Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City, Philippines

STATE AUDITOR’S REPORT

The Secretary
Department of Health
San Lazaro Compound
Sta. Cruz, Manila

Pursuant to Section 2, Article IX-D of the Philippines Constitution and Section 43

of the Government Auditing Code of the Philippines, we have audited the accompanying
Balance Sheet of the Department of Health (DOH) as of December 31, 2009 and the
related Statement of Income and Expenses and Cash Flows for the year then ended. These
financial statements are the responsibility of the agency’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the generally accepted state auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement/s. Our audit includes examining, on a test basis, evidence supporting the
amounts and disclosure in the financial statements. The audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion, except for the following:

a. Net understatement of receivable accounts by P107.13 million due to

unrecorded and erroneous recording of various receivables.

b. Understatement of income totaling to P74.84 million with corresponding

overstatement of liability accounts by P40.32 million due to error in recording
income and understatement of receivable accounts by P34.52 due to non-
recording of accounts and notes receivables.

c. Understatement of Cash-National Treasury, MDS and Accounts Payable by

P28.51 million due to non- restoration of cash equivalent of unreleased checks
at year-end and non-recognition of appropriate payable/liability account.

d. Understatement of asset, liability and government equity accounts by an

aggregate amount of P14.90 million, P2.55 million and P12.35 million,
respectively, due to its failure to include in the reported financial statements the
foreign grant under grant program of the Bloomberg Initiative to Reduce
Tobacco Use as well as the trust fund on collected fees and bids and award
transactions.
e. Overstatement of Other Prepaid Expenses and income accounts by P1.40
million and P1.43 million, respectively and corresponding understatement of
liabilities by P31,059.55 due to erroneous recording of payable transactions.
Moreover, the correctness of liability accounts of BRRTH aggregating P26.33
million could not be ascertained due to absence of subsidiary records and
updated reports or schedules to support said balances.

f. Net overstatement of the Cash in Bank – Local Currency, Current Account

by P1.28 million and understatement of the related accounts due to errors in
recording cash transactions as well as non-adjustment of reconciling items in
the agency and bank records. In addition, cash account balances amounting to
P495.85 million are unreliable due to unreconciled dormant cash account
balances; unaccounted difference between the general and subsidiary ledgers;
and discrepancies between the accounting and bank records.

g. Unreliability of the existence and accuracy of the reported account balances

of P 4.23 billion of Property, Plant and Equipment accounts due to the absence
of physical inventory reports to substantiate the reported balances and
discrepancies in account balances of accounting and property records/inventory
reports.

h. Doubtful existence, validity and correctness of the reported year-end

inventory balances amounting to P277.37 million as well as difficulty of
ascertaining the accuracy and existence of the year-end balance of the
Inventory accounts totaling P168.45 million and the related expense accounts
due to (i) non-conduct of physical inventory taking and prepare/submit reports
thereon; (ii) absence of a periodic reconciliation of accounting records against
property, pharmacy and physical inventory reports; (iii) delayed submission of
reports of issuances; (iv) non-maintenance of subsidiary records; and (v) errors
and omissions in recording and reporting of transactions.

i. Doubtful validity, accuracy and existence of various receivable accounts

amounting to P337.68 million since these remained uncollected and dormant in
the books from one to over ten years and due to non-liquidation thereof despite
the completion/termination of the intended purpose.

j. Inaccurate balance of due from NGAs in the amount of P148.96 million

representing advance payments made to the Procurement Service (PS) of the
Department of Budget and Management (DBM) due to non-recording of
deliveries in the books of accounts/non-maintenance of subsidiary ledgers
and/or the lack of regular reconciliation with PS-DBM.

k. Understatement of Other Assets by P55.12 million and corresponding

overstatement of PPE accounts of the same amount due to non-reclassification
of unserviceable properties to the former account.

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 In our opinion, except for the effects of the matters discussed in the preceding
paragraphs and other deficiencies discussed in detail in Part II – Observations and
Recommendations of the attached Report, the financial statements referred to above
present fairly, in all material respects, the financial position of the Department of Health
as of December 31, 2009, and the results of its operation and cash flows for the year then
ended, in conformity with generally accepted state accounting principles.

COMMISSION ON AUDIT

By:

February 28, 2010