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The initial project proposal was P45.5M composed of eight (8) components.
However, this was reduced to P38.8M with only three components (Annex A). The
program was projected as profitable, income-generating and self-liquidating and thus,
favorably recommended by the Secretary of Budget and Management to the President.
24
Although the instant Project may be considered a “priority in terms of social and
economic development objectives” and may perhaps be considered as “fast-moving and
quick-disbursing,” it is definitely not a project which has been performing well (because
it is on a pilot basis). In addition, considering that there is no existing program and
appropriation for the Project, there is nothing to augment and therefore, beyond the intent
of the DAP.
On July 1, 2014, the DAP controversy has already been finally settled by the
Supreme Court which declared unconstitutional certain acts and practices under the DAP
such as:
a. The withdrawal of unobligated allotments from the implementing agencies and the
declaration of the withdrawn unobligated allotments and unreleased appropriations
as savings prior to the end of the fiscal year and without complying with the statutory
definition of savings contained in the General Appropriations Acts (GAA);
b. The cross-border transfer of the savings of the Executive to augment the
appropriations of other offices outside the Executive; and
c. The funding of projects, activities and programs that were not covered by any
appropriation in the GAA.
Management explained during the exit conference on August 4, 2012 that the
Department of Budget and Management (DBM), in response to its query, has issued an
opinion that the funding for the Project was not DAP notwithstanding the fact that it was
taken from FY 2012 and 2013 savings because not all savings were included in the
Disbursement Acceleration Fund. In addition, Management also explained that, even if
the fund source was DAP, it was not privy to the criteria for DAP funding. The Project
was not in the Detailed List of DAP Projects posted in the DBM website.
The Audit Team noted Management’s reply and agreed that the determination
whether a particular fund is sourced from DAP or not is a matter for the DBM to explain.
1.2 The Bids and Awards Committee (BAC) did not strictly follow the bidding
process and timelines prescribed by the New Procurement Law. Bidding
documents were haphazardly prepared.
The whole bidding process for procurement of goods in the New Procurement
Law (R.A. No. 9184) involves a nine (9) step process from the conduct of a pre-
procurement conference up to the issuance of a Notice to Proceed. Each step or stage has
its own timeline (Annex B). Examination of various documents pertaining to the project
revealed the chronology of events shown in Annex C. The following paragraphs
discussed our comments for each event vis a vis the prescribed process and the
requirements under the New Procurement Law.
25
A. Posting of the Invitation to Bid in PhilGEPS was done on December 6, 2013
while advertisement in a newspaper of general nationwide circulation (i.e. Philippine
Daily Inquirer) was made on December 7, 2013 even before the Pre-procurement
Conference was conducted on December 12, 2013. Ordinarily, the Pre-procurement
conference is conducted first before any advertisement and posting of the
procurement opportunity is made because the purpose of the Pre-procurement
Conference is to determine the procuring entity’s readiness for the procurement to be
bidded.
This indicates haste in the advertisement and posting even before the above-
mentioned matters have not yet been fully threshed out.
C. Inconsistencies were noted between the Minutes of Bid Opening and the Abstract
of Bids. The Minutes of Bid Opening on December 26, 2013 showed that the losing
bidder (Pitad, Inc.) should have been disqualified due to improper sealing and
marking of bids but due to the importance of the project and in the interest of
competitiveness, Pitad’s bid was considered. However, the Abstract of Bids showed
that Pitad was disqualified due to improper sealing and marking. Moreover, the
Minutes of Bid Opening also showed that the largest completed contract of Pitad
amounting to P1,200,000.00 was considered insufficient by the BAC compared to
the P19.4 M required (50% of ABC). However, the Abstract of Bids showed that
Pitad did not submit a certificate (sic, statement) of completed projects. It is unlikely
26
that Pitad’s largest completed contract amounting to P1,200,000.00 was determined
without a submitted statement of completed contracts.
D. The Post-Qualification Evaluation Report was only for one of the potential JV
partners (Numerical Gate and Construction Supply) and not for the Joint Venture
between Coco Technologies Corporation and Numerical Gate and Construction
Supply as a separate legal entity although the JVA was already signed and notarized
at that time (Joint Venture Agreement was notarized on December 20, 2013 before
bid opening, evaluation, ranking and post-qualification).
On March 5, 2014, the draft Contract was presented to the BU Board of Regents
which approved the same as attested by the Board Secretary in his Certification issued on
March 12, 2014.
No Management reply was received for Items A to D, above. With regard to Item
E, Management explained that the delay in the issuance of the NOA was due to the
complexity of the Project.
In the future, the Bids and Awards Committee (BAC) strictly follow the prescribed
bidding process and comply with the timelines prescribed by the New Procurement Law.
It should exercise care in the preparation of bidding documents.
1.3 The competitiveness of the bidding process was stifled by an undue advantage to
one of the bidders contrary to Section 3 (b) of the New Procurement Law and
the existence of a conflict of interest in one of the Joint Venture partners
contrary to Section II, A, 4.1 (d) of the Instruction to Bidders.
27
Numerical Gate and Construction Supply. Dr. Justino Arboleda (the proponent) is the
President of Coco Technologies Corporation.
Although the Project was publicly bid, whatever semblance of competition in the
bidding process that arose from the advertisement of the Invitation to Bid in a newspaper
of general nationwide circulation and posting of the same in the PhilGEPS, was stifled
by the fact that the Joint Venture between Coco Technologies Corporation-Numerical
Gate and Construction Supply had the added advantage of being privy to the details of
the Project, through Dr. Justino Arboleda. Such advantage defeats purpose of the “equal
opportunity” requirement in competitive public bidding.
(a) xxxxx;
(b) xxxxx;
(c) xxxxx;
(d) A Bidder has a relationship, directly or through third parties, that
puts them in a position to have access to information about or
influence on the bid of another Bidder or influence the decisions of
the Procuring Entity regarding this bidding process. (underscoring
supplied) This will include a firm or an organization who lends, or
temporarily seconds, its personnel to firms or organizations which
are engaged in consulting services for the preparation related to
procurement for or implementation of the project if the personnel
would be involved in any capacity on the same project;
(e) xxxx; or
(f) A Bidder who participated as a consultant in the preparation of the
design or technical specifications of the Goods and related services
that are the subject of the bid.” (underscoring supplied)
As the real project proponent, Dr. Justino Arboleda, is covered by the above-
mentioned provision on general conflict of interest. In fact, on December 29, 2013, the
BAC received a Motion for Reconsideration filed by the losing bidder (Pitad, Inc.)
raising two (2) issues, to wit:
28
a. Conflict of Interest of Dr. Justino Arboleda as owner of Coco Technologies and
allegedly because he is “known in the industry and within the Bicol
University to be the consultant of the project.”
b. The appropriateness of his disqualification on the basis of track record (e.g.
below 50% of the ABC).
On December 30, 2013, the BAC issued a Resolution denying Pitad’s request for
reconsideration solely on the basis of lack of merit of the 2nd issue raised without tackling
the issue on conflict of interest for being “immaterial and irrelevant to the issue of its
disqualification.” The Audit Team however believes that the conflict of interest issue,
though not relevant to Pitad’s disqualification, is a valid issue against the winning
bidder’s qualification which Pitad can rightfully raise under Section 55.1, Revised IRR,
which provides that “decisions of the BAC at any stage of the procurement process may
be questioned by filing a request for reconsideration within three (3) calendar days upon
receipt of written notice or upon verbal notification.” Such provision does not limit
issues to be raised in the request for reconsideration to the grounds for the requestor’s
disqualification but allows a bidder to raise issues pertaining to a BAC’s decision
qualifying other/opposing bidders. Thus, the conflict of interest issue should have
disposed of clearly on the merits and not in an evasive manner especially considering the
importance of the Project involved.
We recommended that, in the future, the Bids and Awards Committee avoid
situations that would cast doubts on the integrity of the bidding process. Possible conflict
of interest in participating bidders and matters that would defeat fair competition among
bidders be carefully evaluated and considered before awarding a contract.
Bicol University Regional Center for Food Safety and Quality Assurance (Phase I
and II)
The Bicol University (BU) has two allied programs on Food Safety and Quality
Assurance, as follows:
29
Budget Item Amount
(in millions)
B Research Program for Sustainable Regional Food Safety and
Quality Assurance for Potential Bicol Exportable Products 17.000
Total P52.335
The “Bicol University Higher Education Regional Center for Food Safety and
Quality Assurance” is funded partly from the controversial Disbursement Acceleration
Program (DAP) and the CY 2013 General Appropriations. The initial funding which was
coursed through the Commission on Higher Education (CHED) amounting P17 million
consisted of three components, namely:
The Construction of the Center, Phase II was, however, funded from the CY 2013
General Appropriations through ABM No. ROV13-0002067 amounting to P18.335
million.
The research program for “Sustainable Regional Food Safety and Quality
Assurance for Potential Bicol Exportable Products” is also funded from the DAP in the
amount of P17 million thru the CHED’s DAP allocation for Research Development
Extension.
The DAP-funded projects whose funding was coursed through CHED are covered
by CHED Memorandum No. 9, “Guidelines on the Grant and Allocation of the
Disbursement Acceleration Fund for State Universities and Colleges in Support of the
Reform Agenda for Public Higher Education” issued by CHED for the purpose. The
following paragraphs discussed our audit observations for each project.
2.1 The Project did not meet the criteria for DAP-funded projects and did not
comply with Section 37.1.6 of the Implementing Rules and Regulations (IRR) of
the New Procurement Law, certain provisions of the Bicol University-
Commission on Higher Education (BU-CHED) Memorandum of Agreement,
and the Contract with the building contractor. Completion of the Project has
been long-delayed and yet the contract has neither been rescinded nor accrued
30
liquidated damages amounting to P107,302.37 as of December 31, 2013 been
imposed.
The P12 million funding for this Project was received as early as October
2012. Based on the Bill of Materials and Detailed Cost Estimates, the P12 million
was allocated for the following:
Particulars Amount
(in millions)
Approved Budget for the Contract P11.580
Project Management Cost 0.420
Total Project Cost P12.000
a. DAP Guideline No. 1.0 which was attached as Annex A to CHED Memorandum
No. 9;
b. The BU-CHED Memorandum of Agreement (MOA) executed on August 16,
2012; and
c. The Contract dated January 25, 2013 between the BU and the building
contractor amounting to P11,535,445.84.
DAP Guideline No. 1.0 provides for the guidelines in the implementation of the
“Infrastructure and Facilities Upgrading” component under the “Institutional
Capacity Building Programs of SUCs and Colleges.”
31
complied.” However, the MOA between BU and CHED provides for an earlier and
more agency-specific project implementation period up to May 31, 2013. A perusal
of the project documents (i.e. contract, Notice to Proceed, etc.) showed that the
initial target completion date was July 27, 2013 based on a 180 day contract period.
This initial target completion date is already beyond the May 31, 2013 deadline set in
the MOA. Various approved time extensions due to unfavorable weather conditions
and a variation order resulted in a revised contract period of 270 calendar days and
further extended the target completion date to October 29, 2013, which is 5 months
beyond the MOA deadline. Annex D shows that as of December 31, 2013, the
project remained unfinished, with only 95.2% accomplishment based on the last
progress payment on November 29, 2013. As of December 31, 2013, the completion
of Phase I has been 63 days delayed. Moreover, as of June 6, 2014 (the date of the
Audit Team’s ocular inspection), the project remained unfinished and was already
220 days delayed. Such delays do not live up to the “fast-moving and quick-
disbursing” and “urgent or priority” criteria of DAP-funded projects.
Item nos. 6 and 7 of the Contract also allows BU to rescind the contract,
forfeit the performance security, takeover the prosecution of the contract or award to
another qualified contractor in case the delay in project completion exceeds 10% of
the allowed time (including approved time extensions) and to blacklist the contractor
for violation of contract provisions. The 220-day delay in project completion as of
June 6, 2014 is 81% of the revised contract period of 270 days and therefore justifies
BU’s invoking Items 6 and 7 of the contract. Unfortunately, instead of sanctioning
the Contractor for violating the terms of the contract, the Contractor was also
awarded the contract for the construction of the Phase II of the Project on September
16, 2013. This award was made before the October 29, 2013 extended target
completion date for Phase I. Notwithstanding the unfinished portions of Phase I, the
Audit Team noted that the premises are now occupied by the Research and
Development Center (RDC), indicating a partial turn-over of the project to the end-
user.
Section 2.9 of the BU-CHED MOA also requires the grantee to faithfully
observe the provisions of R.A. No. 9184 and its IRR for the purpose of propriety,
transparency and accountability. However, the Audit Team noted that the Notice of
Award (NOA) was not posted in the Philippine Government Electronic Procurement
System (PhilGEPS) contrary to Section 37.1.6, R. A. No. 9184, as reiterated in
GPPB Circular No. 1-2005.
32
Moreover, Bicol University did not comply with certain provisions of DAP
Guideline No. 1.0 as follows:
a. Item VI (C) (3) of the Guideline requires the SUC-grantee to create a Project
Implementing Unit (PIU) to oversee the project implementation and submit the
necessary reports. No such PIU was formally created. However, project
documents examined show that project implementation is under the Vice-
President for Administration who also has control and supervision of the
Construction Section of the Physical Plant Development and Maintenance Office
(PPDMO).
b. Item VI (C) (4) also requires the SUC-grantee to create a Construction
Management Team for project costing at least P12 million. Although the
construction of Phase I costs P12 million, no such Construction Management
Team was formally created. However, project documents examined show that
actual construction works is being supervised by the Head of the Construction
Section, PPDMO.
We also noted that the project implementation period indicated in the MOA
(July 1, 2012 to May 31, 2013 ) preceded the date of MOA signing on August 16,
2012 indicating lack of due care in the preparation of such document.
Lastly, although Items 2.5 and 2.6 of the MOA require the submission of an
accomplishment/liquidation report within 60 days from completion, no such
liquidation report for the P12M has yet been submitted because Phase I is still
unfinished, though beyond the set deadline. Incidentally, it is worth mentioning that
the Executive Director of CHED, in his letter dated May 30, 2014, has sought the
assistance of SUC Auditors to require the concerned SUCs to submit the verified
liquidation reports and refund unutilized funds in accordance with their respective
MOAs with the CHED and COA Circular No. 94-013 (Rules and Regulation on the
Grant, Utilization and Liquidation of Funds transferred to Implementing Agencies).
We recommended that:
a. Management justify the Project’s inclusion among those funded by the DAP; the
non-creation of Project Implementing Unit and Construction Management Team;
and the delayed completion of the project beyond the MOA deadline and the
contract target completion date.
b. Management exert due care in the preparation of contracts and/or MOAs in the
future.
c. Management impose liquidated damages on the contractor and compel the full
completion of the project.
d. The Bids and Awards Committee (BAC) justify the non-posting of the NOA in the
PhilGEPS.
33
i. It was not privy to the nature and conditions of the fund source and merely relied
on the CHED Guidelines for the Project.
ii. The BU has an existing institutional unit called the Physical Development
Management Office (PDMO) which is tasked to undertake infrastructure
projects of the University which is the reason why the Project Implementing Unit
and Construction Management Team was no longer created.
iii. The delayed completion of the Project was due to several revisions in the
building design in order to suit general and specific requirements of a high-end
laboratory using complex equipment. Compliance with certain laboratory
standards had to be discussed between the researchers/end-users and the project
engineers/architects. Management provided the Audit Team with a Revised
Project Implementation Timelines and assured that it has exerted due diligence
in the monitoring and supervision of the Project.
Management noted recommendation (b), above, but did not make any
comment/reply.
Management also informed the Audit Team of the Financial and Physical
Status of the Project as of July 8, 2014 supported with pictures of the constructed
buildings (Phases I and II).
2.2 The procurement of laboratory equipment was made beyond the deadline set in
the BU-CHED MOA. This was further aggravated by the non-installation of the
equipment delivered due to the delayed completion of the Bicol University
Higher Education Regional Center for Food Safety and Quality Assurance,
Phase I.
34
the same BU-CHED MOA dated August 16, 2012 with a project implementation
period up to May 31, 2013.
As of the date of ocular inspection by the Audit Team on June 6, 2014, these
procured equipment were already delivered and stored at the premises of the Project
but are not yet installed because the construction works on Phase I have not yet been
completed. According to the Research and Development Center Director, the
uninstalled equipment necessitated additional security measures to protect them from
theft. In addition, the unfinished portion of Phase I also poses unnecessary risk to the
stored equipment in case of inclement weather.
The delivered equipment, however, has not yet been paid because the
contract includes user training which cannot be done if the delivered equipment are
uninstalled. Specifically, Item No. 10 of the contract provides that the supplier will
shoulder cost of training of two BU personnel (operators) in Singapore as well as 3-
day on-site local training for all users. The failure to install the delivered equipment
and the consequent failure to conduct on-site training for users is due to the delayed
completion of the Project.
The Audit Team also noted Item II of the BU-CHED MOA provides that the
DPWH reserves the right to ownership over the purchased equipment and facilities
subject of the grant until full liquidation by the grantee. However, inquiry with Dr.
Arnulfo Mascariἥas, Director, BU Research and Development Center, disclosed that
DPWH was not involved in the project because the P17 million (P12 million for the
laboratory building and the P5 million for procurement of initial laboratory
equipment), was directly released by CHED to BU. This indicates poor review of the
MOA before this was signed.
We recommended that:
35
Management justified that the delay in the procurement of the initial
laboratory equipment was due to the revisions in the specifications in order to fit the
requirements of the different research projects. Management provided the Audit
Team with the revised timelines for this particular transaction based on the BAC
records showing the award date as August 19, 2014.
2.3 The bidding for the Project (Phase II) was delayed considering that this was
funded out of general appropriations for CY 2013. This was further aggravated
by the delayed completion of the Project beyond the target completion date in
the contract. The grant of mobilization fee amounting to P2,737,764.48 to the
contractor was not necessary.
Unlike Phase I, this project was funded from the CY 2013 General
Appropriations through ABM No. ROV13-0002067 dated January 4, 2013
amounting to P18.335 million. The Invitation to Bid was published/posted in August
2013 and the contract amounting to P18,251,763.21 was awarded in September
2013. This award was made before the October 29, 2013 revised target completion
date of Phase I. The target completion date of Phase II is May 2, 2014 based on the
210 calendar day contract period from date of receipt of the Notice to Proceed (NTP)
on October 4, 2013.
Annex E shows that on November 20, 2013, the contractor was granted 15%
mobilization fee amounting to P2,737,764.48 and on November 29, 2013, a partial
payment of P7,464,971.15 was made for 40.9% accomplishment.
1. The start of the bidding process in August 2013 was very late considering
that the project was funded from the regular capital outlay appropriation.
2. The payment of the 15% mobilization fee amounting to P2,737,764.48
was not necessary because the contractor was also the contractor of Phase
I. The purpose the mobilization fee is to enable the contractor to mobilize
or bring his equipment and workers to the project site. Considering that
Phase I was still unfinished as of November 20, 2013, and Phases I and II
are adjacent and contiguous, there was really no need for the grant
mobilization fee for Phase II.
3. The Project (Phase II) remained unfinished as of the date of our ocular
inspection on June 6, 2014 beyond the May 2, 2014 target completion
date.
36
(LCRB). However, the last paragraph of the resolution was the declaration of Ajan
Jeada, Inc. as the LCRB and the recommendation for approval of the same. Again,
this indicates careless preparation of bidding documents by the BAC.
We reiterate that the BAC carefully review procurement documents (i.e. BAC
Resolutions) that it prepares before signing and issuing the same.
As in the case of Phase I, Management justified the late bidding of the Project
due to the more rigorous planning process needed to determine the specific design
parameters in the laboratory spaces in order to benchmark with other food safety
laboratories.
Management argues that the grant of advance payment is allowed under Item
4.0, Annex E, “Contract Implementation Guidelines for the Procurement of
Infrastructure Projects”, Implementing Rules and Regulations of R.A. No. 9184.
Auditor’s R ejoi
nder:
The Audit Team, however, insists that although the grant of advance payment
is allowed, it was no longer necessary in the case of Phase II.
Management explained that the delayed completion of the project was due to
three Variation Orders made on the original plans resulting in a revised target
completion date of August 21, 2014.
Research Program for Sustainable Regional Food Safety and Quality Assurance for
Potential Bicol Exportable Products
2.4 The Bicol University showed a low rate (18 percent) of fund utilization halfway
through the 24-month project implementation period contrary to the “fast
disbursing” criterion of DAP-funded projects.
DAP Guideline No. 1.2 provides for the guidelines in the implementation of
the Grants-in-Aid for Research Development Extension (GIA-RDE) Component of
the Institutional Capacity Building Programs of State Universities and Colleges.
Among the deliverables under Item (V)(B) of DAP Guideline No. 1.2 are the
accomplishment and monitoring reports and terminal/completion reports. These
requirements were substantially complied by BU as evidenced by the following
reports furnished the Audit Team:
i. Status Report as of September 30, 2013 (as to Physical aspects only) prepared by
RDC Director Arnulfo Mascarinas and noted by BU President Fay Lea Lauraya;
ii. Financial Report as of September 30, 2013 prepared and certified correct by the
Accountant showing total disbursements amounting to P1,027,168.01 and
unexpended balance of P10,872,831.99, representing 9% and 91% of the total
amount released, respectively; and
iii. Financial Report as of December 31, 2013 prepared and certified correct by the
Accountant showing total disbursements amounting to P2,157,046.46 and
unexpended balance of P9,742,953.54, representing 18% and 82% of the total
amount released, respectively.
Item (V)(D) of DAP Guideline No. 1.2 also provides that the timelines will
be in accordance with those set in the MOA. The BU-CHED MOA dated December
13, 2012 provides for a 24-month effectivity period from its execution, thus, up to
December 13, 2014. The Notice to Proceed from CHED to BU directed that the
completion of the project should be in accordance with the approved Work and
Financial Plan (WFP). Unfortunately, only a Program Work Plan (as to the physical
aspects only, without a financial forecast of spending or fund utilization) was
provided the Audit Team. This, however, could not be used as a standard for
evaluating fund utilization.
In the absence of any other standard that could be used in evaluating actual
fund utilization, the Audit Team based its evaluation on the Financial Reports,
above-mentioned. We noted that as of December 31, 2013 or halfway through the
project implementation period, the Agency only registered an 18% utilization for the
12-month period from January to December 2013. This indicates a slow rate of
financial utilization of the program funds received. Approximately 50% of the funds
received should have been spent after 12 months of program implementation but the
Financial Report shows only an 18% utilization. This defeats the DAP’s purpose of
fast-tracking public spending.
38
It must be stressed that Item I, Section 2.8 of the BU-CHED MOA requires
the return of unutilized funds and BU has only 12 months left (from December 31,
2013) before the project implementation period ends in December 13, 2014.
The Schedule of Tranche Releases, which was an integral part of the MOA,
showed that the initial P11.9 million (70% of program fund) would be released
within 1 month from MOA signing; P3.4 million (20%) within 12 months upon
submission of an audited financial report for the first tranche; and P1.7 million
(10%) within 24 months upon submission of the final/terminal audited
financial/liquidation report. However, the release of the remaining P5.1 million has
been overtaken by the following events:
a. Letter of the Executive Director of CHED, dated May 30, 2014, which sought the
assistance of SUC Auditors to require the concerned SUCs to submit the verified
liquidation reports and refund unutilized funds in accordance with their
respective MOAs with the CHED and COA Circular No. 94-013; and
b. The declaration of the DAP as unconstitutional by the Supreme Court in its
decision dated July 1, 2014.
B icol Uni versity S tud e n ts’ Grants -in-Aid Program for Poverty Alleviation
(SGP- PA)
The SGP-PA is one of the programs implemented by the Bicol University (BU) in
partnership with Department of Social Welfare and Development (DSWD) and the
39
Department of Labor and Employment (DOLE) as a long term instrument and
commitment to break with the vicious poverty cycle afflicting the poor.
a. Ensure that grantees are enrolled in selected SUCs and that they are channeled to
the priority programs of the Commission on Higher Education (CHED);
b. Ensure that grantees are extended needed support that will guarantee the
completion of their studies which will qualify them for high-value added jobs;
c. Contribute to the increase of the number of enrolment in higher education in line
with the national government’s priority degree programs among poor households;
and
d. Support college graduate’s entry to labor markets through placement assistance.
The initial allocation for this program amounting to P500M was funded from the
controversial Disbursement Acceleration Program (DAP) - a stimulus package introduced
in CY 2011 designed to fast-track public spending. On July 1, 2014, the DAP controversy
has already been finally settled by the Supreme Court which declared unconstitutional
certain acts and practices under the DAP.
The initial DAP allocation for SGP-PA was coursed through the CHED and
downloaded to selected State Universities and Colleges (SUCs). The Bicol University, as
one of the recipient SUCs, received P18,360,000.00 as follows:
40
The student-beneficiary is entitled to a maximum of Sixty Thousand Pesos
(P60,000.00) grant per Academic Year or Thirty Thousand Pesos (P30,000.00) grant per
Semester as follows:
The DAP-funded projects whose funding was coursed through CHED are covered
by the following:
The above-mentioned guidelines are the basic criteria used by the Audit Team for
the evaluation of this project. The following paragraphs discuss the results of our
evaluation.
3.1 A total of 23 or approximately five percent out of the 474 grantees dropped-out
during Academic Years 2012-2013 and 2013-2014 resulting in a loss of
P771,044.71 to the government and in violation of DAP Guideline No. 2.0.
Item VII (3) of DAP Guideline No. 2.0 provides for the responsibilities of
recipient SUCs in order to ensure the attainment of the goals of the Program. These
responsibilities, which were reiterated in Item C of the MOA between the CHED and BU
included, among other things, the following:
41
a. Orienting the SGP-PA beneficiaries of the policies and guidelines and other
requirements of the program;
b. Organizing and/or enhancing values formation and career guidance programs to
beneficiaries and their families or parents;
c. Providing services of Guidance Counselors as needed;
d. Monitoring and reporting academic performance of the grantee at the end of each
year until graduation;
e. Informing the National SGP-PA Committee of drop-outs for possible
replacements;
42
A. Lack of clear and program-specific SGP-PA policies and procedures (BU-initiated) to
supplement the general provisions of CHED Memorandum Order No. 9, DAP
Guideline No. 2.0, the BU-CHED MOA and COA Circular No. 94-013;
3.2 There was a significant delay in the submission of Liquidation Reports for the
SGP-PA in violation of COA Circular No. 94-013.
CHED Memorandum Order No. 9 does not provide any specific timeline for the
submission of the liquidation report. However, it adopted in Item VIII, the policy of strict
and faithful adherence to government accounting and auditing rules and regulations. The
BU-CHED MOA and DAP Guideline No. 2.0 on the other hand, merely provide that the
implementing agency (BU) must submit a status and liquidation report but also does not
provide a specific timeline. However, Item XIII, DAP Guideline No. 2.0 makes reference
to COA procedures in liquidating SGP-PA disbursements. That COA procedure is
embodied in COA Circular No. 94-013, which, under Item 4.6 requires the submission by
the Accountable Officer to the Accountant of the Report of Checks Issued and Report of
Disbursement within 10 days after the end of each month to report on the utilization of
the funds received. Moreover, Item 6.5 of the same COA Circular requires the
Accountant to verify such reports within 10 days from receipt before submitting such
report with all the original supporting documents to the auditor of the implementing
43
agency for verification. Thus, liquidation reports must be submitted to the auditor within
20 days after the end of each month before the verified liquidation report can be
submitted to the CHED.
However, records at the Auditor’s Office showed only three reports submitted for
audit verification as follows:
* Date of MOA but before the actual receipt of funds on August 29, 2012.
The above Table shows that there was a significant delay in the submission of the
first liquidation report (as of September 30, 2013) which was submitted more than a year
after receipt of the funds and only after two letters from the Executive Director of the
CHED dated July 18, 2013 and September 9, 2013 requesting submission of the same.
The succeeding two reports each covered a three-month period instead of a month, in
violation of COA Circular No. 94-013. Because of these delays, the Executive Director of
CHED, on May 30, 2014, sought the assistance of SUC Auditors to require the concerned
SUCs to submit the verified liquidation reports in accordance with their respective MOAs
with the CHED and COA Circular No. 94-013.
Such delays were due to the lack of specific timelines in CHED Memorandum
Order No. 9 and the BU-CHED MOA, and a mere general reference to COA Circular
No. 94-013 in Item XIII, DAP Guideline No. 2.0 regarding the submission of status and
liquidation reports.
Item VIII, CHED Memorandum Order No. 9 adopts the policy of strict and
faithful adherence to R. A. No. 9184 and government accounting and auditing rules and
regulations.
44
Section 10 of the Revised IRR of R.A. No. 9184 prescribes Competitive Bidding
as the default method of procurement. However, Section 48.2 allows the use of
alternative methods of procurement under highly exceptional cases enumerated under the
law, such as Limited Source Bidding, Direct Contracting, Repeat Order, Shopping and
Negotiated Procurement. There are thirteen types of negotiated procurement, including
negotiated procurement after two failed biddings (Section 53.1) and Small Value
Procurement (Section 53.9).
Transactions which violate specific provisions of law (i.e. R.A. No. 9184) are
considered illegal and may be disallowed in audit. On the other hand, transactions which
do not adhere to established rules, regulations, procedural guidelines, policies, principles
or practices that have gained recognition in law are considered irregular expenditures
and may be suspended and/or disallowed in audit.
45
For Item No. 1, the procurement of food and school supplies by reimbursement
and without canvass violates Section 48.2 of the Revised IRR of R.A. No. 9184 which
allows the use of alternative methods of procurement under highly exceptional cases.
Reimbursement is not among the acceptable alternative modes of procurement
enumerated under the law. It also violates Sections 52.1 (b) and 53.9 of the same IRR on
Shopping and Small Value Procurement (SVP) and GPPB Resolution No. 09-2009
(Guidelines on Shopping and Small Value Procurement) which requires a canvass from at
least three suppliers whenever the amount involved is within the monetary threshold of
P500,000.00 in Annex H, Revised IRR, R.A. No. 9184.
For Item No. 2, the purchased t-shirts and uniforms and payment of membership
fees violate Section 4 (6) of P.D. No. 1445 which requires that all claims against
government funds shall be supported with complete documentation. Complete
documentation in this case does not only mean evidence of payment to the supplier/payee
but also evidence of actual receipt or acknowledgement by the end-users/recipients.
For Item No. 3, the procurement of room and board for SGP-PA student-grantees
without bidding and awarded contract violates Section 10 of the Revised IRR of R.A. No.
9184 which prescribes competitive bidding for amounts exceeding the monetary
threshold of P500,000.00 in Annex H, Revised IRR, R.A. No. 9184, as in this case.
As already mentioned, the Bicol University received on August 29, 2012 and
March 15, 2013 a total amount of P18.36M from the CHED as an initial allocation for the
SGP-PA. Shown below is the utilization of said fund based on the Liquidation Reports
verified by the BU Auditor Team.
Total Outstanding
Period Covered Disbursements Balance
P 18,360,000.00
8/29/12 – 9/30/13 P 5,970,921.60 12,389,078.40
10/1/13 – 12/31/13 2,874,912.50 9,514,165.90
Sub-total 8,845,834.10
46
Total Outstanding
Period Covered Disbursements Balance
1/1/14 – 3/31/14 1,170,201.00 8,343,964.90
Total P 10,016,035.10
The total amount disbursed as of December 31, 2013 and March 31, 2014
represent 48.18 and 54.55 percent of the total funds received, respectively.
Miscellaneous Expenses
47
documents evidencing the disbursement, if these are available, or, in lieu thereof,
by a certification executed by the official concerned that the expenses sought to
be reimbursed have been incurred (emphasis supplied) for any of the purposes
contemplated under the specific provision of the GAA.
Section 23 of the General Provisions of the CY 2013 GAA authorizes the grant of
P90,000.00 for Extraordinary Expenses and P72,000.00 for Miscellaneous Expenses for
the Bicol University President (whose position is equivalent to a Department
Undersecretary). Such appropriation, under Section 63 of the CY 2013 GAA shall be
available for release and obligation until the end of FY 2013 (emphasis supplied). This
provision on the validity of appropriation was reiterated in Sections 3.2 and 3.12.1.1 of
National Budget Circular No. 545 dated January 2, 2013 (Guidelines on the Release of
Funds for CY 2013).
The above Table shows that the Extraordinary Expenses actually incurred were
within the limit set by the GAA. However, we noted the following deficiencies with
regard to Miscellaneous Expenses:
48
appropriation/allotment would lapse by December 31, 2013. As of the date of
issuance of the check (December 16, 2013), no miscellaneous expenses have yet
been actually incurred and recorded in the books of accounts out of the
P72,000.00 allowed under the GAA. Thus, considering that Miscellaneous
Expenses are reimbursable in nature, there was no basis for the payment of
P83,357.00 because there was nothing to reimburse.
c. The incurrence of P11,357.00 in excess of the P72,000.00 allowed by the GAA
allegedly thru augmentation, is untenable. Augmentation, as defined in Section
53 of the CY 2013 GAA, “implies the existence xxx of a program, activity or
project with an appropriation, which upon implementation or subsequent
evaluation of needed resources, is determined deficient. In no case shall a non-
existent program, activity or project be funded by augmentation from savings.”
The Audit Team fully agrees that the BU President should be “accorded as much
flexibility as possible in the utilization” of the extraordinary and miscellaneous expenses.
However, we opine that such flexibility is circumscribed by existing laws, rules and
regulations on the matter.
We recommended that in the future, Management comply with the ceiling set by
GAA for Extraordinary and Miscellaneous Expenses. Payment out of the appropriations
for Extraordinary and Miscellaneous Expenses be based strictly on a reimbursement
basis, duly supported with receipts or other documents evidencing the disbursement or a
certification executed by the official concerned that the expenses sought to be reimbursed
have been incurred for any of the purposes contemplated under the specific provision of
the GAA. Realignments be duly approved by the BU Board of Regents.
5.0 The Bicol University did not strictly comply with existing laws, rules and
regulations and basic internal control principles on the disposal of unserviceable
property/products of Income Generating Projects and demolition of buildings
and structures. The failure to drop from the books of accounts the disposed
unserviceable properties and demolished buildings and structures overstated the
pertinent Property, Plant and Equipment accounts by at least P6,119,747.66.
49
No. of
Items Disposed/Type of Disposal Transactions
A Unserviceable Properties and Equipment 7
B Buildings and Structures (demolition) 2
C Products of Income Generating Projects (i.e. swine, goats,
fruits, copra, charcoal) 5
Total 14
The pertinent laws, rules and regulations for each of the three types of disposals
are briefly summarized below:
1. Executive Order No. 888 (dated March 18, 1983)– which authorized heads of
government agencies to dispose of their respective unserviceable equipment and
disposable property; created a disposal committee at the national and regional levels
with COA as a member; outlined the duties of the disposal committee; identified the
disposal documents; modes of disposal; and mandated the dropping of the disposed
property from the books of accounts of the agency in accordance with existing
accounting and auditing regulations.
2. COA Circular No. 89-296 (dated January 27, 1989) – which provided the audit
guidelines on the disposal of property and other assets, basically, in accordance with
E.O. No. 888. Specifically, it provided the following procedures:
50
2.7 Dropping from the books of accounts of the items disposed.
k. Official receipt for the proceeds of sale in case of public auction or negotiated
sale;
l. Journal Entry Voucher evidencing the dropping of the disposed items from the
books of accounts, including evidence of posting to the appropriate property
ledgers.
With regard to the creation of the Disposal Committee, Executive Order No.
309 (dated March 8, 1996) reconstituted its membership to exclude COA due to the
lifting of pre-audit activities at that time. In Bicol University, two Administrative
Orders have been issued on the matter, to wit:
a. Administrative Order No. 156, s. 2006 – which created the University Appraisal
and Disposal Committee with the OIC, Vice President for Administration as
Chairperson and Chiefs of the Administrative and Finance Offices as members.
51
structures” and was required to submit a copy of the Inventory and Inspection
Report of the disposed properties to the University Appraisal and Disposal
Committee.
1. Executive Order No. 285, s. 1987 – which specifically identified in Section 3.1 (e),
thereof, the DPWH as the agency in-charge of disposal of government-owned
buildings; and
2. DPWH-DBM-DENR Joint Circular No. 1 – which was issued pursuant to E.O. 285
and provided the procedures for the demolition of buildings.
3. Section 1.02.03 of the Building Code of the Philippines which requires the acquisition
of a demolition permit from the authorized Building official.
Aside from these two provisions, there are no other laws or regulations pertaining
to the sale/disposition of products of income-generating projects except for two old
regulations, as follows: a) National Budget Circular No. 331-A (dated 12/23/82) on
“Revolving Fund for School Agricultural and Manufacturing Operations” which also
includes the manner of disposal of agricultural products, and b) COA Circular No. 84-
329 on “Rules and Regulations Governing the Accounting of Agricultural Products.”
These two (2) regulations have been overtaken by the GAAM which took effect in 1992
52
and the New Government Accounting System which took effect in 2002. Thus, the Audit
Team’s assessment of the Agency’s actual practice was measured against basic principles
of internal control and Management’s responsibility for internal control as stated in
Sections 32 and 36, GAAM, Volume III, respectively.
Section 32 defines internal control as a plan of organization and all methods and
measures to ensure that government resources are used in accordance with laws, rules and
regulations and are safeguarded against loss, wastage or misuse, among other things.
Section 36 on the other hand entrusts to management the responsibility for establishing
good internal control.
a. We noted that in the case of demolition of buildings and structures (i.e. BUCE
- ELCOP rooms; BUCAF - Greenhouse and layers cages), the Campus
Disposal Committee took charge of the disposal. The University Disposal
Committee should have been in-charge in these cases because BU
Administrative Order No. 113, s. 2007 expressly excluded disposal of
buildings and structures from the authority and jurisdiction of the
Campus/Cluster Appraisal and Disposal Committee.
b. No appraisal was made of the salvage materials from the demolition of the
ELCOP Rooms of BU College of Education (BUCE). Salvage materials from
the demolition of ELCOP rooms were not sold (no amount was recovered)
and remained unaccounted.
53
c. The in-house appraisal of BUCAF layer cages and greenhouse was grossly
understated (P6,000 appraised value against P45,135.29 actual proceeds)
casting doubts on the reliability of the appraisal process done. This is crucial
as the appraised value serves as the floor price in case the items are disposed
through public auction.
d. The ELCOP Rooms were demolished without any inspection by the Auditor
which precluded the determination of whether the salvage materials had
monetary value or not and also the proper mode of disposal.
e. There was no Disposal Committee Resolution regarding the mode of disposal
of the greenhouse and layer cages of BUCAF. In the case of the BUCE,
although the demolition of the ELCOP Rooms was covered by a Disposal
Committee Resolution, there was no such resolution covering the mode of
disposal of the salvage materials.
f. There was also a significant delay in the approval of request for demolition of
BUCAF greenhouse and layer cages (initial request on March 2013 reached
the President's Office on July 2013) despite the perceived "danger to students
and personnel."
g. Notice to the Auditor about the actual date of disposal pertained only to the
demolition of the ELCOP room but not the salvage materials. Notice to the
Auditor about the actual date of disposal of the BUCAF Greenhouse and
Layer Cages was inaccurate (as indicated in a letter to COA received July 19,
2013 by Ms. Francia Abuid, the date of opening of bids was scheduled July
29, 2013, 2:30 p.m. but the Minutes of Meetings showed that the opening of
bids was held on 30 July 2013, 2:30 p.m.).
h. There were deficiencies noted on the Public Auction of the of BUCAF
greenhouse and layer cages, as follows:
54
no action was yet taken on this request. The request for dropping should have
been rightfully addressed to the Accountant supported by the IIRUP/WMR
and not to the BU President.
1. Although all disposed unserviceable properties had applications for disposal with
the Auditor, we noted the following deficiencies:
2. BUCAL, IPESR and BUCAF did not submit the cancelled Acknowledgment
Receipt for Equipment (AREs) of the items disposed. In the case of BUCS, the
submitted AREs were not duly cancelled.
3. There was substantial compliance by the BU with regard to the creation of the
Disposal Committee because of the two administrative orders creating the
University Disposal Committee (Administrative Order No. 156, s. 2006) and the
Campus/Cluster Disposal Committee (Administrative Order No. 113, s. 2007).
However, it would have been better if the Campus Dean/s, reiterated A.O. 113
and specifically identified the individuals constituting the Disposal Committee as
it was done by BUCAL and the OSS where another Office memorandum signed
by the BU President dated June 18, 2012 was issued organizing the Appraisal and
Disposal Committee for Satellite Offices citing AO 113, s. 2007. In the case of
IPESR, the actual composition of the disposal committee was not in accordance
with A.O. 113. s. 2007 (i.e. members were Instructors and not the Supply Officer
and Admin. Officer as required). Mr. Lorenzo Nuἥez who is the designated
Supply Officer of IPESR was not included in the Disposal Committee.
4. Although all disposed unserviceable properties were supported by the IIRUP and
WMR, not all information required in the IIRUP/WMR form is indicated (i.e.
cost, accumulated depreciation, appraisal, proceeds from sale, etc.). The omitted
data limits the usefulness of the IIRUP/WMR. In the case of BUCAF, the IIRUP
pertaining to unserviceable properties lacked the required signatures/certification
55
as to inspection and/or witness to disposition. In the case of BUCS, waste
materials reported by the contractor (LSL Construction and Supply) were not
properly accounted/disposed. Waste materials (i.e. assorted tiles) resulting from
the completion of CSB1, Phase IV reported by the Supply Officer were allegedly
transferred without cost to janitors for firewood!
5. Except for the disposal made by BUGASS and BUCAL, all others had no in-
house appraisal of the items for disposal by the Appraisal and Disposal
Committee. The in-house appraisal is important because it serves as the basis of
the COA Technical personnel in evaluating its reasonableness (if, necessary) and
serves as the floor price in the public auction of the items for disposal.
6. In five out of seven disposal transactions, the COA was not given an opportunity
to inspect the items for disposal in order to evaluate whether the items for disposal
had monetary value or not and to recommend the proper mode of disposal. This
inspection by the Auditor is an initial audit activity which is separate and distinct
from the witnessing of the actual disposal (whether thru auction, negotiated sale,
destruction or condemnation). The agency Disposal Committee cannot uni-
laterally decide on the mode of disposal without an Auditor’s inspection and
recommendation as to the appropriate mode to be used. However, once the
decision as to the mode of disposal is made by the Disposal Committee upon the
recommendation of the Auditor, the latter is not mandated to witness the actual
disposal because of the lifting of the pre-audit function.
7. In two out of seven disposal transactions, there was no documented resolution by
the Disposal Committee as to the mode of disposal to be used. In the cases where
there was a Disposal Committee Resolution, the decision as to the mode of
disposal was unilaterally made by the disposal committee and not based on the
Auditor’s recommendation.
8. All of the seven disposal transactions were approved by the BU President and/or
the Campus Dean/Office Director. However, in two instances, such approval was
not clearly documented but could only be inferred from other supporting
documents.
9. In three instances, the communication to the Auditor regarding the disposal did
not include the date of actual disposal. Such date is important for the auditor to
decide whether he would witness the actual disposal proceedings or forego it.
10. The following deficiencies were noted in the conduct of public auction:
56
-inconsistencies in the unit of measure used in Disposal Committee Resolution,
RFQ, Abstract of Bids, Summary of payment resulting to confusion as to the
real basis for payment (BUCAL).
- undocumented basis for the floor price of the transformer disposed by BUCAL
- no Notice of Award (IPESR)
- certain items were sold below floor price (in-house appraisal) because bidding
was per lot instead of per item (BUGASS)
We noted that all proceeds from the sale of products of Income Generating
Projects were duly receipted. These were recorded in Fund 161 (IGP) as Other Business
Income (Account No. 648) and deposited in either of two current bank accounts as a
Revolving Fund in substantial compliance with Section 5, General Provisions of the
General Appropriations Act of 2013, previously mentioned. However, we observed the
following deficiencies:
1. In general, there is no written policy on the mode of disposal of IGP products; the
required approval for sale of products, the procedures to be followed, basis of
pricing, documentation requirements, etc.. This written policy is especially
important in the absence of existing rules and regulations on the matter and in
view of management’s primary responsibility for the establishment of adequate
systems of internal control pursuant Section 36, GAAM, Volume III.
2. For orchard, copra and charcoal, no applications for disposal are made. Only a
letter to the COA Audit Team informing of the results/proceeds of the sale is
made. In case of IGP-Swine Production, the Coordinator - Production and
Business Affairs sends COA a letter-request to the witness sale/disposal of
fatteners, and in certain cases, slaughtered culled sow or ill fatteners. In the case
of Goat Production, application for disposal is made by the Project Manager,
noted by College Veterinarian and approved by the Dean of BUCAF.
57
3. For orchard, copra and charcoal, since no applications for disposal are made but
only a letter to the COA informing of the results/proceeds of the sale, COA is not
aware of the actual date of sale/disposal. In case of IGP-Swine Production,
although there is a letter-request for COA to the witness sale/disposal of fatteners,
no specific date of disposal is indicated. Instead, the inclusive period within which
the disposal will be made is indicated in the notice to COA. Thus, COA is not
informed of the actual date of disposal of fatteners. Separate letters are sent to
COA after the date of actual sale, usually just to inform about the proceeds of the
sale, not to witness the sale. However, in the case of Goat Production, actual date
of disposal is clearly indicated in the letter-application for disposal.
4. For the disposal/sale of products of all IGP projects, no advertisement/posting of
the intended sale is done. Such practice precludes the attainment of the most
advantageous price for the University.
5. In the case of Goat Production, the price per kilogram is outdated (based on a
Disposal Committee Resolution dated April 25, 2008). For other products, no
such basis (selling price) is used.
6. Sale of ill fattener and culled sow by BUCAF were made on credit to employees.
This is not covered by an internal policy and creates problems on billing,
collection, accounting and monitoring. A significant portion (61% to 88%) of the
sale is on credit to employees. Examination of the general ledger shows that
Account Receivable from Income-Generating Projects has significantly increased
from P393,058.70 as of December 31, 2012 to P541,993.97 or a 38% increase.
Finally, the failure to drop from the books of accounts the disposed unserviceable
properties and demolished buildings and structures overstated the pertinent Property,
Plant and Equipment accounts by at least P6,119,747.66 (Annex G).
58
During the Exit Conference on August 4, 2014, Management mentioned that BU
has an Income-Generating Project (IGP) Manual which, however, was issued way back in
2005 although certain portions have reportedly been revised in 2012.
BU E-Registration Project
The Notice of Award for the original contract amounting to P4,975,000.00 was
issued on March 5, 2010; the contract was executed/signed on March 10, 2010 and the
Notice to Proceed dated April 16, 2010 was received by the contractor on April 26, 2010.
Per Bidding documents (i.e. Schedule of Requirements), the project duration was one (1)
year upon receipt of the NTP. Thus, the targeted completion date was April 25, 2011.
59
On November 18, 2010, former BU Auditor Evangeline Bachiller requested for
the Contract Review and Inspection of the project. However, the said request was
returned unacted because of a Memorandum dated October 5, 2011 from Mr. Leonardo
Patilleros, SA III, requiring submission of lacking documents. On December 28, 2012,
former BU Auditor Evangeline Bachiller wrote a letter to the BU President requiring the
submission of documents requested by Mr. Leonardo Patilleros. Partial submission by
BU of the required documents was made on March 11, 2013 to the incumbent Audit
Team.
Upon realizing that the project should have been long completed on April 25,
2011 and in order to determine the proper course of action to be taken on the submitted
documents, the incumbent Audit Team wrote on March 22, 2013, a letter to Laarni
Pancho, Director, Information Management Office, requesting her to provide us with the
following:
a. Information about the status of the E-Registration Project both as to the physical
accomplishment and the total payments made.
b. Management’s plan with regard to the proper disposition of the project (i.e.
continue or terminate) in the light of mandatory contract provisions on liquidated
damages and termination of contract once the cumulative liquidated damages
reaches ten (10) percent (Section 68, IRR, R.A. 9184).
c. Necessary documents/correspondence after the targeted completion date on the
original contract.
60
administrator not yet trained, and hard copies of manuals not yet provided by
supplier), noted “unresolved cases” and a categorical qualification that his
evaluation was “not a total evaluation” due to the supplier’s failure to deliver
several modules.
We noted that these 3rd and 4th partial payments were processed in
December 2013 but actually paid on January 10, 2014 and properly set-up as
Accounts Payable as of December 31, 2013. These were net of charges for
liquidated damages against the contractor totaling P303,873.00 which was
recommended by the VP for Administration and approved by the University
President “subject to government auditing rules and regulations” notwithstanding
a recommendation from the BU Internal Auditor to waive the imposition of
liquidated damages due to the amended contract dated November 25, 2013. This
amended contract adjusted the original technical specifications, provided new
technical requirements (without any adjustment in contract price) and
revised/extended the expected delivery dates from 30 to 90 days from date of
effectivity of the amended contract. Thus, the revised target completion date of
the remaining works to be done is approximately February 23, 2014 (90 days
from November 25, 2013). As of March 6, 2014 (audit date) and beyond the
revised completion date, the expected deliverables under the amended contract
have not yet been complied and accordingly, no final/full payment has been made.
Section 68, IRR, R.A. No. 9184 provides that all contracts shall contain a
provision for liquidated damages. The amount shall be “at least equal to one-tenth
of one percent (0.1%) of the total cost of the unperformed portion for every day of
delay. Once the cumulative amount of liquidated damages reaches 10 percent
(10%) of the amount of the contract, the procuring entity shall rescind the
contract, without prejudice to other courses of action and remedies open to it.”
The cumulative amount of liquidated damages of P3,514,347.04 represents 70.64
percent of the total contract cost and far exceeds the 10 percent limit set in
Section 68 and therefore, the contract should have been rescinded even as early as
December 5, 2011 when the liquidated damages was already P854,286.56 or
17.17 percent.
61
Noted flaws and control weaknesses in the e-Registration System (i.e. doubtful
reliability and accuracy of outputs; lack of supervisory controls; adverse finding of
inspectors and negative feedback from users) provides Management more reason to
terminate the contract.
7.1 Discrepancies were noted in the amounts and payees indicated in some official receipts
(ORs) indicating flaws/control weaknesses in the Electronic Registration System (E-
Reg) and casting doubts on the reliability of the Student Ledger, Certificate of
Registration and other outputs generated by the E-Reg System.
62
a. Official Receipt (in General Form 51 format) – with OR number and date, name
of payor, details of payment, amount in words and figures.
b. Certificate of registration - with student name, total assessment, total payment,
outstanding balance, OR number and date; and
c. Students ledger - with student name, debit, credit and balance.
Normally, the ORs are printed under the E-Reg using the usual General Form 51
and payments are automatically posted in the Student Ledger. When the E-Reg system is
off-line, the ORs (General Form 51) are manually accomplished. Collection reports are
also generated by the E-Reg.
Our review of collections during the cash examination covering the period
November 9, 2012 to July 31, 2013 revealed violations of Section 73 of GAAM, Volume
I, above-mentioned. Annex J highlights the discrepancies in the amounts and payees
indicated in the official receipts (General Form 51) as follows:
b. Original/s tudent’s cop y v s. dupl icate/audit or’s cop y of man uall y-prepared
ORs
Annex J also shows that the payment of one student is credited to another student [Items
a, c, d, e and f]. Annex K shows the instances when the amounts in words and in figures
as well as the details of payment in the duplicate copies of the ORs were changed. In
most of these instances, the OR was not duly signed/initialed by the collecting
officer/cashier. This occurrence was prevalent in manually-prepared ORs.
These discrepancies are not the result of mere errors but indicate intentional
manipulation of the official receipts by the person in a position and given the opportunity
to do so. These observations are red flags which indicate flaws or control weaknesses in
the Electronic Registration System (E-Reg) in violation of Sections 49, 50 and 51,
GAAM, Volume III, above-cited. Specifically, the lack of authorization and validation of
the posting of collections in the Student Ledger allowed the posting of “payment” in
favor of another student to the disadvantage of the real student/payor. The
computerization of the enrolment process has merged the cashiering (collection/issuance
of OR) and the recording functions (i.e. posting in the Student ledger) in one person – the
cashier. Moreover, the lack of supervision by the cashier over her subordinates opened
the opportunity for the latter to: a) manually prepare ORs without amounts in words
63
making it easier to alter the amount in figures, b) change amounts in words and in figures
as well as the details of payment in the duplicate copies of the ORs, and c) post fictitious
“payments” to the Student Ledgers using OR numbers of legitimate student/payors but
using different names and amounts.
As a result, the reliability and accuracy of the Student Ledger and Certificate of
Registration, as well as other outputs of the E-Reg System is doubtful. Such practice was
disadvantageous to the real student/payors.
All of the above discrepancies would not have happened had the BU E-
registration system incorporated sufficient built-in controls such as:
Inquiry with some users also disclosed that although the system allows the
printing of Accounts Receivables (from students), the same is not linked to the electronic
New Government Accounting System (E-NGAS). In fact, accounts receivables from
students are not set-up or recorded in the E-NGAS. We also noted that the E-Reg allows
a user to choose the OR format which, in our opinion is objectionable because Section 68
of the State Auditing Code (P.D. No. 1445) requires COA approval “where mechanical
devices are used to acknowledge cash receipts” and when exemption from the use of
accountable forms (i.e. General Form 51) is sought.
64
Management informed the Audit Team that corrective measures were already
incorporated in the E-Registration Procedures to address the noted control weaknesses.
Internal Auditors were deployed to augment supervision work especially during peak
(enrolment) season.
We recommended that:
7.2 In three (3) instances, nine (9) Official Receipts were issued not in strict
numerical sequence contrary to Section 73 of Government Accounting and
Auditing Manual (GAAM), Volume I.
Review of collections during the cash examination revealed that some ORs were
not issued in strict numerical sequence contrary to the above-mentioned Manual. Table 1,
below, shows the actual usage of fourteen (14) stubs with inclusive serial nos. 4849201 to
4849250; 4849251 to 4849300; and 3447401 to 34478000.
Table 1
65
OR No. (AF 51) Date Manner of Preparation
Issued
4849254 – 268 4/5/13 E-Reg prepared
3448001* 7/3/12 Manually prepared
a. OR Nos. 4849251 to 253 were issued on March 26, 2013 ahead of the series
4849201 to 4849250 which were issued later on April 4, 5 and 8, 2013.
b. OR Nos. 4849246 to 250 were issued on April 5, 2013 while the immediately
preceding OR Nos. 4849242 – 245 were issued later on April 8, 2013.
c. OR No. 3448001 is way out of series. Besides, the preceding OR numbers
3447408 to 3448000 contained in approximately twelve (12) stubs are still
unused.
This practice defeats the very purpose of pre-numbering. It makes accounting for
completeness of reported/recorded transactions more difficult; provides an opportunity
for the fraudulent use of ORs; and heightens the risk that unrecorded collections will not
be immediately detected.
7.3 The cashbooks and other records of the Cashier were not periodically reconciled
with the subsidiary ledgers maintained by the Accountant, contrary to Section
181 (c) of Government Accounting and Auditing Manual (GAAM), Volume I.
Section 181 (c ) of GAAM, Vol. I requires that the Accountable Officer shall
reconcile the book balance with the cash on hand daily and that he shall foot and close
the books at the end of each month. Likewise, it also mandates that the accountable
officer and the accountant should reconcile their books of accounts at least quarterly.
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Our cash examination of all the accounts covered by the accountabilities of Ms.
Ma. Suzette S. Madelar covering the period November 9, 2012 to July 31, 2013 disclosed
the following:
Particulars Amount
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payrolls that had some refunds. This was also partly because the Accountable Officer
failed to indicate in the Report of Disbursements the amount of payroll actually paid
and the amount of refund, including the number and date of the Official Receipt.
7. The reconciling items that pertain to periods prior to this cash examination are
adjusting entries made as shown in the subsidiary ledgers (Fund 164/CBEM and
CSSP- Account 102). We have noted that the JEVs for adjusting entries lack
sufficient information that would facilitate tracing the source of the adjustment, such
as the JEV number or the check number and its date and a concise explanation for the
adjustment making it difficult, even for the accountant who prepared the JEV, to
recall the reason and source of the adjustment.
Although we noted that such errors and unrecorded transactions misstate affected
accounts in the meantime (i.e. as of count date), not all such misstatements affect the
balance of affected accounts as of December 31, 2013.
2. Remind Accountants and Cashiers of all the operating units/colleges of the University
about the required quarterly reconciliation of the Cashier’s records with the
Accountant’s subsidiary ledgers.
3. Require all the Accountants of the University to attach the corresponding JEVs to the
DVs, payrolls and collection reports. Copies of Journal Entry Voucher(s) for
adjustments made or for any non-cash transactions recorded in the books should be
submitted to the Auditor’s Office, together with the supporting document, if any, on a
monthly basis.
4. Require all the Cashiers of the University to indicate properly in the Report of
Disbursements the actual amount paid for the payroll being liquidated and the amount
refunded including the date and number of the OR. If possible, photocopy of the OR
should be attached to the report.
After the Exit conference on August 4, 2014, the Accountant of the BU – Daraga
Campus provided the Audit Team with a copy of the adjustments made on the reconciling
items noted and an explanation that items which were not adjusted were already
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previously recorded, albeit, delayed (after the cash examination date). The BU – Daraga
Campus Accountant assured the Audit Team about compliance with the other audit
recommendations in the future.
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