 03-30-11 0895099 Net Total Amount

76 units

11 cu.ft. P 6,106,146.00 Chiller Less: 17 cu.ft. Chest 5% VAT 272,595.80 Freezer 1% EWT 54,519.16 P 5,779,031.04 P 8,521,728.00 Less: Ret.Fee 852,172.80 5% VAT 380,434.29 1% EWT 76,086.86 P 7,213,034.05

31.4

It was noted that there were differences in prices between the two procurements for the 135 sets of chillers and freezers. According to management, the cost of the 76 sets of equipment included the additional costs entailed by participating in the bidding conducted for the procurement, detailed computation shown below:
Particulars Unit Cost at Source P 24,200.00 34,000.00 Total Cost P 1,839,200.00 2,584,000.00 0.00 0.00 320,000.00 70,000.00 50,000.00 300,000.00 56,300.00 442,320.00 525,366.08 150,000.00 0.00 0.00 0.00 814,978.51 0.00 0.00 6,337,186.08 913,042.28 380,434.28 76,086.85 204,521.47 610,457.04 P 8,521,728.00 +/-92.66% Bid/Contracted Cost Representing % of the Bare Cost

76 Chillers 76 Chest Freezers Bare Cost of the 76 sets of Equipment from Canvass Source Additional Costs: Freight Charges Crating of Units Insurance and Bonds Trucking and Delivery Charges Storage Fee Provision for Warranty (10%) Cost of Money for the Expenses Incurred (2% per month) Mobilization Charges (Plane Tickets/Allowances) Total Direct Cost VAT Creditable Tax, 5% EVAT 1% Net Income After Tax Cost of Retention at 2% per month Net Income Contract Cost % of the Bare Cost

P 4,423,200.00

7.23 % 1.58 % 1.13% 6.78% 1.27 % 10% 11.88% 3.39% 43.26% 14.41% 6% 1.20% 12.86% 3.23% 9.63% +/-90.59%

175

31.5

After a careful scrutiny of the managements explanation, the team maintained that the contract cost for the 76 sets of BB equipment are excessive having been applied with a more or less 90.59% add-on to the basic cost as canvassed. The Audit Team believed that only the freight charges, crating of units, insurance and bonds, and 10% for incidental expenses were worth considering from among the charges added on the basic cost of the units as purchased from the source. During the exit conference, the Finance Chief commented that it has been their practice to follow the ABC per the PMPP they submitted for inclusion and approval in their annual budget. The cost of the equipment they adopted for their PMPP was the prior years cost they had in their previous purchases (CY 2009) of the same item. The Team explained that since prices of commodities fluctuate from time to time, there is a need to re-canvass for purposes of actual procurement. The costs as reflected in the PMPPs are for budget purposes only and not to be made the basis for bids. Necessarily, the ABC intended for bidding should be prepared on the basis of the actual and recent data/information (e.g. canvass) gathered to come-up with a more reasonable ceiling price during bids. Given the sizeable number of units required to be purchased, the programmer could have just added-on to the basic cost of the unit, as canvassed, a certain percentage for the overhead, contingencies and miscellaneous expenses to be allocated for the various expenses that may be incurred while bidding for, transacting, and delivering the items. Such may be pegged at a rate that is generally acceptable in the industry or trading business. It is the technical and auditorial view of the Team that a 22% maximum increase in the basic cost of the equipment may be considered in coming up with a reasonable cost for goods to be procured, to include (a) 10% for freight, crating, and handling, (b) 10% for insurance and warranties, and (c) 2% for other incidental expenses. The profit margin and 12% VAT were deemed included in the base cost of the equipment as canvassed. This is believed to be reasonable added to the fact that the quantity involved in the procurement is substantial. Inasmuch as the justification made by management may be applied to the two transactions, we also re-computed for the estimated variance in cost for the 59 sets of the equipment procured in CY 2010.

31.6

31.7

31.8

31.9

31.10 Thus, considering a conservative 22% add-on, the cost of the contracted 135 sets each of chillers and freezers at FOB Destination should have been as follows: Particulars Base Cost as Canvassed (12% VAT Inclusive)
Total for 76 Units Total for 59 Units Total Bare Cost of the 135 Sets of Equipment 176

Chiller (P) 26,600.00


2,021,600.00 1,569,400.00 3,591,000.00

Freezer (P) 32,760.00


2,489,760.00 1,932,840.00 4,422,600.00 8,013,600.00

Particulars

Chiller (P)

Freezer (P)
1,762,992.00 9,776,592.00 4,742,704.00 8,521,728.00 3,381,762.00 6,106,146.00 14,627,874.00 4,851,282.00

+ 22 % OCM to include Profit Margin Amount Per COA Review (a) Amount as Contracted, 76 Sets 3,779,024.00 Total, 76 sets Amount as Contracted, 59 Sets 2,724,384.00 Total, 59 sets Total Amount as Contracted (b), 135 Sets Excess Amount Contract Costs vs COA Computed Cost (b-a)

31.11 We recommended that management compel the persons liable to refund the excess amount of P4,851,282.00 in the procurement of 135 units of chillers and freezers. 31.12 The management believes the propriety of the procurement and the reasonableness of contract price. 31.13 The Team maintains that the cost of the 135 units of chillers and freezers are deemed overpriced by P4,851,282.00 thus, excessive and exorbitant as defined in Paragraph 3.3 of COA Circular No. 85-55A dated September 8, 1985, and should be recouped in favor of the government. Unutilized Project Funds Transferred to Another Agency - P79.846 Million 32. The unutilized balance of P79.846 million of the fund transfer by DA to the Philippine Coconut Authority (PCA) for the implementation of the DAs Biotechnology Program was subsequently transferred to the NABCOR despite the expiration of the agreement with PCA in violation of Section 6.7 of COA Circular No. 94-013 dated December 19, 1994. A MOA was made and entered into on December 22, 2005 by and between the DA represented by its former Secretary Domingo F. Panganiban, and PCA, represented by its Administrator, Jesus Emmanuel M. Paras. It was agreed in the MOA that DA would release the amount of P103,065,000 to PCA for the implementation of the DA Biotechnology Program. On March 27, 2006, another MOA was entered into by and between the same parties for the release of P24,809,908.00 for the same program or a total of P127,874,908.00 to implement the program. In her memorandum for the DA Secretary dated January 2, 2007, the Director, DA Biotechnology Program Implementation Unit, requested approval to transfer the unutilized funds to the NABCOR as the programs new fund manager considering that the fund management contract with PCA had expired on December 31, 2006 and having expended only the amount of P48,283,886.94. Said Memorandum was approved by then DA Secretary Arthur C. Yap.
177

32.1

32.2

32.3

32.4

In his letter dated March 14, 2007, the Steering Committee Chair of Philippine Agriculture and Fisheries Biotechnology Program, requested the PCA Administrator to transfer the cash balance to NABCOR and to liquidate to DA the amount disbursed. A subsequent letter dated April 10, 2007 was also sent to the PCA Administrator reiterating the previous request to transfer the funds to NABCOR. The amount of P79,846,443.50 was then transferred by PCA to NABCOR, as shown in the following Official Receipts issued by NABCOR to PCA:
OR Number 8899843 8899845 8899756 8899853 8899872 TOTAL Date May 4, 2007 May 18, 2007 June 26, 2007 November 23, 2007 December 28, 2007 Amount P 30,000,000.00 22,000,000.00 26,896,871.72 536,854.00 412,717.78 P 79,846,443.50

32.5

32.6

In view thereof, a new MOA was executed by and between DA, represented by the DA Secretary and the NABCOR, represented by its President, on March 14, 2007, for the transfer of P79,846,443.50 for the implementation of the DA Biotechnology Program and the Agricultural Biotechnology Roadmap. It was provided in Article 7 of the MOA that the agreement shall remain in effect until December 31, 2007. However, on November 14, 2011, the extension of the MOA between DA and NABCOR from January 2008 to December 2012 was approved by Sec. Proceso J. Alcala. There was no provision in any of the MOAs executed regarding the disposition of any unused balance. In the absence of such stipulation, we refer to Section 6.7 of COA Circular No. 94-013 dated December 19, 1994 which provides that the Implementing Agency (IA) shall return to the Source Agency (SA) any unused balance and refund of disallowance upon completion of the project. Likewise, Section 5.5 of the same Circular states that the SA shall issue the official receipt for the unexpended balance and the refunded disallowance remitted by the IA. There was a clear trail that the fund is now under NABCOR, and that it served as the fund manager after the expiry of PCAs MOA on December 31, 2006. From the moment of transfer of funds from PCA to NABCOR, the latter became accountable for the funds since it was tasked to implement the DA Biotechnology Program and the Agricultural Biotechnology Roadmap. The DA, however, is still responsible for the fund transfer being the source agency because it is where the allotment had been originally released.

32.7

32.8

32.9

32.10 The multiple and circuitous transfer of fund could result in poor monitoring and confusing/obscured accountability over the fund as responsibility was transferred from one agency to another despite partial disbursements of the fund.
178

32.11 We recommended that management strictly comply with the provision of Section 6.7 of COA Circular No. 94-013 dated December 19, 1994 on the return of unutilized funds to the source agency for terminated projects; secure authority from DBM for NABCOR to utilize the amount for the same project and enjoin NABCOR to immediately submit liquidation reports for the project and/or return any unused funds intended for the Biotechnology Program and the Agricultural Biotechnology Roadmap to DA. 32.12 During the exit conference management informed that total liquidations of P11.472 million were received by PCA on June 7, 2012 and the amount of P 40.367 million is subject for audit by the NABCOR resident auditor. Further, they fully support the COA recommendation to request NABCOR to complete documentation and full liquidation of the fund transfer. Deficiencies in the Supply and Delivery of Software- P3.0 million 33. Payment of P3.0 million to Systems and Plan Integrator and Development Corp. (SPIDC) for the supply and delivery of one lot Government Application Software and Related Technical Services was not fully supported with complete documentation. Likewise, the project has not been operational after the lapse of more than two years resulting to wastage of government funds. The DA entered into a contract with the SPIDC on July 10, 2008 for the supply and delivery of one lot Government Application Software and Related Technical Services for a total contract price of P4 million. The project aims to improve the internal operations of the General Services Division, Personnel Division and Procurement Offices thru the implementation of General Services Management System (GSMS) and Personnel Management Information and Payroll System (PMIPS). The project has the following components:
Particulars A. 1 Lot SPIDC Govt. Application Software (GAS) 1. Software General Services Management System (GSMS) 1 Server license 5 Workstation License 1 yr. Maintenance Warranty Services Personnel Management Information & Payroll System (PMIPS) 1 Server license 5 Workstation License 1 yr. Maintenance Warranty Services Sub-Total 179 Amount Delivery Date per TOR 8/15/08

33.1

33.2

P 280,000.00 134,400.00 426,888.00 280,000.00 134,400.00 1,255,688.00

Particulars 2. Hardware 3 Bio-ID Kiosk @ P285,600.00 1 Digital personal fingerprint scanner 1 canon powershot digital camera Sub-Total Total for Lot A B. 1 Lot Related Technical Services 2 Customization warranty services for 1 yr. @ P94,080.00 1 request on any additional program/reports Request on modifications 2 Technical Consultancy & Proj. Mgt. for 1 yr. @ P156,800.00 1 Co-Project Management Mgt. Organization re-engineering assistance Assist in the formulation of systems & procedure Technical Consultancy on I.T. Planning Systems Documentation 1 System & Proj. Implementation for 6 months Implementation cost of deployment (w/c includes travel, food, board & lodging) Co-supervision of in house data-encoding Deployment of Govt. Application Software Training Application software users 10 pax System Administration 1 pax Database Administration 1 pax Network Administration 1 pax Data Build-up Personnel Records 600 records @ P50.40 = P30,240.00 Inventory, MR, Supplies Records (Conversion & Cleansing) 20,500 records @ P22.40= P459,200.00 Total for Lot B GRAND TOTAL

Amount 856,800.00 13,440.00 15,960.00 886,200.00 P2,141,888.00 188,160.00

Delivery Date per TOR 8/15/08

12/15/10

313,600.00

703,728.00

10/22/08

163,184.00 10/30/08 12/3/08 12/28/08 11/28/09 489,440.00

1,858,112.00 P4,000,000.00

33.3

As indicated in the Information System Project Proposal and the Schedule of Payment, the project completion date was on January 10, 2009 or six months after signing of the contract. The supplier, however, requested for an extension of delivery until June 30, 2009 and was approved under BAC Resolution No. 0314 dated April 4, 2009. The BAC Resolution No. 0314 cited the following reasons as basis for granting the request for extension of SPIDC until June 30, 2009: a) Delayed submission of the end-users report and/or formal/final job request listing; b) Unavailability of the stakeholders/end-users on the supposed scheduled meetings/trainings;

33.4

180

c) Unavailability of the designated hardware (server and workstations to be used per Office), local area network facility/connection to the offices; d) Delay of the Officer-in-Charge, Systems and Management Division, to accept the delivered Bio-ID Kiosk on the grounds that the equipment was not presented to the end-users for further evaluation or testing prior to its delivery to determine its applicability and compatibility with the other existing systems of the DA; e) Personal Data Sheets and the Personal Information Sheets database were both outdated, thus, the migrated information was also outdated; and f) Failure of SPIDC to comply with the end-users requirement on deductions in daily time records, tracking and monitoring of attendance and other related matters. 33.5 As of December 31, 2011, DA already paid a total of P3,000,000.00 to SPIDC, as follows:
Particulars 10% mobilization fee upon signing of the contract (7/10/08) 45% upon acceptance of delivery and installation of Hardware and Software component (8/10/08) 20% upon completion of training (5/29/09-last training) TOTAL Gross P 400,000.00 1,800,000.00 800,000.00 P3,000,000.0 0 AMOUNT W/tax P 25,000.00 96,428.57 50,000.00 P171,428.57 Net P 375,000.00 1,703,571.43 750,000.00 P2,828,571.43

Check No./Date 467706/ 11-26-08 468418/ 12-23-08 594254/ 08-11-10

33.6

Review and evaluation of the documents supporting the 3 rd payment of P800,000.00 to SPIDC showed that of the 13 expected participants to the trainings, 24 DA personnel actually participated in the trainings conducted by SPIDC, as follows:
Course No. of Participants 12 10 1 1 Period Dec. 8-10, 2009 Dec. 3-5, 2009 May 11-15,2009 May 25-29, 2009 Total No. of Days 3 days = 36 3 days = 30 5 days = 5 5 days = 5

1)

Personnel Management Information and Payroll System (PMIPS) General Services and Management Systems (GSMS) Managing and Maintaining a Microsoft Server 2003 Environment Implementing a Microsoft SQL Server 2005 Database

TOTAL

24

76

33.7

While the 24 actual number of participants exceeded the proposed 13 participants, verification of the Schedule of Training Requirements and the proposal by SPIDC disclosed that the following trainings were not yet conducted: Training on Classroom & Laboratory Simulation
181

PMIPS Users Actual Operations - 188 days Completion Verification & Certification of Users Training 1 day

Training on System Usage on Actual Office Application Technical Assistance & Monitoring of End-user Application of System 35 days Training on Project & Systems Management Project & Application Systems Management Seminar Workshop 2 days Project Change Management Seminar/Workshop 3 days Network Administration Training 2.5 days Management Training Verification & Certification 1 day Project & Systems Management Actual Application & Monitoring 20 days Transition Management by DA Project Management 18 days 33.8 Further evaluation of the documents disclosed the following observations: a) The contract did not contain a provision on liquidated damages; b) There was no proof of posting in the PhilGEPS website; c) There was no proof of Performance Security posted; d) The Approved Procurement Plan (APP) together with the Information System Strategic Plan (ISSP) duly received by the NCC and supported with Project Procurement Management Plan (PPMP) was not complied; e) The submitted Certificate of Exclusive Distributorship is designed for the LGU government software and not for the NGA and was executed under oath by the representative of the supplier itself; f) There was no Annual Procurement Plan and no copy of the letter to selected manufacturer/supplier/distributor to submit price quotation and condition of sale was attached to the disbursement vouchers nor submitted as required in RA 9184. Only the Purchase Request and BAC Resolution No. 0246 were submitted; g) The BAC recommended the awarding of the project thru direct contract due to the urgency of the project as stated in BAC Resolution No. 0543. The urgency of the project, however, was not properly established by management as the system remains unoperational to date.

182

33.9

It was also observed that the project has not been operational after the lapse of more than two years, thus, resulted in the waste of government funds in violation of Sec. 2, PD 1445 which states that . . . . It is the declared policy of the State that all resources of the government shall be managed, expended or utilized in accordance with law and provisions, and safeguarded against loss or wastage through illegal or improper disposition, with a view to ensuring efficiency, economy and effectiveness in the operation of the government. The responsibility to take care that such policy is faithfully adhered to rests directly with the chief or head of the government agency concerned.

33.10 The above reasons and conditions indicate that the end-users were not consulted during the planning phase of the project and prior to its implementation to establish the necessity and urgency of the project and also to determine the compatibility of the proposed system with the existing systems the agency is maintaining. 33.11 We recommended that management (a) investigate the delay in the project implementation and identify the persons responsible; and take appropriate action/ measures to resolve the issues regarding its procurement and the delayed operation of the project; (b) submit the required documents; (c) justify the payment made to the contractor despite incomplete trainings conducted and non-imposition of liquidated damages; and (d) explain the non-utilization of the equipment delivered in 2008 which are now exposed to the elements of wear and tear. 33.12 Management commented that the trainings were completed within the duration of the contract and its extension. Hence, as per schedule of payment, the amount of P800,000, which is 20% of the contract price, was recommended to be paid. The SPIDC is bent on implementing the project with no extra cost. They plan to continue the interrupted activities once BAC decides favorably for its resumption. After the meeting of the BAC with the end-users, Chief Accountant and COA on May 24, 2012 the PMIPS is now being used by the contractual employees but modification is still ongoing to comply with the end-users requirements while system testing for the modified GSMS is 60% complete. Reforestation contracts entered into with POs not accredited by DENR - P17.555 M 34. The Project Support Office (PSO) for the Second Cordillera Highland Agricultural Resource Management Project (SCHARMP) entered into reforestation contracts totaling P17.555 million with POs which are not accredited by DENR to operate nurseries for reforestation projects contrary to DENR Administrative Order No. 2010-11, thus, there was no assurance
183

that the planting materials coming from the nurseries of the POs met the quality standards of the DENR. 34.1 In December 2010, the SCHARM entered into Comprehensive Site Development Environmental Covenants (CSDECs) with 14 POs for the restoration of the communal watershed/ancestral lands in areas covered by the Project involving a total amount of P17,555,378.52. Review of the CSDECs showed that these POs were endorsed by their respective Sangguniang Barangay (SB) through the issuance of an SB Resolution. The award of the CSDEC to the POs was based solely on the Resolution of the SB since the project is the counterpart to the DENRs National Greening Program and is subject to their monitoring and evaluation. The Comprehensive Work and Financial Plans attached to the CSDECs show that the POs are required to operate nurseries involving activities such as planting stock production, compost/organic fertilizer production and maintenance. Section 11 of DENR Administrative Order No. 2010-11 provides that Any Local Government Unit, Academe, Government and Non-Government Organization, Private individual, Corporation or Cooperative engaged in managing a forest nursery are subject for accreditation. It provides also that For government plantations, only seedlings coming from accredited nurseries shall be used in tree plantation development, tree farms, agroforestry, urban forestry and other related reforestation activities,.... It further provides that An application for accreditation for forest nursery shall be submitted to the CENRO/PENRO for initial evaluation and field verification. In the case of the POs which entered into CSDECs with the PSO, the required DENR accreditation for the operation of forest nurseries was not secured. The capability of these POs to operate nurseries for the reforestation projects had not, therefore, been evaluated. DENR Administrative Order No. 2010-11 was issued pursuant to the basic policy of the state that The government through the DENR shall promote the use of high quality planting materials in the establishment of tree plantations, tree farms, agroforestry and other forestation activities to promote biodiversity conservation, and to ensure sustainable production and supply of wood and other forest products in the country . In the absence of DENR accreditation, there is no assurance that the planting materials coming from the nurseries of the POs are of high quality. We recommended that the PSO require the accreditation of the POs in accordance with DENR Administrative Order No. 2010-11; closely monitor the activities of the POs which were awarded with CSDECs; and ascertain the capability of these POs to undertake the reforestation projects in accordance with the standards of the DENR.

34.2

34.3

34.4

34.5

184

34.6

Management commented that: a. The DENRs role in the Project component is as technical advisor through the Community Environment and Natural Resources Offices (CENRO). The LGU ENRO plays a greater role in monitoring projects. This arrangement is described in the Project Implementation Manual (PIM) of the Community Watershed Conservation of Forestry Management (CWCFMA) component and accepted and acknowledged by the International Fund for Agricultural Development (IFAD) in its Mid Term Review (MTR) report. b. The PSO has hired foresters (one per province) to assist the Provincial Reforestation Committees and the POs in implementing their projects. The reforestation committee is chaired by the LGU ENRO with members from the DENR who provide technical assistance. This way, quality is assured and project implementation is facilitated.

Deficiencies in the Procurement of Goods and Services 35. Various observations were noted in the procurement of goods and services including (a) procurement through alternative modes like shopping and reimbursement instead of public bidding; (b) procurement of items not included in the Annual Procurement Plan (APP); and (c) non-procurement of common-use supplies from the Procurement Services (PS) contrary to Republic Act (RA) 9184 and its revised Implementing Rules and Regulations (IRR). a. 35.1 35.2 procurement made through alternative modes instead of public bidding

Section 10, Rule IV of RA 9184 states that all procurements shall be done through competitive bidding. Moreover, Section 52 of the revised IRR of RA 9184 states that: Shopping is a method of procurement of goods whereby the procuring entity simply requests for the submission of price quotations for readily available off-the-shelf goods or ordinary/regular equipment to be procured directly from suppliers of known qualifications. This method of procurement shall be employed only in any of the following cases: a) When there is an unforeseen contingency requiring immediate purchase: Provided, however, that the amount shall not exceed fifty thousand pesos (P50,000); or
185

b) Procurement of ordinary or regular office supplies and equipment not available in the Procurement Service involving an amount not exceeding two hundred fifty thousand pesos (P250,000): Provided, however, that the procurement does not result in splitting of contracts, as provided in Section 54.1 of IRR-A: Provided, further, that at least three (3) price quotations from bona fide suppliers shall be obtained. 35.3 It was found that the BPI and several RFUs were not compliant of the said provisions and resorted to other alternative modes of procurement instead of public bidding:
Office BPI RFU III RFU VII RFU II RFU IV-A (STIARC) Total Amount P 1,101,275.93 6,624,399.56 3,186,563.22 4,008,664.45 878,381.94 P15,799,285.10 Mode of Procurement Shopping Remarks

Reimbursement

The amount procured did not fall within the limitations set forth in Section 52 of Revised IRR of RA 9184.

b. 35.4

Procurement of items not included in the Annual Procurement Plan (APP)

Section 7.2 of the revised IRR of RA 9184 states that: No procurement shall be undertaken unless it is in accordance with the approved APP of the procuring entity. The APP shall bear the approval of the Head of the Procuring Entity or second-ranking official designated by the Head of the Procuring Entity to act on his behalf, and must be consistent with its duly approved yearly budget.

35.5

In RFUs VIII, it was observed that during the year there were procurements were not included in the approved APP. These covered procurement for office supplies and materials, IT supplies and some equipment. Further, review of the APP for CY 2011 of BAI disclosed that it was incomplete and was not in accordance with the prescribed format. The activities using the funds for foreign-assisted projects, trust funds, and other sources of funds were not included in the APP. The incompleteness of the APP and Project Procurement Management Plan (PPMP) resulted in the splitting of four purchase orders amounting to P3,382,360.00 and non-availment of volume discounts of P6,210.00.

35.6

186

c. 35.7

common-use Office Supplies and Materials not procured from DBM PS P6.368 million

Administrative Order No. 17 dated July 28, 2011 provides for the procurement from PS of the commonly used supplies of government agencies, quoted as follows: Section 1. Reiteration of Policy. xxx In line with this, all government agencies shall procure their common-use supplies from the PS and use the PhilGEPS in all their procurement activities, xxx.

35.8

For this purpose, Section 3 thereof defines common-use supplies as referring to those supplies, materials, and equipment included in the price list of the PS which are necessary in the transaction of the official business of the procuring entity and consumed in its day-to-day operations. In addition, Section 4 thereof provides that Common-use supplies shall be procured directly from the PS or its depots without need of public bidding as provided in Section 53.5 of the Implementing Rules and Regulations (IRRs) of R.A. 9184.

35.9

35.10 To further emphasize the aforecited provisions, Paragraph 1.1 of DBM Circular Letter No. 2011-6 dated August 25, 2011 requires that all procurement of common-use supplies without need for public bidding shall be made from the Procurement Service (PS). 35.11 Common-use supplies of BPI, RFUs I, II, VIII and XII were not procured from the Procurement Service (PS) contrary to the aforementioned provisions. 35.12 Verification of CY 2011 disbursements showed that the following offices purchased office supplies from outside suppliers.
Office Amount of Office Supplies Procured from Outside Suppliers

BPI P 1,011,068.94 RFU I 3,951,287.21 RFU II 4,008,664.45 RFU VIII 3,186,563.22 RFU XII 2,170,148.06* P 14,327,731.88 Total * From August to December 2011 only

35.13 In RFU II, purchases of supplies and materials were not consolidated in the Regional Office for bulk purchasing of quarterly requirements. The different divisions resorted to emergency purchases.
187

35.14 RFU I procured from the PS common-use office supplies totaling P476,062.25 or 10.8% of the total office supplies purchases of P 4,427,349.46. It was, however, found that the agency was able to utilize the Philippine Government Electronic Procurement System (PhilGEPS) in their procurement of goods above P50,000. 35.15 We recommended that management: a. procure supplies, equipment and services through competitive bidding and in the event that other alternative methods of procurement are resorted to, ensure that the conditions required therein are present/complied with; b. comply with the provisions of RA 9184 requiring that only goods, services and infrastructure considered crucial to the efficient discharge of government operations and included in the APP of the Agency should be procured; and c. procure common-use supplies from the PS in compliance with regulations. 35.16 BPI and RFU XII agreed to implement the recommendations while .RFU IV STIARC management acknowledged the recommendation and assured to limit the procurement of goods and services through reimbursement basis. 35.17 Management of RFU VIII commented that they had prepared a more comprehensive APP for CY 2012 and a supplemental thereto which were submitted to the Office of the Auditor. 35.18 RFU I management justified that most of their requests listed in the Agency Procurement Request (APR) and submitted to PS were not available at the PS depot, hence, they purchased from other suppliers. 35.19 RFU II commented that PS deliveries were delayed and various complaints from end-users were received due to the alleged inferior quality of the items. Advance payments made to supplier P67.636 M 36. BAI made advance payments totaling P67,636,364.45 to San Fernando AgriLivestock Development Corporation (SFALDC) without approval from the President of the Philippines contrary to the provisions in the General Conditions of the Contract (GCC) and failed to enforce the full delivery of the 1,200 goats and 600 heads of sheep for the program Accelerating the

188

Genetic Resources Improvement for Beef Cattle and Small Ruminants (AGRIBCSR). 36.1 Audit of the contract for P141,660,673.00 entered into by and between BAI and SFALDC for the supply and delivery of 1,200 and 600 heads of goats and sheep, respectively, awarded thru public bidding, revealed certain deficiencies. Clause 9.1 of the GCC states that Unless otherwise specified in the Special Conditions of the Contract (SCC), payments shall be made only upon a certification by the Head of the Procuring Entity to the effect that the Goods have been rendered or delivered in accordance with the terms of the Contract and have been duly inspected and accepted. Except with the prior approval of the President no payment shall be made for services not yet rendered or for supplies and materials not yet delivered under this Contract.(emphasis ours) Further, GCC Clause 9.2 cites that The Suppliers request(s) for payment shall be made to the Procuring Entity in writing, accompanied by an invoice describing, as appropriate, the Goods delivered and by documents submitted pursuant to the provision of GCC Clause 6.2 and upon fulfillment of other obligations stipulated in this Contract. We noted however, that the advance payment of P67,636,364.45 was made to SFALDC without the prior approval from the President of the Philippines and without submission of the required supporting documents such as invoice and acceptance report of the livestock delivered, as follows:
Check No. 309825 Date 07/29/09 Amount P21,249,100.95 46,387,263.50 P67,636,364.45 Particulars 15% mobilization fee Partial payment Remarks No approval from the President -do-

36.2

36.3

36.4

LC# 201004/05/10 0045/D Total

36.5

Confirmation Letter dated May 31, 2010 from the LBP showed that the balance of LC was only P52,775,207.80 or 53% of the total LC of P99,162,471.00 indicating a 47% utilization. Also, aside from the advance payment of 15% or P21,249,100.95 on July 29, 2009 and the additional payment amounting to P46,387,263.50 taken from the LC opened at the LBP, the payment was made three to five months earlier than the actual deliveries of the 418 and 314 heads of livestock on August 19, 2010 and October 13, 2010, respectively. Clause 27 of the General Conditions of the Contract (GCC) states that Subject to applicable laws, no variation in, or modification of the terms of the Contract shall be made except by written amendment signed by the parties.
189

36.6

36.7

36.8

Review of the contract disclosed that several modifications were made on the terms of the contract particularly as to the deliveries of the livestock including the payment and/or extensions of the Letter of Credit (LC). The subject variations/extensions were only made thru BAC Resolutions while no amendments or supplemental agreements signed by the parties to the contract were prepared and submitted to bind the parties to the agreements. Per contract, the supply and delivery of procured SR should have started 120 days upon receipt of the Notice to Proceed on July 14, 2009; however, SFALDC requested several extensions which were granted by management, as follows:
Delivery dates Actual Delivery Approved Extension No. of days from original date No. of Actual delivery/extension Days from Original Date

36.9

Reference

Date

Particulars

Contract No. 7242009164 BAC No. series 2009 Res. 1135 of

July 2009 Nov. 2009

14,

16,

BAC No. series 2010

Res. 0218 of

March 2010

8,

Original date of delivery 120 days from issuance of NTP 1st extension 120 days delivery to be reckoned on Oct. 27, 2009 the time the USDA and BAI agreed on the health protocol concern 2nd extension of delivery 114 days Actual delivery of 418 heads of livestock Actual delivery of 314headsof livestock

Nov. 11, 2009

Feb. 2010

3,

85 days

May 28, 2010 Aug. 19, 2010 October 13, 2010

114 days

282 days 346 days

36.10 All requests for extension and consideration by SFALDC were approved by the BAC but were not formally signed by BAI, SFALDC and DA as required in Clause 27 of the GCC. 36.11 To date, management had reported total deliveries of 732 SR or 70% of the 1,050 heads of SR approved to be delivered in the 1st batch. 36.12 Management also submitted to the audit team on February 10, 2012 an undated report on the delivery of the 241 heads of SR that were quarantined at the FARM BAR, De La Paz Norte, Km. Post 75, Mc. Arthur Highway, San Fernando Pampanga.
190

36.13 The contract was forwarded to the Technical Service Office (TSO) for review of the technical aspects and determination of the reasonableness of the contract price. The TSO required the agency to submit several documents, as follows: a. The basis/guidelines/cost reference adopted by the agency in the preparation of the breakdown of the cost; b. Evidence/Supporting documents to show that Animal Disease Diagnostic Test (US), Feed Cost (while in transit), Inland Transport Cost (US), Air Freight of Animals, Airport Handling Fee per Animal, Insurance Premium, Feed Cost for 30 days Quarantine, Animal Disease (Philippines) and Veterinary Drug/ Biologics per Animal required for the necessary health tests to prove that animals are free from all diseases are not included in Animal Cost; c. Clarification on costing in US dollars for Feed Cost for 30 days Quarantine Period, Animal Disease Diagnostic (Philippines), Veterinary Drug/Biologics per Animal, Travel Cost of Selection Team (6 persons), Inland Transport Cost (Philippines); d. The kind or type of Animal Diagnostic Tests (US) as well as quantity and unit cost if not included in Animal Cost; e. The Animal Diagnostic Tests (Philippines) to be conducted per breed per animal to justify the necessity and quantity/units for each of the following diagnostic tests: Twice testing (CAE) ELISA - 9000 Q Fever ELISA - 520 Brucella Agglutination Test - 335 Blue Tongue (ELISA) - 2,000 Paratuberculosis (ELISA) - 2,000

f. The kind/type and quantity of Veterinary Drugs/Biologics; g. Cost breakdown of travel cost of the Selection Team; and h. Cost breakdown of Inland Transport Cost (Philippines). 36.14 On June 7, 2011, the team requested management to submit the documents needed by the TSO in their review of the aforementioned contract. 36.15 The audit team also issued AOM No. 2011-18-102(10) on July 25, 2011 for management to submit the documents required by the TSO.

191

36.16 To date, management has not yet submitted the requested documents necessary for the review of the contract and determination of price reasonableness. 36.17 It was also noted that Clause no. 11 of the GCC requires the successful Bidder to furnish the Procuring Entity with performance security in the forms prescribed therein such as cash, certified checks, bank guarantee, etc. which is 5% of the total contract. The performance bonds however, were not yet submitted. 36.18 We recommended that management (a) secure the approval of the President in the advance payment made by BAI to SFALDC (b) submit the supplemental contract to cover the amendments resolved by the BAC duly signed by the representatives of BAI and SFALDC including the performance bond as required in the General and Special Conditions of the Contract; (b) require the Project Manager to submit a report on the distribution of the SR duly supported with the approved list and the Invoice Receipt of Property and other required documents to the property and accounting offices for recording and financial control; (c) submit to the audit team the revised Annual Work and Financial Plan for four years, Status or Semestral Report on the project, and the documents needed by the TSO for the technical review and price reasonableness of the contract and management action on the undelivered SR and the LC; and (d) enforce the full delivery by SFALDC of the 1,200 heads of goats and 600 sheep. Irregular Grant of CNA Incentives 37. CNA Incentives were granted by BSWM,RFUs II, III, VII, VIII and XII without conforming to the rules and regulations set forth by DBM Budget Circular No. 2006-1 dated February 1, 2006 and DBM Budget Circular 20115 dated December 26, 2011 resulting in irregular disbursements. Budget Circular No. 2006-1 dated February 1, 2006, set forth the conditions and requirements on the granting of CNA incentives, as follows: The CNA Incentive in the form of cash may be granted to qualified employees if provided for in the CNA or in the supplements thereto, executed between the representatives of management and the employees organization accredited by the CSC as the sole and exclusive negotiating agent for the purpose of collective negations with the management unit. (Section 5.1) The CNA Incentive for the year shall be paid as a one-time benefit after the end of the year, provided that the planned programs/ activities/projects have been implemented and completed in accordance with the performance targets of the year. (Section 5.7)

37.1

192

An Employees Organization - Management Consultative Committee or a similar body composed of designated representatives from the management and the accredited employees organization shall review the agencys financial records and report of operations at the end of the fiscal year, and shall arrive at a consensus on the following items: (Section 6.1) The guidelines/criteria to be followed in the grant of the CNA Incentive; The total amount of unencumbered savings at the end of the year realized out of cost cutting measures identified in the CNA and supplements thereto, and which were the results of the joint efforts of labor and management; The apportioned amounts of such savings shall cover the following items: Fifty percent (50%) for CNA Incentive; Thirty percent (30%) for improvement of working conditions and other programs and/or to be added as part of the CNA, as may be agreed upon in the CNA; and Twenty percent (20%) to be reverted to the General Fund. The individual amount to be granted to the employees concerned based on the established guidelines/criteria. Such Agreements shall be incorporated in a written resolution to be signed by the representative of both parties and noted by the agency head. This resolution shall serve as basis for accounting and auditing purposes. (Section 6.1)

The CNA Incentive shall be sourced solely from savings from released MOOE allotments for the year under review, still valid for obligation during the year of payment of the CNA and such savings were generated out of cost-cutting measures identified in the CNA and supplements thereto. (Sections 7.1 and 7.1.1)

37.2

Budget Circular No. 2011-5 dated December 26, 2011 Supplemental Guidelines on the Grant of Collective Negotiation Agreement (CNA) Incentive for Fiscal Year (FY) 2011, in so far pertinent provides:

193

3.0 Supplemental Guidelines 3.5 The CNA Incentive for FY 2011 shall be determined based on the amount of savings generated by an agency following the guidelines herein, but not to exceed P25,000 per qualified employee. 3.6 The payment of CNA Incentive for FY 2011 shall only be made after submission to the Department of Budget and Management (DBM) of reports on accomplishments for the year, based on the physical and financial plan submitted to DBM pursuant to National Budget Circular No. 528 dated January 3, 2011. Agencies are also reminded of the submission to DBM on or before March 31 of every year, of an annual report on the total expenditure for CNA Incentive; the amount of CNA incentive granted to qualified employees, and the sources of savings used for the purpose following the format in Annex A of CL No. 2011-9. 4.0 Responsibility of Agency Heads Agency heads shall be held personally liable for any payment of the CNA Incentive not in accordance with the provisions of this Circular without prejudice, however, to the refund by the employees concerned of any unauthorized or excess payment thereof. The CNA Incentive for FY 2011 shall be determined based on the amount of savings generated by an agency following the guidelines herein, but not to exceed P25,000 per qualified employee. 37.3 The following DA agencies granted CNA incentives in excess of P25,000 per employee in violation of DBM Budget Circular 2011-5:
Region BSWM RFU II RFU III RFU VII RFU VIII RFU XII Total Amount of CNA Incentive Granted P 21,139,083.30 24,990,000.00 24,300,000.00 27,966,600.00 18,640,000.00 21,389,252.27 P138,424,935.57 Amount Allowed under NBC 2011-5 P 7,443,339.20 6,775,000.00 6,075,000.00 8,526,402.44 7,281,247.50 7,118,300.00 P43,219,289.14 Amount in Excess of P25,000 P13,695,744.10 18,215,000.00 18,225,000.00 19,440,197.56 11,358,752.50 14,270,952.27 P95,205,646.43

37.4

Other observations are as follows:


Observations Granted CNA and other incentives to DA officials and employees totaling P20,564,000.00 charged to savings in CY 2010. Audit of the transactions disclosed that the following documents were not attached to the Disbursement Vouchers as required in the above DBM Circular:

Region DA-OSEC

194

Region a)

Observations Guidelines/criteria to be followed in the grant of CNA Incentive prepared by the employees organization, DA Employees Association (DAEA);

b) Written resolution signed by DAEA representatives and noted by the agency head showing the computation/breakdown of the total amount of unencumbered savings which were realized out of the cost-cutting measures and systems improvement identified in the CNAs and supplements thereto, which were the results of the joint efforts of labor and management; and c) Copy of the report on the utilization of savings for the payment of CNA Incentive submitted to the DBM.

It was also noted that the list of recipients attached to the Disbursement Vouchers was presented only in a summary per office. No payroll showing the receipt of each individual recipient was submitted. Moreover, the payments of CNA incentives were not subjected to withholding tax as required under BIR rules and regulations. CNA Incentives were granted amounting to P21,139,083.30, P17,344,317.66 of which was taken from the Agriculture and Fisheries Modernization Act (AFMA) projects released to the Bureau for the implementations of the specific projects. CNA Incentive for 2011 was paid in two tranches, contrary to Section 5.7 of the Budget Circular which provides that , The CNA Incentive shall be paid as a onetime benefit after the end of the year, provided that the planned programs/activities/projects have been implemented and completed in accordance with the performance targets of the year. The disbursements were not supported with the documents required, particularly the statement of unencumbered savings at the end of the year where the Incentive was sourced, as required under Budget Circular No. 2006-1. RFU III The following requirements were not submitted to support the grant of the CNA incentives; to wit: a) Guidelines/criteria to be followed in the grant of the CNA incentive prepared by the employees union/organization;

BSWM

RFU II

b) Written resolution signed by the employees union/organization and noted by the Head of the Agency showing the computation/breakdown of the total amount of savings which were realized out of the cost-cutting measures and systems improvement identified in the CNAs and supplements thereto, which were the results of the joint effort of labor and management; and Copy of the Report on the Utilization of Savings for the payment of CNA Incentives and Report of Accomplishment for the year submitted to the Department of Budget and Management (DBM). CNA Incentives amounting to P10,661,872.85 were granted by the agency to its officials and employees, P9,756,102.85 of which was sourced from AFMP Funds, a special fund released for the specific purpose of implementing the objectives of c)

RFU VI

195

Region

Observations RA 8435 specifically for the benefit of the farmers.

RFU VII

Allotments of current and prior years appropriations (Advice of Sub-allotment released in 2011 from SARO of CY 2010) totaling P14,691,541.00 and P552,038.00, respectively, were used as additional funding source for the CNA incentives despite non-completion of the program/projects contrary to Sections 60 of the General Appropriation Act of 2011 or Republic Act 10147.

37.5

We recommended that management:


a)

require all employees to refund the CNA incentive received in excess of the P25,000 allowed under Budget Circular 2011-5 dated December 26, 2011; submit the Statement of Savings where the payment of 2011 CNA Incentive was sourced, including the apportioned amount of such savings required under Section 6.1.3 of the Budget Circular 2006-1; comply with the provision of the Budget Circular that CNA incentives should be paid as a one-time benefit after the end of the year, provided that the planned programs/activities/projects have been implemented and completed in accordance with the performance targets for the year; and observe strictly the pertinent rules and regulations in the granting of CNA Incentive.

b)

c)

d)

Non-compliance with GAD Allocation and Other Deficiencies 38. There was non-compliance with the required allocation of at least 5% of the total appropriations for GAD activities contrary to Section 31 of RA 10147, the General Appropriations Act for CY 2011 and the guidelines set forth in Joint Circular No. 2004-1 of the DBM, National Economic and Development Authority (NEDA), and National Commission on the Role of Filipino Women (NCRFW). Section 4.4 of Joint Circular No. 2004-01 of the DBM, NEDA and NCRFW provides that at least five percent of the total agency budget appropriations as authorized under the annual shall correspond to activities supporting GAD. Likewise, Section 31 of the GAA of CY 2011 provides that all departments, bureaus, offices, agencies, SUCs, GOCCs, and LGUs shall formulate a Gender and Development (GAD) Plan designed to address gender issues within their concerned sectors or mandate and implement applicable provisions in the Convention on the Elimination of All Forms of Discrimination Against Women,
196

38.1

38.2

the Beijing Platform for Action, the Millennium Development Goals (2000-2015), the Philippine Plan for Gender-Responsive Development, (1995-2025), and the Framework Plan for Women. The GAD Plan shall be integrated in the regular activities of the agencies, which shall be allocated with at least five percent of their respective budgets. 38.3 Verification and evaluation of the GAD Funds, Plans and Accomplishment Report for the year 2011 revealed that the following agencies were not compliant with the foregoing provisions of RA 10147 and had very low expenditures for GAD related activities:
Amount that should be allocated per Regulation P 92,412,062.25 4,154,700.00 6,213,791.00 39,298,037.11 2,650,000.00 54,542,237.81 5,972,205.25 3,422,344.75 3,859,000.00 7,644,100.00 18,535,810.75 P 220,168,478.17 % of Actual Allocation against required Allocation per Regulation 1.8 11.0 4.3 6.4 78.2 0 43.5 30.7 49.4 53.9 76.6 14.0 % of Actual Expenditures against required Allocation per Regulation 1% 1% 2% 6% 34% 0.8% 33% 1% 41% 56% 22% 8%

Region DA-OSEC BSWM BPI BAR BAI RFU III RFU IV-A RFU IV-B RFU VI RFU VII RFU X Total

Actual Allocation P 1,685,875.00 457,000.00 267,602.00 2,500,000.00 2,073,000.00 0.00 2,597,600.00 1,050,000.00 1,907,050.00 4,121,900.00 14,198,000.00 P 30,858,027.00

Actual Expenditures P 1,375,675.00 46,324.00 143,505.77 2,503,750.54 889,122.10 486,150.00 1,951,000.00 47,300.00 1,589,459.00 4,284,270.00 4,060,910.00 P17,377,466.41

38.4

Other observations noted in the DA agencies are as follows:


Region ATI CO, RFU I, II and IX RFU VI and XII Observation The required allocation of at least 5% of the total appropriation for GAD activities was not complied with, however, management was commended for preparing the GAD plan for its employees and implementing it efficiently and economically despite non-provision of the required allocation. Review of the agencys Accomplishment Report for GAD revealed that there were series of GAD related activities and trainings that were undertaken but not all planned activities for the year were accomplished; hence, the Program did not totally attain its objectives for the benefits of the employees and clients of the agency. The agency was able to implement its GAD related activities with more than its allocated budget of P200,000.00 or .054% of P370,325,000.00 by spending P350,000.00, P150,000.00 more than the allocated budget. Said expenses were included in the seminar/training expenses.

BAS

197

Region BAR

Observation For 2011, BAR allocated only P2,500,000.00 for GAD which was below the required 5% of agencys appropriation of P785,960,742.28. Of the three activities planned for implementation during the year, none was implemented. Instead, a revised GAD program on Thesis/Dissertation Assistance Program (TDAP)/Non-Degree Assistance Program benefitting 75 women employees of the agency was reported accomplished during the year for a cost of P2,503,750.54 which was already implemented since CY 2002.

38.5

In view of the foregoing, we recommended that management prepare a realistic GAD plan with an allocated budget of at least 5% of the agencys total appropriations and to implement/undertake the planned activities to attain the benefits of the program.

No Programs and Projects Related to Senior Citizens and the Differently-Abled 39. The ATI CO, BAS, BAR and BAI had no plans/programs/projects related to the differently-abled persons and senior citizens for the year. They had also no facilities and structural features and designs that enhance the mobility, safety and welfare of the differently-abled persons, contrary to Section 32 of the Appropriations Act of 2011, which requires allocation of at least one percent of their respective budget for the purpose. Section 32 of the Appropriations Act stated that: Programs/Projects Related to the Senior Citizens and the Differently abled. The plans, programs, and projects intended to address the concerns of senior citizens and differently abled persons shall be integrated in the regular activities of the agencies, which shall be at least one percent (1%) of their respective budgets. 39.2 Management had not formulated any plans and projects related to the senior citizens and differently abled persons during the year due to non-awareness of the GAA provision. We recommended and management agreed to allocate at least one percent of the agencys budget for the implementation of programs and projects that enhance the mobility and safety of differently abled and senior citizens in accordance with Section 32 of the General Appropriations Act.

39.1

39.3

198

Compliance with Tax Laws 40. Withheld taxes by DA-OSEC, BPI, BAS, BAR, RFUs II and VI from various sources as of December 31, 2011 totaling P20.706 million remained outstanding and not remitted to the BIR in violation of Internal Revenue regulations. Also, there was failure to withhold taxes on various procurements resulting to losses on the part of the government. The Internal Revenue Code (IRC) of 1997 states that every officer or employee of the Government of the Republic of the Philippines or any of its agencies and instrumentalities, its political subdivisions, as well as government-owned or controlled corporations, including the Bangko Sentral ng Pilipinas (BSP), which, under the provisions of this Code or rules and regulations promulgated under the IRC, is charged with the duty to deduct and withhold any internal revenue tax and to remit the same in accordance with the provisions of this Code. The agency as a tax withholding agent of the government is required to remit all taxes withheld by it on or before the 10th day of the succeeding month pursuant to Revenue Regulation No. 2-98. Audit revealed that the following regions failed to withhold and remit taxes on time in the amount of P 557,875.07 and P 20,706,178.11, respectively, in contrary to the above-cited provision as follows: a. failure to withhold taxes
Region BPI RFU XI Total Amount of taxes not withheld P149,000.00 408,875.07 P557,875.07 Remarks This amount represents taxes not withheld on procurement of petroleum products from Carldril, Inc. Taxes not withheld from the purchase of plane tickets.

40.1

40.2

40.3

b. failure to remit taxes on time


Region DA-OSEC Amount Unremitted P 7,630,904.89 Remarks The total amount of P6,562,007.23 was already remitted to the BIR on January 2, 4, and 30, 2012 under JEV No. 2012-01-220/223/243/244. The balance of P1,068,897.66 is for adjustment and reconciliation. The balance of P42,706.22 was remitted on February 9, 2012; the P702,814.85 unremitted carry over balance of prior years has not yet been reconciled, hence, no TRA was prepared. The Chief Accountant commented that they have difficulty in analyzing the account due to lack of supporting documents.

BPI

745,521.07

BAS

2,760,408.58

199

Region BAR RFU II RFU VI Total

Amount Unremitted 223,700.20 3,988,901.60 5,356,741.77 P20,706,178.11

Remarks This amount is for further verification of the Finance Head to establish the correct balance. This amount represents deductions from prior years salaries and from suppliers/contractors. It was observed that the unremitted deductions were mostly from prior year/s. This deprives the government agencies of the needed funds for their operations.

40.4 40.5

These amounts could have been used for other government priority projects if withholding of taxes and remittance were done properly. In ATI CO, BAI, RFUs I, III, IV-A, IV-B, VII, VIII, IX and X, the remittances to the BIR have been closely monitored by the Accounting personnel to ensure that all taxes withheld are remitted to BIR on or before the prescribed period. We recommended that management:
a)

40.6

instruct

the concerned Accountants to analyze the unreconciled unremitted taxes in the difference offices and make the necessary adjustments, if necessary ;

b)

withhold taxes on succeeding various government procurements to avoid penalty as stipulated in RA 8424; and observe the timely remittance of taxes withheld in accordance with existing revenue regulations.

c) c. d.

The management of RFU II commented that the amount was remitted during the 2nd quarter of CY 2012. RFU VI management commented that an additional contractual employee was hired to augment the Accounting Sections workforce. As part of the reconciliation process, a total of P 214,908.20 was remitted in September 2012 for prior years tax deduction.

Settlement of Accounts
41.

Out of the total audit disallowances and suspensions reported amounting to P408,380,757.74 and P285,348,939.00 respectively, only P3,143,937.79 and P62,018,135.48 were settled contrary to Sections 9.4 and 10.4 of COA Circular No. 2009-006 dated September 15, 2009.

200

41.1

Section 9.4 of COA Circular 2009-006 states that: A suspension should be settled within ninety (90) calendar days from receipt of the NS; otherwise the transaction covered by it shall be disallowed/charged after the Auditor shall have satisfied himself that such action is appropriate. Consequently, the Auditor shall issue the corresponding ND/NC.

41.2

Section 10.4 of the same circular further states that: The disallowance shall be settled within six (6) months from receipt of the ND by the person liable.

41.3

The disallowances and suspensions issued and settled for CY 2011 are summarized below:
Disallowance Suspension Ending Balance
P 94,807,504.74 5,434,361.25 12,291,486.63 702,000.00 4,519,000.00 226,751.90 2,049,785.87 34,852,842.18 64,417.00 17,514,180.00 86,670.01 155,885,000.00 143,950.77 121,098.57 3,195,857.73 60,288,263.16 00.00 6,063,821.94 3,459,157.46 48,384.72 3,482,286.02 P 405,236,819.95

Office Beginning Balance


OSEC BSWM ATI BAS BAR BAI BPI CAR RFU I RFU II RFU III RFU IV-A RFU IV-B RFU V RFU VI RFU VII RFU VIII RFU IX RFU XI RFU XII RFU XIII TOTAL P 95,534,464.59 83,500.00 11,640,538.72 702,000.00 4,519,000.00 00.00 2,049,785.87 35,582,636.09 90,417.00 17,516,980.00 86,670.01 141,600,000.00 143,950.77 37,104.17 3,603,757.73 27,333,230.16 00.00 6,063,821.94 3,451,327.92 00.00 1,816,286.02 P 351,855,470.99

Issued
P 59,263.41 5,805,022.50 1,239,240.73 00.00 13,053.25 226,751.90 00.00 16,713.30 00.00 00.00 00.00 14,285,000.00 00.00 83,994.40 00.00 32,955,033.00 00.00 00.00 7,829.54 48,384.72 1,785,000.00 P 56,525,286.75

Settled
P 786,223.26 454,161.25 588,292.82 00.00 13,053.25 00.00 00.00 746,507.21 26,000.00 2,800.00 00.00 00.00 00.00 00.00 407,900.00 00.00 00.00 00.00 00.00 00.00 119,000.00 P 3,143,937.79

Beginning Balance
P 3,837,696.66 70,782,006.53 971,624.86 00.00 00.00 7,083,033.65 260,896.66 00.00 00.00 15,953,460.85 00.00 00.00 00.00 12,197,327.90 00.00 00.00 49,168,100.00 00.00 00.00 00.00 00.00 P 160,254,147.11

Issued
P 59,974,524.09 7,707,760.00 145,138.86 00.00 00.00 00.00 7,013,204.77 00.00 00.00 00.00 00.00 00.00 00.00 30,719,025.96 00.00 2,179,230.47 00.00 00.00 15,672,200.74 1,683,707.00 00.00 P 125,094,791.89

Settled
P 4,964,673.06 34,923,679.13 984,780.12 00.00 00.00 00.00 1,450,434.74 00.00 00.00 2,830,481.21 00.00 00.00 00.00 16,864,087.22 00.00 00.00 00.00 00.00 00.00 00.00 00.00 P 62,018,135.48

Ending Balance
P 58,847,547.69 43,566,087.40 131,983.60 00.00 00.00 7,083,033.65 5,823,666.69 00.00 00.00 13,122,979.64 00.00 00.00 00.00 26,052,266.64 00.00 2,179,230.47 49,168,100.00 00.00 15,672,200.74 1,683,707.00 00.00 P 223,330,803.52

201

41.4
Office

Other observations noted in the DA agencies are as follows:

DA-OSEC

BAS BAR CAR

The beginning balance of P95,534,464.59 includes P2,867,393.12 which pertains to NDs issued in CYs 1994- 2001. The same amount has not yet been recorded in the account Receivables-Disallowances/Charges as of December 31, 2011 due to the absence of breakdown or schedule to support the validity of the disallowance. Moreover, the account Receivables-Disallowances/Charges showed a balance of P91,904,788.33 as of December 31, 2011, of which P78,578,934.70 or 85.50% was not provided by a schedule/breakdown to support its accuracy and validity and was only marked For Reconciliation in the SL. For CY 2011, out of P59,263.41 audit disallowances issued, only P23,940.12 was settled leaving a balance of P35,323.29. Transactions relating to these issuances and settlement were not recorded in the books of accounts. The disallowance of P702,000.00 is under appeal with the Commission Proper under COA CP Case No. 2011-179 received on June 3, 2011 by the Commission Secretariat. An appeal for reconsideration for the disallowance of P4.519 million was filed on June 11, 2011 with the Office of the Cluster Director, Economic Services, National Government Sector, COA. In addition to the unsettled disallowances, the Audit Team had disallowed the payments of CNA incentives for CY 2009 and CY 2011 as well as the liquidated damages pertaining to the delayed delivery of flatbed dryers in CY 2010 totaling P18,605,133.68. It was also observed that many retired and resigned employees of RFU CAR were issued clearance from money and property accountabilities despite the non-settlement of disallowances for which they were found liable. The concerned employees have been continuously making refunds monthly through salary deductions to settle their accountabilities. The amount of P17,456,000 disallowance is under appeal. Audit disallowances were issued in 2008 amounting to P141,600,000 at the Regional Office and in 2011 amounting to P5,161,000 at the Regional Office and P9,124,000 at STIARC Lipa City or a total of P155,855,000 which are not yet final and executory pending the disposition of COA Regional Office No. IV on the appeal made by management on said disallowances. Disallowances amounting to P15,274,709.30, not subject to appeal and with Motion for Reconsideration which was already denied, was not settled and recorded. Records on file with COA showed that the total Notices of Disallowance issued prior to the 2009 Rules and Regulations on Settlement of Accounts amounted to P44,697,329.30 broken down as follows: NDs Issued with FAO P 4,878,849.00 NDs without FAO but Final and Executory 39,818,480.30 Total NDs Issued prior to the 2009 Rules and Regulations on Settlement of Accounts P44,697,329.30 The books of accounts of DA RFU VII showed, however, only a balance of P16,960,964.31 for unsettled audit disallowances as of December 31, 2011. The recording of disallowances, which were issued prior to the 2009 Rules and Regulations on Settlement of Accounts, has still to be updated in the SL of ReceivableDisallowances/Charges account to come up with a total amount of disallowances of P44,697,329.30. There was no settlement made on disallowances and suspensions during the current year. There were no Notices of Disallowance, Notice of Suspension and Charges issued for the year 2011. 202

ATI CO and RFU I RFU II RFU IV A

RFU VI RFU VII

RFU IX

Office RFU X As of December 31, 2011, pursuant to COA Circular No. 2009-006 dated September 15, 2009 re: Prescribing the Use of the Rules and Regulations on the Settlement of Accounts, DA-RFU X has no outstanding suspension and disallowance covering CY 2010-2011 transactions. Notices of suspension and disallowance are, however, being prepared for the observations made in this Report for issuance within the first quarter of CY 2012. Records of disallowances prior to CY 2009 are with the Office of the Regional Legal and Adjudication Services, COA, Regional Office X, since some of them involve cases that are now pending with the Office of the Ombudsman. The amount of P1,683,707.00 were suspended in audit due to lack of necessary supporting documents while the amount of P48,384.72 were disallowed due to excess claims of traveling allowances and incentive pays for Agricultural Extension Workers.

RFU XII

41.5

We recommended that management: a) enforce immediate settlement of audit suspensions and disallowances in compliance with Sections 9.4 and 10.4 of COA Circular No. 2009-006 dated September 15, 2009. Henceforth, ensure that government auditing rules and regulations are strictly complied with before processing claims or effecting payments to minimize suspensions and disallowances in audit; record disallowances which have became final and executory; and instruct the accounting section of RFU VII to update the SLs of Receivable-Disallowances/Charges account to reflect the total amount of disallowances of P44,697,329.30 issued prior to CY 2009.

b) c)

203