EXECUTIVE SUMMARY

Introduction

The Palawan State University (PSU) is an educational institution committed to

expand its expertise and knowledge sharing in terms of higher education and global
competitiveness. It is supported by the Filipino people, particularly the local academic
clientele. The University is committed to bring forth a better quality of life to the people
it serves through education for social change and empowerment.

The University, formerly known as Palawan Teachers College, was created and
started its operation on March 2, l972 by virtue of Republic Act No. 4303 under House
Bill No. 9167 approved in 1965. This name was changed to Palawan State College by the
approval of Batas Pambansa Bilang 797 on April 27, 1984 and later under Republic Act
No. 7818, which was approved on November 12, 1994, the College was converted into a
state university presently known as the Palawan State University.

The former Palawan College of Arts and Trades (PCAT), Cuyo, Palawan was then
integrated to the Palawan State University effective end of the first semester of School
Year (SY) 1999-2000 by virtue of Republic Act No. 8745, the General Appropriations
Act of 1999.

The following is the breakdown of the personnel complement of the University as

of December 31, 2016:

Faculty Staff
Regular 276 87
Job Order/Contractual 302 573
Total 578 660

Financial Highlights

For CY 2016, the PSU realized a total income of ₱392,867,136.65 from collection
of tuition and other school fees, canteen and other business operations and other service
income.

The total assets, liabilities, equity, income and expenses for CY 2016 compared
with that of the preceding year are as follows:

2016 2015 Increase/(Decrease)

Assets ₱ 1,490,774,268.82 ₱ 1,397,058,748.84 ₱ 93,715,519.82
Liabilities 231,576,467.47 247,643,133.17 (16,066,665.53)
Equity 1,259,197,801.35 1,149,415,616.67 109,782,185.35
Income 392,867,136.65 414,356,507.15 (21,489,370.35)
Expenses 564,698,958.13 542,552,857.39 22,146,101.13

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Scope of Audit

Financial and Compliance Audits were conducted on the accounts and operations
of the PSU for CY 2016. It included analysis of accounts in the financial statements,
review of transactions and test of compliance with financial rules and regulations. The
objectives of the audit are to ascertain the fairness and reliability of the Agency’s
financial position and results of operations, and to determine whether the Agency’s
operations were conducted in compliance with applicable laws, rules and regulations.

Audit Opinion on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of the presentation of the
financial statements of the University because the validity, existence and correctness of
the recorded balances of the Property, Plant and Equipment (PPE) accounts as of year-
end valued at ₱858,977,258.71 could not be ascertained due to the discrepancy of
₱298,364,817.49 between the accounting records and the Report on the Physical Count of
Property Plant and Equipment (RPCPPE).

Significant Observations and Recommendations

For the exception cited above, we recommended that the University President
require both the Accountant and the Property Officer to maintain PPELCs and PCs,
respectively, on all PPE accounts and ensure that these are regularly reconciled so that
discrepancies could be investigated promptly and adjustments, if necessary, be effected
accordingly.

In the meantime, we also recommended that the University Accountant ensure

that necessary corrections/adjustments are appropriately taken-up on the above noted
deficiencies so that balances of PPE accounts shall at all times are fairly presented.

In addition, hereunder are the other significant audit observations and the
corresponding recommended courses of action:

1. Various Property, Plant and Equipment with a total net book value of
₱114,239,597.65 were not insured with the General Insurance Fund (GIF) of the
Government Service Insurance System (GSIS) against any insurable risk due to
the lack of awareness that all properties shall be insured contrary to the
requirement of the Property Insurance Law (RA 656), as amended, and
Administrative Order No. 33 dated August 25, 1987.

We recommended that the University President, through the Property Officer,

make the necessary steps to insure all serviceable property, plant and equipment
of the University with the General Insurance Fund of the GSIS to protect the
government in case of fortuitous events.

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2. The PSU failed to pursue the request for additional plantilla items from the
Department of Budget and Management (DBM) which resulted in the hiring of
Contract of Services/Job Order (COS/JO) personnel, with a total amount of
services paid of ₱65,828,267.32 and whose duties and responsibilities were
similar to those of the regular plantilla positions contrary to Civil Service
Commission (CSC) Memorandum Circular (MC) No. 12 series of 2004 and CSC
MC No. 40, series of 1998. Further, job order personnel were hired and their
services renewed every four months without the required approved contract thus,
rendering the payments made to them irregular contrary to COA Circular No.
2012-001 dated June 14, 2012.

We recommended that the University President, through the (a) Human Resource
Development Officer, (i) revisit the University’s current plantilla items taking into
consideration the required additional staff for the faculty, finance and
administrative offices in order to avoid the practice of allowing COS/JO workers
to perform the duties and responsibilities of a regular employee; and (ii) pursue
the request to the DBM for regular plantilla items; and (b) University Accountant
ensure that approved contracts between the University and the COS/JO personnel
form part of the supporting documents of the claims for payment of services.

3. The granting, utilization and liquidation of Cash Advances (CA) totaling

₱19,861,898.42 as of December 31, 2016 were not adherent to the provisions of
COA Circular No. 97-002 dated February 10, 1997 and Section 89 of PD
No. 1445, which resulted in the accumulation of unliquidated cash advances of
substantial amount.

We recommended that the University President, through the Accountant, (a) cause
the immediate liquidation/settlement of these long outstanding cash advances by
exhausting all possible remedies provided by the said regulations; and (b) ensure
strict compliance with the rules and regulations on the grant, utilization and
liquidation of cash advances as provided under COA Circular Nos. 97-002 and
Section 89 of P.D. No. 1445 to prevent the accumulation of outstanding balances
of cash advances.

4. The terms and conditions of the Memorandum of Agreement (MOA) between the
City Government of Puerto Princesa (CGPP) and the Palawan State University
(PSU) for the former to donate land and the latter to construct a Medical School
Building (MSB), were not complied with since the University constructed instead
a Science and Technology Building (STB) amounting to ₱26,001,307.46 in the
non-buildable/nature park area of the donated land which resulted in work
suspension to the prejudice of the government and its intended beneficiaries.
Furthermore, the absence of the required PSU Board of Regents (BOR)
Resolution confirming the said MOA and the lack of authorization from the BOR
for the construction of the STB were contrary to Section 4(f) of Republic Act

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 (RA) No. 8292 or the Higher Education Modernization Act of 1997 thus,
payments to the contractor on the 28.31% work accomplishment or ₱7,360,970.14
were considered irregular as defined under COA Circular No. 2012-003 dated
October 29, 2012.

We recommended that the Officer-In-Charge (OIC) University President

(a) consider ways and means to finally accomplish the project as originally
planned so that expected benefits therefrom would be realized as timely as
envisioned; (b) coordinate with the BOR for possible issuance of Board
Resolution authorizing the University to enter into contract with the CGPP for the
construction of the project; and (c) henceforth, exercise caution in entering into
agreements with other parties and see that the utmost priority in any undertaking
would be for the good of the University and its studentry.

5. Completion of the construction of Administration Annex Building costing

₱9,932,000.55 was delayed due to a Variation Order and implementation of
another contract for additional works on the project as a result of the failure of the
University to properly conduct detailed engineering activities thus, deprived the
beneficiaries of the timely benefits that could be derived therefrom.

We recommended that the OIC–University President, through the Project-In-

Charge, (a) cause the immediate completion of the project so that beneficiaries
would enjoy the benefits as timely as intended; and (b) henceforth, ensure that
detailed engineering surveys and designs are properly conducted to comply with
the requirements of different government agencies and to avoid unnecessary
delays due to changes in designs and work plans and at the same time ensure
compliance with pertinent regulations in the procurement of infrastructure
projects.

We also recommended that the OIC-University President, through the

Accountant, ensure that liquidated damages are imposed to the contractor
concerned for the number of days of delay in the project execution.

6. Four (4) infrastructure projects totalling ₱10,695,530.96 were not completed

within the target completion date due to delays in the shipment of materials and
contractor’s poor performance in violation of the covering Contract Agreement
thereby depriving the University of well-improved academic facilities/structures.

We recommended that the:

a. University Engineer (i) ensure that implementation of infrastructure projects

are efficiently carried out within the prescribed period; (ii) monitor closely the
project accomplishments and address immediately the causes of delay; and
(iii) notify defaulting contractors any time during the implementation of the
project whenever there is deviation from the PERT/CPM;

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 b. University Accountant compute and deduct the liquidated damages due from
succeeding claims of the respective contractors of the subject projects; and

c. University President ensure that other appropriate sanctions to defaulting

contractors, in addition to the payment for liquidated damages, are imposed.

7. The project for the Design and Construction of Floating Restaurant (FR) costing
₱5,698,000.00 remained non-operational and idle despite its completion for
already for more than 17 months now thus, may constitute a waste of resources to
the disadvantage of the government. Further, the amount of honoraria paid to the
project implementers on a fixed monthly basis of ₱672,800.00 was contrary to the
provisions of DBM Budget Circular No. 2007-2 dated October 1, 2007 and COA
Circular No. 2012-003 dated October 29, 2012.

We recommended that the:

a. University President instruct all personnel concerned to immediately

undertake necessary actions to make the Floating Restaurant fully functional
according to its original plan and purpose so that student beneficiaries and the
University as a whole would enjoy the timely benefits on the project;

b. University Engineer ensure strict observance of the procedural guidelines and

requirements in the implementation of special projects to avoid delays; and

c. University Accountant review the basis for the computation of the payment of
honoraria to the project implementers and cause the refund of any excess
payments made, if any.

8. Various infrastructure projects with total contract costs of ₱194,104,318.60 have

noted deficiencies of ₱46,073.56 which showed that the projects were not executed
in accordance with the provisions stipulated in the respective Contract
Agreements to the prejudice of the government and the intended beneficiaries.

We recommended that the:

a. University Project Engineers (i) cause the necessary corrections and/or

remedial actions on the defective works undertaken at no additional cost to the
government, otherwise, withhold the equivalent amount of money due to the
contractors should they fail to take action within a reasonable period of time
or the issuance of Certificate of Final Completion and Acceptance pending
rectification of the noted deficiencies; and (ii) henceforth, strictly supervise
and monitor implementation of projects to prevent incurrence of the same
problems in the future; and

b. University Accountant (a) compute for the equivalent amount of liquidated

damages/penalties due from the contractors for delays in the completion of the

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 projects; and (b) submit copies of lacking documents for each of the projects
mentioned above.

9. Airline tickets of the employees and visitors of the University amounting to

₱8,848,144.43 were procured from PSU Multi-Purpose Cooperative and
Ticketin’s Travelling Agency without passing through public bidding or any
appropriate mode of procurement contrary to Section 2 of the Revised
Implementing Rules and Regulations of RA No. 9184, otherwise known as the
Government Procurement Reform Act, thus, the subject transactions were not
covered by any contract and/or Memorandum of Agreement (MOA) between the
University and the other entities concerned.

We recommended that the University President consider granting cash advances

to the officers and employees for official travel, inclusive of the transportation
expenses, i.e. airfares, as authorized under Executive Order (EO) No. 298 dated
March 23, 2004 and/or enroll in the General Fares Agreement (GFA) of the
DBM-PS-PhilGEPS to avail of the special discounted fares and other travel
benefits.

In the meantime that the University is not yet registered with the said GFA and
the University still opts to avail the services of travel agencies, we also
recommended that the University President ensure to procure airline tickets from
IATA-accredited ticketing offices through public bidding or other applicable
mode of procurement as defined in RA No. 9184 so that procurement transactions
shall be covered with legitimate contracts or their equivalent between the
University and the entities concerned. In so doing, we further recommended that
the University President ensure to include procurement of airline tickets in its
Annual Procurement Plan (APP) for the year.

The above observations and recommendations, among others, were discussed

with management officials concerned during the exit conference conducted on April 7,
2017. Management comments were incorporated in the report where appropriate.

Summary of Audit Suspensions, Disallowances and Charges

As of December 31, 2016, the PSU has unsettled suspensions and disallowances
totalling ₱15,752,342.94 and ₱10,071,228.89, respectively.

Status of Implementation of Prior Years’ Audit Recommendations

Out of the 82 audit recommendations contained in the CYs 2014-2015 Annual

Audit Reports (AARs), 42 were fully implemented, 37 were partially implemented and
the other three were not implemented.

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