PART II OBSERVATIONS AND RECOMMENDATIONS

A. VALUE FOR MONEY AUDIT Limited Monitoring of National Greening Program (NGP) activities
1.

Monitoring of NGP activities at DENR-NCR was limited on the number of hectares and seedlings planted hence, no inspections were conducted to check the status of the planted seedlings as of year-end as required by the CY 2012 DENR NGP Implementation Manual. As such, the needed remedial actions like replanting and proper care and maintenance were not undertaken so as to achieve the desired survival rate of 85 percent of the planted seedlings, on the third year of implementation which is the key success indicator of the program. 1.1. Executive Order (EO) No. 26 was issued on February 24, 2011, to implement the National Greening Program (NGP) under a National Convergence Initiative (NCI) composed of the Department of Environment and Natural Resources (DENR), other implementing agencies and peoples organizations (POs), non-government organizations (NGOs) and in partnership with the private sector and civil society. 1.2. It is implemented in pursuit of sustainable development for poverty reduction, food security, biodiversity conservation, environmental stability, and climate change mitigation and adaptation. 1.3. Section 2 of said EO specifies that the NGP shall plant from 750 million to 1.5 billion trees cover in about 1.5 million hectares for the period of six years from CY 2011 to 2016 in forest lands, mangrove and other lands of the public domain. 1.4. In CY 2012, DENR-NCR entered into Memoranda of Agreement (MOA) with various schools, barangays, private organizations and private offices/establishments as part of the social mobilization for the implementation of the NGP. As disclosed in the Report on the Monitoring and Evaluation of Accomplishments of NGP Sites for CY 2012, about 945.289 hectares were planted with various types of seedlings totaling 472,644. 1.5. The CY 2012 DENR NGP Implementation Manual states that (a) the implementers shall submit reports on the number of hectares and seedlings planted to the office of Undersecretary for Field Operations; (b) survival of the seedlings shall be at least 85 percent on the third year of implementation; 45

and (c) in order to meet the desired survival rate, regular monitoring of the planted seedlings is required to check if replanting is needed. The monitoring aspect of the program is also one of the provisions in the MOA entered into by and between the DENR-NCR and the program implementers wherein the former is tasked to monitor the survival of the planting materials periodically while the latter (organization, school etc.) shall provide proper maintenance and protection of the planted seedlings. 1.6. Verification of records of DENR-NCR and interview with the officers and staff of the NGP Office and the Planning and Management Division of the DENR-OSEC disclosed that although monitoring activities were undertaken, these were limited on determining the number of hectares and seedlings planted as these data are required to be submitted to the NGP Secretariat weekly. It was admitted by the NGP Office that there were no inspections conducted to check the status of the planted seedlings as of CY 2012. As such, the rate of survival of the same, which is the key success indicator of the program, was not determined. 1.7. Management informed that the monitoring of the condition of the planted seedlings was not undertaken due to lack of personnel. 1.8. We recommended that the Regional Executive Director designate personnel, even on an ad hoc basis, to undertake inspection of the NGP sites as basis in determining the condition of the planted seedlings and the remedial actions to undertake to ensure the attainment of the required survival rate. 1.9. Management informed that a monitoring/evaluation activity which was undertaken on March 18-22, 2013 disclosed that of the 945.289 hectares planted in CY 2012, 91.144 hectares were inspected/monitored wherein a 61 percent survival rate was reported. Slow disposal of Taguig lots 2. The disposition of the Taguig lots to intended beneficiaries by the Land Management Bureau (LMB) continue to move at a relatively slow pace with only 55.71 percent disposal rate from CYs 1987 to 2012 due to the absence of a work map/plan for the undertaking. As such, as of to date, only few benefited therefrom despite the lapse of 25 years from its inception. 2.1 Republic Act No. 274 dated June 15, 1948, an act authorizing the then Director of Lands, now Land Management Bureau (LMB), to subdivide the lands within military reservations belonging to the government which may be declared by the President as no longer needed for military purposes and to dispose the same by sale subject to certain conditions and for other 46

purposes, authorized the subdivision and sale of the said lands to persons qualified under the Public Land Act. Further, the Director of Lands, with the approval of the then Secretary of Agriculture and Natural Resources, shall determine the purpose for which it will be utilized and the number of prospective applicants. 2.2 Presidential Proclamation No. 2476 dated January 7, 1986, an act excluding the Barangays Lower Bicutan, Upper Bicutan and Signal Village in the then Municipality of Taguig, from the operation of Proclamation No. 423 dated July 12, 1957 and declared the said barangays open for disposition. Subsequently, Presidential Proclamation No. 172 dated October 16, 1987 signed by then President Corazon C. Aquino, an act expanding the coverage of Proclamation No. 2476 to include Western Bicutan and likewise provided for the technical descriptions of the land subject for disposition was issued. Pursuant to the said laws, the LMB, an attached Bureau of DENR, started in 1987 the identification and disposition of the following portion of the land at Fort Bonifacio, Taguig City: Lot 1 2 3 1 and 2 Location Signal Village Upper Bicutan Lower Bicutan Western Bicutan Total Area (sq. m) 1,642,869 1,071,790 1,084,311 647,508 4,446,478

2.3

2.4

2.5

However, of the total area identified of 4,446,478 sq.m., only 3,105,535 sq.m. or 70 percent thereof is disposable as the 1,330,943 sq.m. are reserved for public use such as roads, alleys, parks etc. as mandated under Presidential Proclamation No. 2476. As of December 31, 2012 or 25 years later, 1,733,209.02 sq.m. or 55.81 percent of the disposable area of 3,105,535 sq.m. were disposed of. Given below is the trend of the disposal, in terms of square meters, based on available records:
Year 1992 1993 1994 No. of Sq. Meters Disposed 41,159.00 102,380.00 209,057.00 Percentage of Disposal 1.32 3.30 6.73

2.6

47

Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total

No. of Sq. Meters Disposed 140,011.00 153,838.00 48,052.00 116,945.03 75,389.50 180,322.60 75,544.65 59,611.42 125,816.00 67,054.08 47,437.54 63,306.27 59,742.75 91,534.75 19,791.71 38,457.50 10,660.52 7,097.70 1,733,209.02

Percentage of Disposal 4.51 4.95 1.55 3.77 2.43 5.81 2.43 1.92 4.05 2.16 1.53 2.04 1.92 2.94 0.64 1.24 0.34 0.23 55.81

2.7

The low rate of disposal, however, correspondingly affected the issuance of the Deed of Sale. For CY 2012 alone, of the targeted 500 Deed of Sale, only 54 or 10.8 percent were issued. The primary contributory factor to this low performance is the absence of a work map or plan as a tool to guide the Agency in carrying out its mandate. Thus, the titling and transfer of the lots to the intended beneficiaries was undertaken without any work targets, timelines and planned actions to tackle the emerging issues and problems in the implementation thereof. The other causes identified for such unsatisfactory performance were the following: (a) insufficient agency personnel to undertake the activities; (b) lack of information campaign; (c) the difficulty in coordinating with the concerned Local Government Units; (d) incomplete documents supporting the applications; (e) financial constraints of applicants in complying with the cash and documentary requirements; and (f) complacency on the eventual ownership of the lots by concerned occupants thereof.

2.8

2.9

2.10 We recommended and Management agreed to prepare a strategic work map/plan, taking into consideration the problems identified affecting the success of this undertaking, in order to have a guide to fast track the disposition of the lots to ultimately attain the objective of the project which is to deliver the titles to the intended beneficiaries. 2.11 Management informed that they have already formulated/drafted on March 7, 2013 the roadmap with the objective to set a timeframe relative to the 48

disposition of the lots and identify the accurate solutions to accelerate the titling activities. Possible loss from confiscated products - P6.880 million 3. The government stands to lose P6,880,146.40 from the benefits of the confiscated products and conveyances which were left deteriorating in DENR- Regions 1, 3 and 7 due to (a) inadequate and improper storage; and (b) failure to make representations with the court to request authority for the immediate disposal and/or facilitate the issuance of a court decision to finally turnover the items to the government. 3.1 Chapter 4, E2-4 of the Primer on Illegal Logging provides that confiscated/seized forest products/conveyances in the custody of PENROs/CENROs should be provided with a place for adequate safekeeping/preservation during the pendency of the case. Ocular inspections of confiscated forest products (lumber, charcoal, stalagmites and stalactites), conveyances (trucks, jeepneys, tricycles, vans) and tools (chains and circular saws) turned over to DENR-Regions 1, 3 and 7 as presented in the table below disclosed that there were not enough and safe storage facilities to keep and preserve them from deterioration due to exposure to heat, rain, termites and other environmental elements as well as possible loss thru theft.
Particulars Forest products Conveyances Lumber Amount P 1,834,436.69 200,000.00 3,786,639.71 Remarks The bodega is a fire hazard and not well safeguarded. There are also undetermined amount of items confiscated by other authorized agencies that are not yet accepted for turn-over by the Region for lack of depository and security guards. The confiscation case is still under judicial proceedings. These were confiscated way back in 1994. The items have turned into a semblance of ordinary stones already due to exposure to environmental elements.

3.2

Region 1

Stalactites stalagmites 7 Total

and

1,059,070.00

P6,880,146.40

3.3

Further, there was no action made by the concerned DENR-Region 3 to make representations with the courts handling the confiscation cases to facilitate the issuance of decisions or at least to request for an authority for the immediate disposal of the properties while awaiting for the resolution of the case to avoid loss of economic value as allowed/permitted in Chapter 4, Section F (b) of the Primer on Illegal Logging. 49

3.4

As such, government stands to lose P6,880,146,40 from the benefits of the confiscated items if these are left to further deteriorate and without action for their immediate disposal. We recommended that the Directors of: a. DENR- Regions 1 and 7 (i) ensure that proper care and storage are provided for the confiscated property to preserve their economic values for the government to obtain optimum benefits therefrom; and (ii) if warranted, request the DENR-Central Office to include in the budget the acquisition of storage facility otherwise, source out for available spaces from other government offices for the safekeeping of the items; and b. DENR Region 3 make follow-ups with the concerned courts on the status of the cases filed for the confiscated property and to facilitate the issuance of decisions thereof and/or request for an authority to dispose the confiscated items while awaiting resolutions of the cases.

3.5

Post-evaluation for completed projects of Upland Development Program

4. No

post assessments/evaluations of the completed projects totaling P48,233,849.00 were undertaken to determine their contributions to the attainment of the objectives of the Upland Development Program (UDP) since such activity was not programmed and budgeted by PENROBukidnon. 4.1 In CYs 2009-2010, PENRO-Bukidnon, in cooperation with the five CENROs and two Park Superintendents (PASUs), implemented and completed projects under the Upland Development Program (UDP) with a total budget of P48,233,849.00 for the following targeted activities:
Activities a. Reforestation b. Assisted Natural Regeneration c. Agro Forestry Performance Indicators No. of seedlings No. of hectares developed procured/produced 718 has 437,562 321 has. 175,429 917 has. -

4.2

Among the specific objectives of the Program are the creation of additional and immediate employment and income for poor upland households and peoples organizations; improvement of the productivity and soil and water conservation functions of forestlands currently cultivated as upland agricultural farms through agro-forestry; reforestation, assisted natural regeneration and enrichment planting in public forestlands and protected areas. Likewise, the Program aims to rehabilitate, effectively manage and 50

protect forests and forestlands, watersheds, mangroves, urban forest parks, coastal zones, protected areas and protection forestlands considering the roles of these areas in providing water for irrigation, power and municipal water systems, in the provision of vital forest-based goods and services, in the conservation of biodiversity resources, and in the mitigation of, and adaptation to climate change. 4.3 We noted in audit that to date, no post assessments/evaluations of the completed projects were yet undertaken to determine their contributions to the attainment of the objectives of the UDP since such activities were not programmed and budgeted by the PENRO-Bukidnon despite the previous years audit recommendation relative thereto. It was explained by Management that a thorough monitoring was done during the first year of its implementation. They could not however, monitor any further the progress of the projects after the expiration of the one year term of the Letter of Agreement with the Peoples Organization since there is no post-evaluation activity programmed and budgeted coupled with the lack of available personnel for the purpose. In the absence of such assessment/evaluation, Management then measured the success of the projects merely on the determination whether the targeted number of seedlings and hectares were planted. However, the basis of the measurement on the effectiveness of the projects by Management was only inputs towards the achievement of the desired impact/outcome. Thus, the conduct of a post assessment/evaluation is imperative. We recommended that Management of PENRO-Bukidnon request funds from the DENR-Central Office for the conduct of a postevaluation activity for the completed UDP projects to ascertain whether the intended impact/outcome is attained or not. Henceforth, in planning for future programs/projects, ensure that post validation is included in the activities and budget.

4.4

4.5

Low fund utilization of foreign assisted projects 5. For CY 2012, the fund utilization rate of the 13 Foreign Assisted Projects (FAPs) of DENR-OSEC, three bureaus and 13 regions ranged only from 5.5% to 96% while their average delivery rate was only from 11% to 119% due to (a) slow liquidation of funds transferred to implementing agencies; (b) delay in the hiring of consultants; and, (c) slow and lengthy procurement procedures lead to the extension of the end dates of four FAPs and may affect the attainment of projects objectives and possible incurrence of commitment fees. 5.1 As of December 31, 2012, the DENR-OSEC, three bureaus and 13 regions have the following Foreign Assisted Projects (FAPs): 51

Funds

Name National Program Support for Environment and Natural Resources Management Project (NPSENRMP) Second Land Administration Management Project (LAMP 2)

102

Integrated Coastal Resources Management Project (ICRMP)

Projects Objective/s Cost To improve efficiency Loan Proceeds and effectiveness of - USD 50 M DENR in implementing its core functions and service delivery and assist in enhancing the ecosystem services for additional global and local benefits. Aims to alleviate Grant poverty and enhance Proceeds economic growth by -USD 17.45 M improving land tenure security and fostering GOP the development of Counterpart efficient land markets in P 91.312 M rural and urban areas. Sustainable management Loan Proceeds of coastal resources and - USD 33.8 M to uplift the socioeconomic conditions of GOP people living in coastal Counterpart areas surrounding ma- USD19.520 M rine biodiversity corridors of national and global importance. To contribute to the improvement of environmental conditions and reduction of poverty in Panay and Negros through sustainable management of forests and mangroves. To improve efficiency and effectiveness of DENR in implementing its core functions and service delivery and assist in enhancing the ecosystem services for additional global and local benefits. Sustainable management of coastal resources and to uplift the socioeconomic conditions of people living in coastal areas surrounding marine biodiversity corridors of national and Loan Proceeds -USD 5.78 M GOP Counterpart USD 2.53 M

Duration August 2007 to December 2012; extended up to December 2013

October 2005 to December 2012; extended up to September 2013

June 2007 to June 2013; extended up to June 2014

CommunityBased Forest and Mangrove Management Project (CBFMMP) National Program Support for Environment and Natural Resources Management Project (NPSENRMP) Integrated Coastal Resources Management Project (ICRMP)

January 2009 December 2015

to

Grant Proceeds USD 7 M

August 2007 to December 2012; extended up to December 2013

171

Grant Proceeds USD 9 M

June 2007 to June 2013; extended up to June 2014

52

Funds

Name CommunityBased Forest and Mangrove Management Project (CBFMMP) National Portfolio Formulation Exercise (NPFE)

171 Manila Third Sewerage Project (MTSP)

Philippine Chillers Energy Efficiency Project (PCEEP)

Integrated Persistent Organic Pollutants Management Project (IPOPsMP)

Philippine

Projects Objective/s Cost global importance. To contribute to the Grant improvement of environ- Proceeds mental conditions and USD 4.33 M reduction of poverty in Panay and Negros through sustainable management of forests and mangroves. To enable the country to Grant conduct a consultation Proceeds process with a broad USD 0.030 M range of stakeholders involved in the national GEF policy and programming, to set priorities for GEF resources programming covering the 5th replenishment period. To enhance the invest- Grant ments in sewerage Proceeds projects through resolu- USD 5 M tion of several key institutional, legal, fi- GOP nancial and technical Counterpart barriers to enable a more in kind efficient investment environment in the pollution control sector. To capture the signifi- Grant cant potential for energy Proceeds efficiency of new non- USD 3.6 M CFC chillers and contribute to more energy conscious decision making by chiller owners and eventually a permanent market transformation of the chiller sector. To assist the Philippines Grant in minimizing the risk of Proceeds human and environ- USD 8.64 M mental exposure to POPs by strengthening GOP the regulatory and moni- Counterpart torring framework and USD 16.03 M improving capacity for and providing demonstrations of safe management POPs. To improve resiliency of Grant

Duration January 2009 December 2015 to

March 8 to November 8, 2011

Year 2008 to November 2012; extended up to May 2014

January 2011 Year 2020

to

January 2011 February 2017

to

Year

2011

to

53

Funds

Name Climate Change Adaptation Project (PhilCCAP)

171

Manila Bay Integrated Water Quality Management Project (MBIWQMP)

Projects Objective/s Cost communities and reduce Proceeds economic losses attribu- USD 4.97 M table to climate change by demonstration of cost-3-effective adaptation strategies in agriculture and natural resources management, supported through strengthened institutions, holistic planning and improved access to information. To establish an effective Grant management system and Proceeds institutional operational USD 0.250 M framework for improving the water quality of the Laguna de Bay, Pasig River and Manila Bay and restoring its intrinsic value to society.

Duration December 2015

November 2011 to March 2013; extended up to March 2014

5.2

Per Work and Financial Plan (WFP) for Fund 102 and 171 for CY 2012 of the above projects, the following were the major targets for the year with the corresponding budget:
Budget Targets Performance Indicators Quantity

Name of Project Fund 102 NPS-ENRMP (SIM Loan) LAMP 2 ICRMP CBFMMP Fund 171 NPFE MTSP PCEEP IPOPsMP

P600,000,000.00 978,000,000.00 9,169,000.00 451,081,000.00 37,000,000.00 836,491.00 672,390.00 137,000.00 157,001,160.00

No. of seedlings produced No. of cadastral contracts awarded No. of workshops for training of Regional and Sector Personnel on LAMP System and technologies No. of studies undertaken, no. of participants, no. of documented system, no. of materials, no. of trainings conducted , etc. No. of areas contracted/planted No. of meetings/workshops for Focal Areas Biodiversity-Climate Change Land Degradation No. of meetings/on-site inspections to monitor construction of Sewerage and Septage Plant No. of site visits No. of consultants/teams hired

50,000,000 217 16 Various 2256/6415

190 30 3 4

54

Name of Project PhilCCAP MBIWQMP

Budget 28,000,000.00 5,375,000.00

Targets Performance Indicators No. of consultants hired No of consultants hired Quantity 4 10

5.3

Comparison of the WFP and Fund Utilization Report for Loans and Grants for CY 2012 of the 13 FAPs showed that the rate of fund utilization ranged from 5.50% to 96.33% or an average rate of 34.42% as shown below.
Project Budget P 1,806,958,000.00 9,169,000.00 451,081,000.00 47,200,000.00 1,282,620.00 13,714,000.00 10,775,600.00 2,294,500.00 189,915,060.00 38,548,206.94 10,750,000.00 P 2,581,687,986.94 Utilization/ Disbursements P 169,116,000.00 4,362,000.00 289,867,000.00 5,358,920.00 1,235,616.00 5,141,000.00 3,349,400.00 1,075,437.00 11,633,322.51 8,571,013.96 591,000.00 P 500,300,709.47 Utilization Rate 9.36% 48.00% 64.26% 11.35% 96.33% 37.49% 31.08% 46.87% 6.12% 22.23% 5.50% 34.42%

Loan Funded (NPS-ENRMP) Sim Loan LAMP 2 ICRMP CBFMP Grant Funded NPFE NPS-ENRMP Grant MTSP PCEEP IPOPsMP PhilCCAP MBIWQMP Total % of Total Fund Utilization

5.4

Further review and analysis revealed that the physical accomplishments for the major targeted activities for the said FAPs were as follows:

55

Activities NPS ENRMP (SIM Loan) Component 1 Environment and Natural Resources Mgt. policies and plans Component 2 National Greening Program/Seedling Production Component 3 Implementation of the OPMBCS pursuant to SC decision Average Delivery Rate LAMP 2 Component 1 Priority Policy, Legislation to Support Land Administration Reform Developed Activities Component 3 Roll-out of LAMPs Technology and Procedure Component 5 Preparation of Projects Regular and Major Reports Average Delivery Rate ICRMP Component A Policy and Institutional Strengthening and Development Component B ICRM and Biodiversity Conservation Component C Enterprise Development and Livelihood Diversification Component D Social and Environmental Services and Facilities Component E Support to Project Management Average Delivery Rate CBFMMP Component 1 DENR and LBP staff participating LGUs capacitated in planning for implementation of CBFM project Component 2 Forests and Mangroves Rehabilitated through LGUs, POs and Rural Households Component 3 Livelihood projects for Sustainable Forest and Mangrove Management Component 4 CBFM Beneficiaries Supported in Value-Adding and Marketing of Forestry and Agro-forestry products Component 5 Rural Infrastructure in Support of Livelihood Improved Component 6 Project Management Average Delivery Rate NPFE Category A National Meetings/Consultations Category B Travel Category C Local Consultants Category D Procurement of Supplies and Materials 56 Category E Miscellaneous Category F Administration and Supervision Average Delivery Rate

Physical Accomplishment Target Actual %

221 50,000,019 17,827 50,018,067

186 43,597,149 10,998 43,608,333

55.12 86.91 47.06 63.03

30

36

120.0

Physical Accomplishment Target Actual % 82 13 125 94 16 146 114.60 123.00 119.20

4,122 4,253 3,459 135 1 11,970

112 2,587 3,062 41 1 5,803

2.78 60.82 88.52 30.37 100.00 56.50

298 9,185

265 3,869.04

78.89 73.80

7 13 14 5,037 14,554

2 12 11 30 4,189.04

28.57 91.66 107.33 70.87 75.18

190 15 4 300 1 5 515

187 17 4 300 1 5 514

57.15 113.33 100.00 100.00 100.00 100.00 95.08

5.5

The table above showed that the average physical delivery rate was from 11.67% to 119.20%. As shown in the two tables, the delivery rates are higher than the fund utilization rates. This was attributed to the reporting of accomplishments for unpaid expenses and those for the unliquidated fund transfers of implementing agencies relative to the FAPs as of CY 2012. Thus, the accomplished activities were already reported while the corresponding expenses thereto were not yet included in the financial reports. For the LAMP 2 Project, the programmed activities were 119.20% accomplished because Management strategized to make efficiently use of their resources by joining Land Management Bureau (LMB) meetings and workshops where the targeted participants of DENR - OSEC were also involved, instead of conducting separate meetings or workshops, hence accomplishing their targets with minimal or no expenses. This relatively low financial and delivery rates were due to the following:
Causes for Low Performance The procurement of 20 trash boats and two in-site water quality monitoring equipment under Component 3 was not undertaken due to failure of bidding. Slow liquidation of transferred funds by some implementing agencies causing delay in the release of succeeding funding for the project implementation. The contract for research study on the Total Maximum Daily Load within Manila Bay was returned by World Bank because the work schedule for its accomplishment is beyond the closing date of the project. Delayed engagement of consultants due to long procurement process which consequently delayed the conduct of the three remaining policy studies namely: (1) Environmental and Social Impact Assessment; (2) Environmental Hazard Management; and (3) Live Reef/Food Fish Trade. Insufficient cash available due to slow liquidation which prolonged replenishment of the imprest fund by ADB. Delayed implementation of the targeted activities under Natural Resources Management (NRM) and Livelihood components due to the late issuance of the Monetary Board Opinion on the approval of the Sub-Loan Approval (SLA) of the four participating LGUs in Panay. This consequently caused the late release of the project fund in CY 2011 and subsequently delayed the replenishment of funds in CY 2012. There was insufficient production of seedlings due to lengthy procurement procedures at the LGU level. The delayed procurement of Consultants caused the nonaccomplishment of the Water Quality Monitoring Program and Reports; The operationalization of the Partnership Information Center (PIC) was not implemented due to slow process of procurement. The restructuring of the project delayed its implementation. Delay in the procurement of the Project Management Specialist, Team Consultants and Technical Specialists which consequently affected the

5.6

Project NPS-ENRMP ( Sim-Loan)

ICRMP

CBFMMP

MTSP PCEEP (Chillers) IPOPsMP

57

Project PHILCAP

Causes for Low Performance project implementation. Delayed hiring of Project Manager and Policy Expert Consultant caused the non-accomplishment of the major activities of the project.

5.7

Although management claimed that their accomplishment under the NPSENRMP was 76 percent, the audit team found it otherwise since some targeted activities in the WFP for Component 3 were not accomplished such as the procurement of trash boats, in-site water monitoring equipment and research study on Total Maximum Daily Load in Manila Bay. Also, in Component 1, the targeted activities for cadastral survey and special study on wealth accounting and valuation of ecosystem services (WAVES) were 217 contracts and four trainings/activities, respectively, while in their accomplishment report, only 195 contracts for cadastral survey and one training/activity for WAVES were reported, hence the difference. The non-accomplishment of the targeted activities/slow delivery rate during the year resulted in the extension of the end dates of the following projects:
Project Date Original Project End December 2012 December 2012 Purpose Completion of the remaining targets and to fully utilize the remaining funds. Keep the original activities while awaiting approval and effectivity of the additional financing as a requirement by the World Bank (WB). Complete the project and attain the projects objectives. Complete the project and attain the projects objectives. Complete the project and attain the projects objectives.

5.8

Fund 102 102 NPSENRMP LAMP2

Extension December 31, 2013 September 2013 June 30, 2014 May 2014 March 2014

102 171 171

ICRMP MTSP MBIWQMP

June 2013 November 2012 March 2013

5.9

Management offered the following comments on the above observations:

Management Comment Of the total P1,827,607,240.00 enrolment for CY 2012 for the implementation of Components 1, 2 and 3, only P1,779,118.00 was covered by an allotment from the DBM. Of the said amount, 32% has been utilized as of December, 2012. As per physical accomplishment, computation showed that the project has already 76% average performance rating. The delay in the implementation of Cadastral Survey was attributed to the late hiring of contractors and some contracts were awarded only in the 3 rd and 4th quarters of CY 2012. The low financial utilization was due to (a) some regions started seedling production in the 3rd and 4th quarters of CY 2012 due to tedious

Projects NPS-ENRMP Sim Loan

58

Projects

PCEEP IPOPsMP MBIWQMP

Management Comment bidding/procurement processes and lack of rainfall; and (b) seedling production under DENR-PTFCF/FPE partnership was issued No Objection Letter only in October 2012. Management explained that no Current Appropriation or SARO has been issued by DBM for the project. Slow rate of disbursements was also due to the tedious process of the review of the consultants outputs and the payment process which is common in projects that have just started. The low utilization of funds was due to the delays in the issuance of No Objection letter by the World Bank for the engagement of the Institutional Development Specialist and nine specialists to work on Components 1 and 3; and delay in the delivery of equipment and approval by BAC-FAPs.

5.10 The extension of the completion date of the above five projects may affect the attainment of projects objectives and possible incurrence of commitment fees. 5.11 We recommended and Management agreed to benchmark with best practices of successful previous projects in addressing problems and challenges for effective and efficient implementation of projects. 5.12 Management informed that : a. NPS-ENRMP Grant - Continuous coordination with concerned DENR and LGU offices/units to fast track the completion of the remaining activities and improve financial utilization are currently being carried out. PhilCCAP - The slow disbursement in CY 2012 was partly due to a rational decision by the DENR-PMO and regions to defer certain activities in the absence of the consultants. It was agreed to have a pragmatic action in order to obtain a good coordination of all DENR-PhilCCAP activities and avoid unnecessary wasting of funds.

b.

Uneconomical practices for expenses related to meetings and conferences P21.383 million 6. The failure of DENR-OSEC to observe economy measures in the disbursements for food/catering services during conferences and routine/ordinary meetings resulted in over-expenditures of P21,383,358.45 or 3,037 percent in the budget for Representation Expenses and realignments within the Maintenance and Other Operating Expenses (MOOE) sacrificing the allotments for other expenditures. 6.1 The General Appropriations Act for FY 2012 provides a budget of P10,390,000.00 for Representation Expenses of DENR in which the DENROSEC was allotted the amount of P704,000.00. 59

6.2

Analysis disclosed that during the year, the DENR-OSEC incurred P37,803,349.66 for its representation expenses. This represents 12.71 percent of the total Maintenance and Other Operating Expenses (MOOE) of P297,505,022.08 Of the P37,803,349.66 representation expenses, P15,715,991.21 or 41.57 percent was used for the conduct of the Global Conference on Land Based Ocean connections while the P22,087,358.45 went to the procurement of food and catering services for regular/routine office meetings and conferences. The DBM later issued a funding approval for the expenses for the Global Conference. Comparison of the approved P704,000.00 budget for representation expenses for the year with the P22,087,358.45 spent by DENR-OSEC showed over-expenditure of P21,383,358.45 or by 3,037 percent more than its budget which resulted in realignments of budget on expenses within the Maintenance and Other Operating Expenses (MOOE) thus, sacrificing the allotments for other expenditures. In the post-audit of transactions, we observed the following practices in the conduct of routine/ordinary meetings and conferences which are manifestations of the agencys non-observance of economy measures in the disbursement of government funds which are considered unnecessary/ uneconomical uses of resources: a. The quantities of food ordered/served during meetings by the different offices were most often in excess of the number of participants as per Notices of Meetings. As such, the excess foods were served to other staff, security guards and drivers who are not part of the meetings. The prices of the catered foods were higher than those similarly offered by common food chains/restaurants such as Jollibee, McDonalds, among others. This was due to lack of proper bidding/canvassing of catering needs and the availment of the services of limited number of caterers/suppliers such as My Sweet Ants Patisserie, MPCC, Aleka Catering and Food Services and F.P. Astudillo Catering Services. Catered meals and snacks mostly for DENR-OSEC officials and employees were unnecessarily provided as evident in the following instances: Breakfast is served although the meetings started at 9 am. Morning snacks and lunch were ordered for meetings that started after lunch. 60

6.3

6.4

6.5

b.

c.

Meals or heavy snacks were served during routine/ordinary meetings that last for just an hour or two when a simple snack would suffice such as coffee/drinks and biscuits and the like.

d.

Snacks served which were purchased from McDonalds and Jollibee during the World Water Day at the Luneta Grandstand on March 22, 2012 and the IP Phones Users Training were contracted to two caterers instead of buying directly from the former food outlets which resulted in higher costs. Simplicity of food served was not observed in meetings since menus consisted of four (4) to five (5) main courses. Prices of snacks per person ranged from P120.00 to P174.00 while those for lunch were from P550.00 to P600.00

e.

6.6

The foregoing manifest unwise and uneconomical spending which resulted in over-expenditure for representation expense and is not in accord with Section 7.1 of RA No. 9184 which mandates that all procurement shall be within the approved budget of the procuring entity. It likewise redounds to sacrificing funds for other operational needs of the DENR-OSEC. We recommended that Management (a) be judicious and frugal in its expenses for meals and snacks and always keep expenses within the budget; and (b) consider coming up with a policy that would mandate the application of economy measures as regards these expenses in order to prevent unnecessary and uneconomical spending. Management of DENR-OSEC informed that they have already drafted the Guidelines on the Procurement of Food/Catering Service for In-house Meeting, Trainings and Workshop.

6.7

6.8

B.

FINANCIAL AND COMPLIANCE

Undocumented transfer of unclosed accounts of completed projects under Funds 102 and 154 to Fund 101- P872.742 million 7. The unclosed accounts of completed projects under Funds 102 and 154 of DENR-OSEC comprised of P618,885,721.23 and P90,082,826.92 in assets and liabilities, respectively, were transferred to Fund 101 in CY 2012 despite the absence or incomplete documentation thereof, non-verification and recon-ciliation of balances prior to the transfer and absence of the equivalent cash back up for the cash accounts as required by COA Circular No. 97-001 dated February 5, 1997. Thus, the existence, accuracy and validity of the transferred year-end account balances could not be established rendering 61

such balances doubtful which also affected the accounts of Fund 101 where these were transferred/closed. 7.1 It was recommended in the CY 2010 Consolidated Annual Audit Report (CAAR) of the DENR that the balances of terminated/completed projects be transferred to Fund 101- General Fund or carried forward in the books of the succeeding projects after obtaining the proper documentation and following the required procedures under COA Circular No.97-001 dated February 5, 1997, the guidelines on the proper disposition and closure of funds and accounts of programs/projects that have long been completed and are nonmoving for five consecutive years. During the year, the balances of various assets, liabilities and government equity of the completed projects under Funds 102 and 154 were transferred to Fund 101 in compliance with the audit recommendations summarized below:
Amount P 100,750.00 1,670,362.13 207,131,974.68 4,631,101.28 1,373,876.23 1,613,525.00 133,960,109.96 141,402,397.76 91,720,549.49 102,800.00 184,173,653.51 1,642,402.42 93,233,848.00 878,553.00 55,070.00 Amount 9,051,452.39 P 872,742,425.85 Accounts Transferred Liabilities Government Equity P 75,111.18 167,036.22 P 28,487,217.49 148,863,510.39 21,464.63 1,633,301.82 907,714.63 612,470.00 2,310,535.77 130,176,368.09 43,821,238.55 24,962,112.69 11,000.00 59,263,609.03 124,910,044.48 1,196,064.97 42,087,369.07 303,882.85 24,216.98 Accounts Transferred Assets Liabilities Government Equity 9,051,452.39 9,051,452.39 P 618,885,721.23 P 90,082,826.92 P 528,802,894.31 Assets P 75,111.18 167,036.22 177,350,727.88 1,654,766.45 907,714.63 612,470.00 132,486,903.86 43,821,238.55 24,962,112.69 11,000.00 184,173,653.51 1,196,064.97 42,087,369.07 303,882.85 24,216.98

7.2

Project ICRMP LIUCP LIUCP LAMP NRMP ICRI OECF 2-JBIC MMAQ ADB2 SRMPP/IIWMP SECAL PRRP Various FAPS RBWMPP MTSP Project Fund 154

7.3

We noted however, that the necessary review, analysis and reconciliation prior to the transfer of the accounts required under COA Circular No. 97001 were not undertaken to ensure the existence, validity and accuracy of the account balances. Further review of pertinent documents disclosed that: a. the Journal Entry Vouchers (JEVs) drawn were either inadequately or not supported with the necessary documents such as the Invoice Receipt of Property, Acknowledgement Receipt for Equipment, 62

7.4

Inventory Report for Property, Plant and Equipment (PPE), Bank Reconciliation Statements, schedule of accounts and such other documents to substantiate the details, existence, completeness and validity of the transactions; and b. transferred cash account of P1,703,547.01 for the SECAL project was not backed- up with cash as per confirmation of the audit team with the Land Bank of the Philippines.

7.5 7.6 7.7

The existence of unclosed balances was the result of allowing the Foreign Assisted Projects to end without closing the books of accounts. Management informed that the deficiency was the result of the absence of proper turn-over of records of Project personnel to the Chief Accountant. We recommended that the Departments Accounting Division: a. coordinate with the Foreign Assisted Project Office to secure the needed supporting documentations; b. after receipt of the documents, review the propriety, accuracy and validity of the transferred accounts; c. if after exhausting all efforts and substantiation of the subject accounts proved futile, consider requesting for write-off of the undocumented dormant accounts from COA following the required procedures thereon; and d. henceforth, (i) ensure financial closure of all accounts of completed projects on a timely manner; and (ii) before transferring accounts to Fund 101, succeeding similar projects or to other government agencies, make sure that these are properly and adequately documented.

7.8

Management informed that verification and reconciliation on the accounts of completed projects is on-going.

Transfer of unutilized Notice of Cash Allocation (NCA) to current accounts P43.992 million 8. The unutilized CY 2012 Notice of Cash Allocations (NCAs) of CAR-PENROs Abra, Benguet, Ifugao, Kalinga and Mountain Province totaling P43,992,302.58 were transferred to the current accounts maintained by the respective offices before the lapsing of the amount contrary to DBM National Budget Circular No. 535 dated December 29, 2011. 63

8.1

Analysis of accounts Cash-National Treasury, Modified Disbursement System (MDS) and Cash in Bank Local Currency, Current Account (LCCA) of PENROs Abra, Benguet, Ifugao, Kalinga and Mountain Province in CAR, showed that from February to December 2012, the unutilized Notice of Cash Allocation (NCA) totaling to P43,992,302.58 were deposited to the current accounts maintained by the respective offices before the lapsing of the amount, as shown below.
Benguet PENRO Ifugao Kalinga P 3,170,370.95 1,390,377.27 539,802.70 P 2,789,258.71 3,147,124.00 6,329,794.12 3,799,932.59 P18,377,401.63 Mt. Prov. P 15,019.44 354,147.69 45,184.13 161,548.20 672,329.43 2,805,039.87 4,699,049.98 3,253,892.13 P12,006,21 0.87 Total P 15,019.44 3,524,518.64 1,390,377.27 584,986.83 161,548.20 6,608,712.14 17,983,327.82 10,469,920.11 3,253,892.13 P43,992,302.58

Month Feb Mar Apr May Jun Jul Aug Sep Oct Total

Abra

P2,000,000.00

P6,848,493.83 1,970,937.54 P8,819,431.37 P2,789,258.71

P2,000,000.00

8.2

The concerned PENROs admitted the above observation and offered the following justifications thereon: a. In PENROs Abra and Ifugao - there were unforeseen delays in accomplishing the targets and the timing of releases of NCAs did not match with their financial plans. b. In PENRO Benguet- the late designation of an Officer in-Charge (OIC) consequently delayed the processing and payments of claims thus necessitate the transfer of funds.

8.3

The transfer of unutilized NCAs to Cash in Bank- LCCA accounts to prevent lapsing of the amount is in violation of Section 3.9.1.3 of DBM National Budget Circular No. 535 dated December 29, 2011 which states that Notice of Cash Allocation (NCA) issued and credited to the Regular MDS accounts of the agencies for their regular operations which are programmed for a specific month shall be valid only until the last working day of the said month. We recommended and the Management of DENR-CAR and the concerned PENROs agreed to: a. remit the unutilized NCA to the Bureau of the Treasury; b. improve their cash management to maximize the use of the monthly cash allocation; and 64

8.4

c. henceforth, refrain from such practice. Understatement of cash balances- P55.542 million 9. The year-end balances of the cash and payable accounts of DENR-OSEC and three regions were understated by P55,520,784.40 and P30,442,571.23, respectively, while receivables were overstated by P25,491,715.00 due to (a) non-restoration of the cash equivalent of the unreleased checks totaling P55,934,286.23 as required by GAFMIS Circular Letter No. 2002-001 dated December 16, 2002; and (b) non-recording/adjustments of reconciling items with a net amount of P413,501.83. 9.1 As of year-end, the Department reported a total cash balance of P849,833,820.71. Review of the related cash accounts disclosed the following: a) Non-restoration of the amount of cash equivalent of unreleased checks to cash account- P55,934,286.23 Verification of the Cash-in-Bank LCCA and Cash-National Treasury (NT) - MDS of DENR-OSEC and two regions revealed that there were unreleased checks totaling P55,934,286.23 in the custody of their respective Cashiers as at year-end which were not restored to the cash accounts, as shown on the next page.
Office DENR-OSEC REGION 7 CAR Total Cash-NT,MDS P33,638,638.30 P12,657,391.91 9,638,256.02 P22,295,647.93 Cash in BankLCCA Total P33,638,638.30 12,657,391.91 9,638,256.02 P55,934,286.23

P33,638,638.30

This remiss of the concerned Accountants is not in accord with GAFMIS Circular Letter No.2002-001 dated December 16, 2002 which provides that: o Section 2.3- At the end of each month, a Schedule of Unreleased Checks shall be prepared by the Cashier for submission to the Accounting Unit. Based on this schedule, a working paper entry shall be prepared to restore the amount of cash equivalent to the total amount of unreleased checks by debiting the accounts, Cash, National Treasury, MDS and crediting the appropriate payable/liability accounts xxx.

65

o Section 2.4 - At the end of the year, the same procedures under item number 2.3 shall be done except that a JEV shall be prepared to record the entry for the restoration of cash equivalent of the unreleased checks and recognition of the appropriate payable/liability accounts. b) Unrecorded reconciling items- P413,501.83 (net) The Bank Reconciliation Statements of the Cash in Bank-LCCA account as of December 31, 2012 showed that the following reconciling items with a net amount of P413,501.83 were not taken up in the books:
Nature of Reconciling Items Amount Over/(Under) P1,703,547.01 (449,566.96) (71,818.23) (475,759.99) (292,900.00) P 413,501.83

Office DENROSEC

Transferred book balance of cash of the completed projects under Fund 102, Sector Adjustment Loan (SECAL), to Fund 101 without the corresponding cash in bank Unrecorded bank balance under Account No. 0712-1035-31 with LBP representing funds received from NEDA for Phases II and III of the ENR Framework Plan Unrecorded deposits of collections for the month of December 2012 from HOPE remittances and Trust accounts Non-recording of (a) refund of cash advances P 1,650.00 NCR (b) bidders bonds 7,500.00 (c) fees collected 466,609.99 Unrecorded deposits Region IX Net Overstatement

9.2

The above lapses resulted in the overstatement and understatement of the following accounts:
Accounts Cash in Bank- LCCA Due from Officers and Employees Liability Government Equity Cash-Collecting Officer Amount Understatement Overstatement P413,501.83 1,650.00 P 7,500.00 916,176.95 364,718.23

The non-restoration of the amount to the two cash accounts as well as the unrecorded reconciling items understated cash and payable accounts by P55,520,784.40 and P30,442,571.23, respectively, and overstated receivable accounts by P25,491,715.00 as of year-end.

9.3

We recommended that the Accountants of:

66

a. DENR-OSEC, CAR and Region 7 comply with GAFMIS Circular Letter No. 2002-001 on the restoration of the amount of the unreleased checks to cash account; and b. DENR-OSEC, NCR and Region 9 effect the necessary adjusting entries to reflect the correct balances of cash accounts. 9.4 The following comments were given by the concerned offices: a. DENR-OSEC- adjustments were already made under various JEVs in January and February 2013. b. NCR - the unrecorded collections of P474,109.99 were already recorded in October 2012 and January 2013. c. Region 9 the necessary adjustments/corrections will be made. Collections not deposited to the Bureau of the Treasury P5.978 million 10. Collections from performance bonds, refunds of unutilized cash advances and income from specific activities of DENR-OSEC; performance/bidders bonds of DENR-NCR and penalties of DENR-Benguet amounting to P5,978,212.33 were not deposited to the Bureau of the Treasury contrary to Section 6 of RA No. 10155, the General Appropriations Act of FY 2012, and Section 65 of PD No. 1445. Moreover, the collections from HOPE amortizations of DENR-OSEC were remitted one to 48 months from receipt thereof resulting in an unremitted amount aggregating to P1,829,434.82 as of year-end. 10.1 During the year, the DENR-OSEC, NCR and PENRO-Benguet collected the amount of P5,978,212.33 from the following:
Office Particulars Performance bonds Refund of unused/excess cash advances of Special Disbursing Officers Income from workshops, seminars, conventions and sports festival HOPE amortizations Performance/bidders bonds Fines/Penalties for violations of forestry laws Amount P 460,814.46 123,833.12 2,650,914.30 1,829,434.82 655,175.14 258,040.49 P5,978,212.33

DENR-OSEC

NCR CAR-PENRO Benguet Total

10.2 Verification disclosed that as of December 31, 2012, the above collections were not yet deposited to the Bureau of the Treasury (BTr) as required by the following laws: 67

a.

RA No. 10155, the General Appropriations Act for FY 2012 Section 6 - Receipts from non-tax sources xxx which have been received as guaranty for the fulfillment of an obligation xxx shall be booked as trust liability of the agency concerned and deposited with the National Treasury in accordance with E.O. No. 330,s. 1996 xxx. Section 7 - Performance bonds and deposits filed or posted by private persons or entities with the agencies of the government shall be deposited with the National Treasury as trust receipts under the name of the agency concerned xxx.

b.

Section 65 of PD No. 1445 - Unless otherwise specifically provided by law, all income accruing to the agencies by virtue of the provisions of law, orders and regulations shall be deposited in the National Treasury or in any authorized government depository, and shall accrue to the unappropriated surplus of the General Fund of the Government.

10.3 Further, it was noted that the accumulation of the unremitted HOPE amortizations was due to the practice of the Accounting Division of DENROSEC to temporarily take-up and deposit the collections under account Cash in Bank-LCCA and remit the same after one to 48 months resulting in unremitted amount aggregating to P1,829,434.82 as of year-end as shown on the next page.
Amount Collected P 2,034,940.27 Remittance Date From February to October 2012 05/22/12 05/22/12 08/30/12 08/30/12 08/24/12 09/03/12 10/18/12 10/18/12 12/13/12 12/13/12 Amount P 1,026,088.40 No. of Month/s Delayed 12 to 48

Collection Month Various months (CY 2008-2011) CY 2012 January February March April May June July August September October November December

277,891.79 140,981.78 247,087.48 254,711.62 225,197.34 241,014.52 206,867.32 167,582.41 662,668.96 219,793.72 475,821.53 344,761.42

277,891.79 140,981.78 247,087.48 254,711.62 225,197.34 241,014.52 206,867.32 167,582.41 662,668.96 219,793.72 -

4 3 5 4 3 2 2 1 2 1 1 -

68

Collection Month Total Unremitted

Amount Collected Date P 5,499,320.16

Remittance Amount P 3,669,885.34 P1,829,434.82

No. of Month/s Delayed

10.4 We recommended that the Accountants and Cashiers of DENR-OSEC, NCR and CAR (a) cause the immediate remittance of the said collections to the BTr; and (b) henceforth, ensure compliance with the above laws on the remittance of collections. 10.5 Management of DENR-OSEC informed that they already remitted the amount of P3,738,218.98 to the BTr from January to March 2013. Management further committed that for the prior years unremitted amounts, these will be reviewed for subsequent remittance. Long outstanding fund transfers, doubtful validity and understatement of receivable accounts - P1.043 billion 11. As of December 31, 2012, the unliquidated funds transferred to various NGAs/GOCCs/LGUs/NGOs/POs of DENR-OSEC, PAWB and five regions accumulated to P1,044,334,134.62 wherein P276,243,788.24 or 26.56% thereof have been outstanding from 91 days to over two years the purpose of which should have been accomplished due to laxity in monitoring and enforcing liquidations thereof contrary to COA Circular Nos. 94-013 and 2007-001 dated December 31, 1994 and October 25, 2007, respectively. Moreover, the deficiencies in the balances of receivable accounts and errors in recording of transactions of DENR-OSEC, two attached bureaus and five regions amounting to P13,494,193.85 resulted in doubtful validity of the accounts and total understatement thereof by P4,757,000.00 as of year-end. 11.1 Review of the accounts Due from NGAs/GOCCs/LGUs and NGOs/POs disclosed a substantial amount of unliquidated/outstanding balance of P1,044,334,134.62 as of December 31, 2012 from the following offices:
Office DENR-OSEC PAWB Region 3 Region 5 Region 6 Region 7 Region 12 Total Account/Amount Due from Due from GOCCs LGUs P62,624,453.25 P22,974,847.91 630,906.69 2,716,428.90 500,000.00 8,701,239.45 1,239,938.00 P62,624,453.25 P36,763,360.95 Due from NGOs/POs Total P1,016,731,661.59 4,087,366.68 2,716,428.90 857,500.00 8,701,239.45 1,239,938.00 10,000,000.00 P1,044,334,134.62

Due from NGAs P931,132,360.43 3,456,459.99

357,500.00

P934,588,820.42

10,000,000.00 P10,357,500.00

69

11.2 These fund transfers were downloaded by the above DENR Offices to other government national and government owned corporations, local government units and NGOs/POs for the implementation of environment-related projects. 11.3 Further review and analysis revealed that: a) substantial unliquidated fund transfers P1,040,246,767.94 Given below is the aging of the four receivable accounts as of year-end.
Less than 90 days P691,045,866.45 62,457,113.25 10,000,000.00 500,000.00 10,500,000.00 P764,002,979.70 = 73.44% 91-365 days P126,945,763.66 P126,945,763.66 Over 1 year P 97,962,849.87 1,497,503.30 1,497,503.30 P99,460,353.17 Over 2 years P 15,177,880.45 167,340.00 11,477,344.61 2,716,428.90 8,701,239.45 1,239,938.00 24,134,950.96 357,500.00 10,000,000.00 10,357,500.00 P49,837,671.41

Agency

Balance as of 12/31/2012

Due from NGAs P931,132,360.43 DENR-OSEC Due from GOCCs OSEC 62,624,453.25 Due from LGUs DENR-OSEC 22,974,847.91 Region 3 2,716,428.90 Region 5 500,000.00 Region 6 8,701,239.45 Region 7 1,239,938.00 Sub-Total 36,132,454.26 Due from NGOs/POs Region 5 357,500.00 Region 12 10,000,000.00 Sub-Total 10,357,500.00 P1,040,246,767.94 Grand Total Percent of 100% Total

P276,243,788.24 = 26.56%

Included in the accounts aged over two years are the dormant accounts at DENR-OSEC and Region 7 of P26,822,565.06 and P1,239,938.00, respectively. For PAWB, the age of the receivables of P4,087,366.68 could not be determined in the absence of a provision as to project end/termination date in the Memoranda of Agreement (MOA) with the project implementers and recipient agencies. The substantial amount of unliquidated fund transfers in the books of concerned agencies indicates that the agencies have been remiss in monitoring the accounting/liquidations of fund transfers contrary to:

70

o COA Circular No. 94-013 dated December 13, 1994 - The Implementing Agency is required to submit within ten (10) days after the end of each month or end of the agreed period for the project, to the Source Agency, the Report of Checks Issued and the Report of Disbursements and other supporting documents in the utilization of funds. o COA Circular No. 2007-001 dated October 25, 2007 - The NGOs/POs, on the other hand, are required to submit the final Fund Utilization Report certified by its Chief Accountant and approved by its President/Chairman and other documents to support the liquidation of funds granted to it by the Government Office (GO) within sixty (60) days after the completion of the project. Considering the age of the accounts particularly those granted from 91 days to over two years, the purposes of which have been surely attained/completed as of year-end hence, these should have been liquidated. As a result, the balances of the four receivable accounts and the corresponding expenses were understated by the amount of expended fund transfers as follows:
Account Due from NGAs Due from GOCCs Due from LGUs Due from NGOs/POs Total Amount 240,086,493.98 167,340.00 25,632,454.26 10,357,500.00 276,243,788.24

b)

Deficiencies in the balances of receivable accounts P13,494,193.85 Further, the following deficiencies/lapses were also noted in the audit of the receivable accounts which cast doubt on the accuracy and reliability of their year-end balances:

71

Agency DENR OSEC LMB

PAWB Region 6 Region 12

Particulars Discrepancy between the book balances and per confirmation with recipient agencies: a. National Resources Defense Council (NRDC) b. PENRO Maguindanao Discrepancies between the books and records of the following agencies: a. PS-DBM b. National Printing Office Inclusion of dormant account Non-submission of documents for fund transfers way back in 2007-2011 and for completed projects Municipalities of Kidapawan, Magpet and Makilala Non-maintenance of Subsidiary Ledger at PENRO Iloilo Unreconciled difference due to lack or insufficiency of documents Abnormal/negative balance Total

Accounts Affected P Due from NGAs

Amount 790,827.20 2,310,007.44 1,774,826.54 273,860.00 5,149,521.18 5,149,011.91

Due from LGUs Due from LGUs Due from GOCCs Due from NGOs/POs 337,306.69 2,491,206.32 99,000.00 268,147.75 P13,494,193.85

Section 12 of the Manual of NGAs, Volume II, provides that the SL is the book of final entry containing the details or breakdown of the balance of the controlling account appearing in the GL. The SL shall be kept for each control account in the General Ledger.

c)

Errors/misclassification in recording of receivables transactions P5,715,786.82 The following errors in recording were also observed which resulted in total understatement of the receivable account by P4,757,000.00:
Nature of transaction Fund transfers to PWU Unrecorded deliveries from PS-DBM Fund transfers various LGUs to Accounts As recorded Should be Other Maintenance Due from NGOs/POs and Operating Expenses No entry Due from NGAs Office Supplies Inventory Other Maintenance Due from LGUs and Operating Expenses

Office DENR - OSEC NCR Region 6 PENRO Iloilo Net Understatement

Amount Over /(Under) P (384,000.00) 165,799.35 (165,799.35) (4,373,000.00) P(4,757,000.00)

Further, the following misclassifications in accounting for receivables were noted:

72

Office DENR-OSEC Total

Amount P 682,786.82 96,000.00 180,000.00 P 958,786.82

Nature of transaction Fund transfer to Office of Northern Communities Fund transfer to PWU Fund transfers to Sambisig Multi-Purpose Cooperative

As recorded Due from LGUs Due from NGAs Due from LGUs

Should be Due from NGAs Due from NGOs/POs

11.4 The above errors/misclassifications of transactions resulted in the overstatement and understatement of the following accounts:
Account Due from NGOs/ POs Other Maintenance and Operating Expenses Due from NGAs Office Supplies Inventory Due from LGUs Amount Understatement Overstatement P 660,000.00 P4,757,000.00 420,987.47 165,799.35 3,510,213.18

11.5 We recommended that the Accountants of the DENR-OSEC, concerned agencies and regional offices: a. send demand letters to the concerned implementers for the immediate liquidation/settlement of the funds transferred to them; b. determine the causes of the discrepancies in the balance of Receivable accounts between the books and those of the implementers and effect the necessary adjustments; c. make the necessary adjustments in the books to correct the under/overstatements and misclassifications of the Receivable and other accounts affected; d. exert effort to document and establish the validity of the dormant accounts; e. submit the liquidation reports the soonest possible time; and f. maintain SLs for Receivable accounts.

11.6 We also recommended that the Director of PAWB ensure that in succeeding fund transfers, the MOA include provisions as to the project completion dates and the timelines on the submission of liquidations. 11.7 The following were the comments of the Management:
Office PAWB Comments PAWB Director issued a Memorandum dated April 26, 2013 to the

73

Office

Region 5

Comments Regional Executive Directors of the cities of Davao and Koronadal requesting that the Mayors of Makilala, Kidapawan and Magpet be advised to liquidate their unsettled accountabilities. Letters/reminders have been sent to the concerned POs thru the PENROs/CENROs to submit the liquidation documents. The amount of P500,000.00 released/transferred to LGU Legazpi City was liquidated in January 2013. Agreed to comply with the audit recommendations The Chairman of the Presidential Task Force MRBRD has already submitted a liquidation report to DENR-RBCO at the Central Office

Region 7 Region 12

Unreliable balances of the Receivable accounts- P232.124 million 12. The year-end balances of the Receivable accounts totaling P232,124,222.71 of DENR-OSEC, two attached bureaus and four regions were unreliable due to (a) discrepancies of P1,639,226.48 between the book balances and per results of confirmations with four DENR regions and an attached bureau and subsidiary records ; (b) net overstatement of P908,623.01 attributed to errors in recording receivable account transactions; and (c) other lapses in the granting/utilization/liquidation and maintenance of records. 12.1 The following receivable accounts reported a total year-end balance of P232,124,222.71:
Account Accounts Receivable Due from Officers and Employees Receivables-Disallowances/ Charges Advances to Officers and Employees Other Receivables Due from ROs/SBs TOTAL Amount P 22,098,908.18 18,742,260.17 33,998,955.62 39,545,346.39 73,760,692.75 43,978,059.60 P232,124,222.71

12.2 Verification and analysis of these accounts disclosed the following: a) Discrepancies between the book balances and results of confirmations/ subsidiary ledgers - P1,639,226.48 Confirmation of the audit team of the balances of the funds transferred by DENR-OSEC with the Regional Offices and LMB for the implementation of various projects disclosed a total discrepancy of P980,963.42, as shown on the next page.

74

Implementing Agency LMB Region 9 Region 13 Total

Per Books of DENR-OSEC P 495,583.73 1,360,493.88 742,414.00 P2,598,491.61

Balances Per Confirmation P 263,295.31 695,693.88 658,539.00 P 1,617,528.19

Discrepancy P 232,288.42 664,800.00 83,875.00 P 980,963.42

Remarks The discrepancy represents unrecorded liquidations in the books of DENR-OSEC. The discrepancy represents the unrecorded fund transfer in the books of Region 9. The difference represents unrecorded liquidation in the books of the DENR-OSEC

Disparities in the total amount of P658,263.06 were likewise noted between the books and the Schedules/subsidiary records for account Advances to Officers and Employees of these agencies as shown below.
Office LMB Region 3 Total Per GL P2,716,073.29 233,410.20 P2,949,483.49 Balance Per Schedule P2,167,887.22 123,333.21 P2,291,220.43 Difference P548,186.07 110,076.99 P658,263.06

The discrepancies between the book balance of receivable accounts of DENR-OSEC and two Regional Offices and LMB as well as the Schedules/subsidiary records for account Advances to Officers and Employees of LMB and Region 3 totaling P1,639,226.48 rendered the receivable accounts totaling P5,547,975.10 unreliable as of year-end.

b)

Errors in recording receivable account transactions P908,623.01 There were errors noted in recording of transactions which resulted in a net overstatement of the receivable account balance by P908,623.01 as shown below.
Nature of Transaction Closure of the unliquidated balances on travel advances and recording of unrefunded disallowances of employees assigned at the Regional, Line and attached Offices and Bureaus of the Department although there was no actual liquidation/ settlement thereof. Unrecorded cash advances for payrolls for contractual/ Amount Accounts Prior Years Adjustments Understated Overstated P 100,300.00

Office

DENR-OSEC

Receivables Disallowances and Charges

P 100,300.00

Region 13

Advances to Officers and

500,000.00

75

Office

Nature of Transaction job order employees. Erroneous recording of cash advance for payment of salary, salary differential and year end personnel benefits.

Amount Accounts Employees Cash-NT, MDS Advances to Officers and Employees Understated Overstated 500,000.00

1,508,923.01

Payroll Fund Net Effect on Receivables

1,508,923.01 P908,623.01

c)

Other deficiencies/lapses Other noted deficiencies that also affected the reliability of the balances of eight receivable accounts totaling P33,729,432.20 were as follows:
Account Affected Due from ROs/SBs Due from ROs/SBs Various Expenses Advances to Officers and Employees Various Expenses Accounts Receivable Cash-Disbursing Officers ReceivableDisallowances and Charges Advances to Officers and Employees Cash-Disbursing Officers ReceivableDisallowances and Charges P Amount 4,491,840.46 1,903,384.73 394,898.00

Office DENROSEC PAWB LMB

Deficiency Inclusion of dormant accounts Expended but unliquidated fund transfers due to non-submission of liquidation documents/ reports Expended but unliquidated cash advances of retired, resigned and transferred employees to other offices and those on Absent without Leave (AWOL) Non-maintenance of Subsidiary Ledger records for receivables

Region 6

21,689,528.54 2,836,500.00 592,062.42

252,195.00 1,412,611.49 156,411.56 P 33,729,432.20

Region 13

Non-posting of transactions in the Subsidiary Ledger Inclusion of dormant accounts Total

12.3 The following rules and regulations govern the above lapses: a. COA Circular No. 97-001 provides the Guidelines on the Proper Disposition/Closure of Dormant Funds and/or Accounts of National Government Agencies. 76

b. Section 13 of the COA Circular 2009-006 dated September 15, 2009, the Revised Rules on Settlement of Accounts which provides that a disallowance or charge shall be settled by payment of the amount disallowed or by such other applicable modes of extinguishment of obligation as provided by law. c. Section 4.6 of COA Circular No. 94-013 dated December 1991 -Implementing Agency (IA) shall submit to the Source Agency (SA) the Report of Checks Issued (RCI) and the Report of Disbursement (RD) within ten days after the end of each month or at the end of the agreed period for the project, to report the utilization of the cash advance/fund transfer. d. PD No. 1445 Section 89- A cash advance shall be reported on and liquidated as soon as the purpose for which it was given has been served. Section 12 of New Government Accounting System (NGAS) Volume II- provides for the Subsidiary Ledger (SL) as the book of final entry containing the details or breakdown of the balance of the controlling account appearing in the General Ledger (GL).

12.4 We recommended that the Accountants of: a. DENR-OSEC, LMB and Regions 9 and 13 reconcile the balances of the receivable accounts with the concerned implementing agencies to establish the correct amount of receivables; b. Region 3 and LMB exert effort to document the discrepancy between the General Ledger and the Schedule of Advances and support the entries in the General Ledger through the maintenance of Subsidiary Ledgers; c. DENR-OSEC and Region 13 make the necessary adjustments in the books to correct the over and understatements as well as the misclassifications of the affected receivable and other accounts; and d. DENR-OSEC, PAWB, LMB, Regions 6 and 13 strictly comply with the regulations on the proper treatment of dormant accounts, settlement of receivables, and maintenance of subsidiary ledgers. 12.5 The Management of DENR-OSEC committed to make the necessary adjustments and reclassification of accounts. Improper closure of unsettled disallowances of employees P8.966 million 77

13. The dropping of disallowances/charges totaling P8,966,864.84 from the books of DENR-Region 2 by debiting Prior Years Adjustments (PYA) account without actual settlement thereof was contrary to Section 13 of COA Circular 2009-006 dated September 15, 2009 and understated the balance of accounts Receivable-Disallowances/Charges and the total of PYA as of yearend both by that amount. 13.1 Review of records of DENR - Region 2 disclosed that JEV No. 12-246-B was drawn in December 2012 by the Accountant to drop the disallowances/charges amounting to P8,966,864.84 by debiting PYA account and crediting account Receivables-Disallowances and Charges. 13.2 This action of the Accountant was improper since it lacked basis when it purged from the records the accountabilities of the concerned persons liable without the actual settlement of the disallowances. This is contrary to Section 13 of COA Circular 2009-006 dated September 15, 2009, the Revised Rules on Settlement of Accounts which provides that A disallowance or charge shall be settled by payment of the amount disallowed or by such other applicable modes of extinguishment of obligation as provided by law. 13.3 This also understated the balance of the account Receivables-Disallowances and Charges and the total PYA as of year-end both by P8,966,864.84. 13.4 We recommended that the Accountant of DENR Region 2 (a) draw a JEV to restore the dropped amount of disallowances/charges in the books of accounts; and (b) henceforth, ensure that all JEVs are supported with complete and adequate documentation. 13.5 The Management of Region 2 disallowances/charges will be made. Unreliable Inventory balances - P325,372,539.60 14. The accuracy and existence of the Inventory account balances of P325,372,539.60 as of year-end were unreliable due to (a) non-conduct of physical count of inventories totaling P17,455,293.23 of six PENROs; (b) errors in recording of deliveries/transfers/issuances of P31,531,572.44 of DENR-OSEC, two attached bureaus, four regions and six PENROs; (c) unreconciled difference of P5,941,949.94 between the recorded inventories and the Report of Physical Count of Inventory (RPCI) of DENROSEC, LMB, two regions and one PENRO; and (d) non-maintenance of Supplies Ledger Cards and Stock Cards (SC) for inventories of P25,571,636.43 of Region 7 and five PENROs. 78 assured that reversion of the

14.1 As of year-end, the total of the inventory accounts aggregated to P325,372,539.60. 14.2 Audit of the Inventory accounts disclosed the following errors in the recording of related transactions and lapses in the management thereof that rendered the year-end account balance doubtful: a) Absence of physical inventory taking of inventory accounts P17,455,293.23 As of year-end, no physical count was yet conducted for the following Inventory accounts totaling P17,455,293.23:
Inventory Accounts DENR Offices Region 2 PENRO Isabela Region 3 PENRO Zambales Region 6 PENRO Antique PENRO Negros PENRO Aklan Region 7 PENRO Bohol Total Office Supplies Agricultural Supplies Construction Materials Other Agricultural, Fishery and Forestry Products Total

P1,122,021.00 1,249,678.48 1,138,749.30 P2,616,545.87 106,261.25 P291,273.96 10,069,053.81

P1,122,021.00 1,249,678.48 1,138,749.30 2,616,545.87 10,466,589.02

474,111.41 P4,090,821.44

P387,598.15 P387,598.15 P291,273.96 P12, 685, 599.68

861,709.56 P17,455,293.23

Management of Regions 3 and 6 attributed the non-conduct of the required physical count to the lack of personnel to undertake such activity. Section 65 of the Manual on NGAS, Volume II requires however, that the Report on the Physical Count of Inventories (RCPI) shall be used to report the physical count of supplies by type of inventory as of a given date. This shall be prepared every six months in three copies and shall be certified correct by the Inventory Committee and approved by the Head of the Agency. 79

b) Errors and omissions in recording transactions P31,531,572.44 Verification of transaction documents disclosed various errors and omissions in recording of deliveries, transfer and issuances of supplies and confiscated items during the year which resulted in a net overstatement of P31,531,572.44 of the Inventory accounts as shown below.
Errors Charged directly to Office Supplies Expenses and other accounts Accounts Affected Prior Years Adjustments Other Supplies Inventory Office Supplies Expenses Office Supplies Inventory Due from NGAs Office Supplies Inventory Office Supplies Expenses Office Supplies Inventory Overstated Amount Understated

DENR Offices

Amount

P214,044.11
DENR OSEC 442,384.26 NCR PENRO Isabela Region 3 PENRO Zambales LMB Region 6 NCR CAR PENRO Davao Oriental Region 2 PENRO Nueva Vizcaya Region 1 Region 11 PENRO Compostela Valley PENRO Davao del Sur 7,316,572.26 886,818.00 142,697.57 1,122,021.00 1,249,678.48 1,159,008.81 1,138,749.30 2,306,880.00 554,829.29 3,259,364.00

P214,044.11 P214,044.11
442,384.26 442,384.26 142,697.57 142,697.57

Unrecorded deliveries of PS-DBM Error in recording deliveries to Office Supplies Expenses instead of Office Supplies Inventory

Non-preparation of the Report of Supplies and Materials Issued (RSMI) for the supplies issued during the year

Office Supplies Inventory

4,669,457.59

Office Supplies Expenses Unrecorded transfer of confiscated lumber to DENR-OSEC for the manufacture of chairs Unrecorded confiscated asset while donation thereof was recorded resulting in abnormal balance Confiscated Goods Inventory 2,893,766.03

4,669,457.59

14,967,314.74

2,949,781.19

Unrecorded Confiscated Forest Products

Government Equity 586,886.03 0.00 Non-existing confiscated forest products which remained unadjusted for more than 5 years No appraisal for the 1,842 pieces of elephant tusks weighing more or less 3,893.98 that remained unrecorded in the books Receipt of entrance tickets recorded as outright expense instead of coursing thru the inventory account

586,886.06

17,274,244.74

PAWB 249,500.00

Accountable Forms Inventory Accountable Forms Expenses

249,500.00 249,500.00

Further verification revealed that at the DENR-OSEC, the deliveries were recorded as outright expenses since it has been the practice that procurement of supplies for Fund 102 are directly delivered to the Foreign Assisted Projects Office (FASPO) without informing the 80

General Services Division. As such, the receipt of the deliveries and the issuances were not recorded. It was also noted that confiscations and subsequent transfer of forest products in Region 13 totaling P1,015,336.00 were not recorded. The effects on inventory accounts as well as other affected accounts are as follows:
Inventory Accounts Affected Other Supplies Inventory Other Agricultural, Fishing, Fishery and Agricultural Products Inventory Office Supplies Inventory Confiscated Goods Inventory Accountable Forms Inventory Total Net Effect on Inventory Other Accounts Affected Prior Years Adjustments Due from NGAs Accountable Forms Expenses Office Supplies Expenses CIP Reforestation Upland Government Equity Overstatement P 214,044.11 39,770,295.55 3,870,331.65 P12,073,598.87 249,500.00 P12,323,098.87 Understatement

P43,854,671.31 P31,531,572.44

P214,044.11 442,384.26 249,500.00 P 4,312,715.91 39,770,295.55 16,687,358.71

The above errors/deficiencies violated the following regulations: o Section 43 of the Manual on the NGAS, Volume I - Purchases of supplies and materials for stock, regardless of whether or not they are consumed within the accounting period, shall be recorded as Inventory account. o COA Circular No. 2003-001 dated June 17, 2003 - Charges to Capital Outlay for reforestation projects shall be recorded as CIPReforestation Upland/Marshland/Swampland.

o Section 62 of the Manual on NGAS, Volume II - The Supply Officer shall summarize all supplies and materials issued during the month in the RSMI for submission to the Accounting Units as basis in the preparation of the Journal Entry Voucher (JEV) to record in the books of accounts the inventory issuances monthly. c) Unreconciled difference between the General Ledger (GL) and Report of Physical Count of Inventory (RPCI) for inventory accounts P5,941,949.94

81

Comparison of the balances of inventory accounts per GL and the RPCI as of December 31, 2012 showed a total difference of P5,941,949.94, as computed below:
Inventory Accounts Office Supplies Other Supplies Confiscated Goods Spare Parts Office Supplies Office Supplies Confiscated Goods Office Supplies Per Books P 6,253,975.34 483,950.54 713,952.39 518,570.28 744,907.73 1,249,678.48 1,091,452.02 2,177,730.80 P13,234,217.58 Amount Per RPCI P 3,582,583.67 176,901.16 0.00 428,129.68 48,856.98 0.00 2,732,843.35 322,952.80 P 7,292,267.64 Difference P 2,671,391.67 307,049.38 713,952.39 90,440.60 696,050.75 1,249,678.48 (1,641,391.33) 1,854,778.00 P 5,941,949.94

Office DENR-OSEC NCR Region III Region V PENRO Cam Norte LMB Total

For DENR-OSEC, of the P2,671,391.67 difference between the two records, the amount of P2,497,546.58 pertains to the result of previous years conversion from the old to the new Government Accounting System. For the remaining unreconciled balance, the causes thereof could not yet be determined due to the absence of a regular reconciliation of records of the Accounting and the General Services Divisions. The unreconciled disparity in the balances of the above inventory accounts is not only contrary to Section 491.i of the GAAM, Volume I which provides that discrepancies in the inventory taking should be investigated and cleared immediately but also casts doubt on the reliability of the reported balances of the said inventory accounts as of year-end.

d) Non-maintenance of accounting and property records - P25,571,636.43 Subsidiary Ledger Cards (SLC) and SC for the following inventory items were not maintained by four DENR Regions to support the GL balances in the total amount of P25,571,636.43:
DENR Offices Region 3 PENRO Zambales Region 5 PENRO Catanduanes PENRO Office Supplies P1,249,678.48 Inventory Accounts Agricultural Confiscated Supplies Goods TOTAL P1,249,678.48

P6,653,392.24

6,653,392.24

82

DENR Offices Cam. Norte Region 6 PENRO Iloilo PENRO Antique Region 7 Total

Office Supplies

Inventory Accounts Agricultural Confiscated Supplies Goods 1,091,452.02 P334,234.50 14,242,420.33

TOTAL 1,091,452.02 14,576,654.83 1,138,749.30

1,138,749.30 474,111.41 P2,862,539.19 387,598.15 P721,832.65 P21,987,264.59

861,709.56 P25,571,636.43

Management of the concerned regions informed that the nonmaintenance of Accounting and property records were due to the following reasons:
Office Region 3 Region 5 Region 6 Region 7 Reasons Lack of manpower and time constraint Lack of manpower Prior years recommendation not complied by management Lack of manpower

The non-maintenance of the prescribed records for inventory accounts rendered no basis to check on the accuracy of the GL balances and not in compliance with the following regulations of the Manual on the NGAS, Volume II: o Section 12 The Accounting Unit shall maintain SLC for each type of supplies where all receipts and issuances shall be recorded promptly. o Section 41 The SC shall be used to record all receipts and issuances of supplies. It shall be maintained by the Supply and Property Unit for each item in stock.

14.3 We recommended that the: a. Property Officers of Regions 2, 3, 6, and 7 conduct inventory taking of all inventories and prepare report thereon copy furnished the Accountants; b. concerned Accountants (i) take up the unrecorded deliveries, confiscated items and transfers/issuances of inventories; (ii) reclassify the cost of the planted seedlings from Other Agricultural, Fishing, Fishery and Agricultural Products Inventory to CIP-Reforestation Upland; and (iii) maintain SLCs for inventory accounts;

83

c. Accountants and Property Officers of DENR-OSEC, LMB and three Regions reconcile the balances of inventory accounts between the GL and RPCI; and d. Property Officers of PAWB initiate appraisal of the confiscated elephant tusks and copy furnished the Accountant of the appraisal report for recording; and DENR Regions 3, 5, 6, and 7 maintain SC.

14.4 Management of a. DENR-OSEC informed that: JEVs were already drawn to take up the unrecorded deliveries; and The difference between the books and the RPCI were due to some damaged/expired items as well as obsolete forms of DVs which were already reported for disposal to the Property Section of the GSD but the Accounting Division was not furnished copies thereof for recording in the books. The GSD and the Accounting Division are continuously reconciling their records.

b. The Accountant of DENR- Region II is still waiting for the submission of the RSMIs from the Property Custodians of the PENRO and the six CENROS as his basis in recording the issuances. Unreliable balances of the Property, Plant and Equipment accounts- P10.743 billion 15. The balances of Property, Plant and Equipment (PPE) accounts of P10,743,441,282.06 were unreliable due to (a) non-recording of acquisitions at DENR-OSEC and three regions of P17,732,002.28 (b) non-dropping from the books of DENR-OSEC the transferred/donated property of P20,278,228.00; (c) recording and transfer of a confiscated vehicle with a value of P776,000.00 although with only Conditional Order of Finality of DENR-OSEC; (d) errors in recording of acquisitions amounting to P14,340,726.71 of DENR-OSEC; (e) non-reclassification of unserviceable and obsolete property of P78,212,488.08 to Other Assets account of DENROSEC, three attached bureaus and eight regions; (f) inadequate provision of depreciation for PPE accounts totaling P107,764,965.38 of DENR-OSEC and two regions; (g) non/incomplete conduct of physical count of property worth P2,949,466,908.32 of DENR-OSEC, two attached bureaus and seven regions; (h) unreconciled balances of P26,183,869.24 of PPE accounts between 84

General/Subsidiary Ledgers and Inventory Reports of DENR-OSEC, LMB and Region 5; and (i) lack of adequate documents and records for property accounts of P586,302,209.71 of five regions. 15.1 As of year-end, the consolidated balances of Property, Plant and Equipment (PPE) accounts amounted to P10,743,441,282.06. 15.2 Audit of the said accounts disclosed various lapses in Managements monitoring thereof as discussed below. a) Unrecorded acquisitions - P17,732,002.28 Records showed that in CY 2012, the DENR-OSEC and three Regions acquired thru procurement and confiscation various property aggregating to P16,543,982.28, as shown below.
Office DENR-OSEC PPE Category Motor Vehicles Confiscated Motor Vehicles IT Equipment Furniture and Fixtures Land Amount P 9,356,151.71 767,000.00 6,121,776.78 179,053.79 120,000.00 P16,543,982.28

Region 5 Total

These pieces of property were however, not booked-up since recording thereof was overlooked and due to the early cut-off date in the closing of the books of accounts. Moreover, there were also property of DENR-Regions 2 and 7 which were not yet recorded in the books due to lack of supporting documents, as follows:
PPE Account Land Motor Vehicles Amount P244,020.00 944,000.00 P1,188,020.00 Lacking Documents Titles not yet transferred to DENR due to incomplete documentations and lack of funds for the titling. No Deed of Donation

Office Region 2 Region 7 Total

b) Transferred/donated items not dropped from the books - P20,278,228.00 85

Various PPE of the DENR-OSEC totaling P20,278,228.00 from Funds 101 and 102 which were already transferred or donated to the various Regional Offices of the Department and to Local Government Units (LGUs) were not yet dropped from the books of accounts and in the Inventory Report as of year-end due to the failure of the General Services Division to submit to the Accounting Division the documents supporting such transfers, as follows:
Fund Fund101 PPE Account Motor Vehicles Confiscated Motor Vehicles IT Equipment IT Equipment Watercrafts Motor Vehicle Amount P2,863,500.00 2,126,000.00 124,072.50 7,760,455.50 6,931,200.00 473,000.00 P20,278,228.00 Recipients Regional Offices

Office DENR-OSEC

Fund102 FMB Total

LGUs

Also during the year, the DENR-OSEC was issued by the court the Certificates of Finality of Order for four confiscated vehicles. Since the ownership of these vehicles was already transferred to the government, the same were donated to TESDA, LGUs and one DENR -Regional Office but acquisitions and transfers of the subject vehicles were not yet recorded in the books of accounts as of year-end. The details are shown below:
Plate No. BCD 197 RJK 820 BVL 905 WDZ 690 Amount undetermined P384,000.00 158,000.00 233,000.00 P775,000.00 Recipients Donated to TESDA per Deed of Donation dated 9/9/11. Donated to LGU Dupax Del Norte per Deed of Donation dated 10/12/12 Donated to TESDA Transferred Region III with IRP dated 9/13/12 and ARE dated 9/12/12

Item Isuzu Elf Fuzo Truck Passenger Jeep Isuzu Elf Total

c)

Improper recording and transfer of confiscated vehicle with Conditional Order of Finality P776,000.00 In DENR-OSEC, the Forward Container Truck with plate No. PWW 632 valued at P776,000.00 which was a subject of a Conditional Order of Finality was already included in the Inventory Report and recorded in the books of accounts. However, such recording is not yet appropriate since ownership is still not absolute. The said vehicle was subsequently transferred to DENR Region 3 in September 2012. The said transfer was not recorded by DENR-OSEC. 86

d) Errors in recording of acquisitions P14,130,179.71 At DENR-OSEC, the transfer of a Toyota Corolla with plate no. TAP879 valued at P210,547.00 from Fund 101 to FMB was recorded twice on July 25, 2012 and July 31, 2012. Moreover, the following errors were noted in the recording of acquired property:
Amount P 491,069.92 286,671.00 159,060.00 Construction of multi-purpose building and covered court Major repairs of office Total 5,029,088.04 3,554,988.12 P9,520,887.08 Accounts As Recorded IT Equipment IT Equipment and Software Office Building Repairs and MaintenanceOffice Buildings Proper Reforestation Upland Technical and Scientific Equipment Other Machineries and Equipment Other Structures Office Buildings

Particulars Acquisition of various PPE Acquisition of technical/scientific equipment and other machineries

At DENR-OSEC, the PPE account balances included small tangible items with estimated useful life of more than one year totaling P4,609,292.63, as follows:
Account Office Equipment Furniture and Fixtures IT Equipment And Software Library Books Other PPE Total P Amount 71,722.25 2,582,160.14 284,685.98 402,349.16 1,268,375.10 P 4,609,292.63

COA Circular 2005-02 dated April 14, 2005 provides however that small tangible items with estimated useful life of more than one year shall be recorded as inventories upon acquisition and expense upon issuance. The above observations/lapses are not in consonance with Section 112 of PD No. 1445 which 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. 87

e) Unserviceable and obsolete PPE not yet reclassified - P78,212,488.08 As of year-end, the unserviceable/obsolete property aggregating to P78,212,488.08 of DENR-OSEC, three attached bureaus and eight Regions are still recorded under PPE accounts, as shown below:
Office DENR-OSEC Region 1 Region 3 Region 6 Region 7 Region 10 Region 11 Region 13 CAR PAWB FMB LMB Total Amount P58,167,710.32 528,416.59 569,236.51 173,402.50 51,014.62 865,244.84 703,000.00 804,388.00 227,014.95 4,274,416.82 1,909,702.77 8,665,263.07 1,273,677.09 P78,212,488.08

Section 143 of the Manual on NGAS, Volume III requires that the value of obsolete and unserviceable assets awaiting final disposition as well as those assets still serviceable but no longer used should be reclassified to Other Assets.

f) Non/Inadequate provision for depreciation P107,764,965.38 Sections 67, Volume I of the Manual on New Government Accounting System (NGAS) reads: The cost of property, plant and equipment are allocated to the periods benefited through the provision of accumulated depreciation. Depreciation is the systematic and gradual allocation of the depreciable amount of asset over its useful life. As shown in the Property Schedule in the e-NGAS of DENR-OSEC, PPE costing P75,714,003.08 were not provided with depreciation from CYs 1982 to 2012. Per computation of the audit team, the amount of depreciation that should have been provided for PPE for the said period totaled P64,342,070.59 broken down as follows:
Accounts Office Equipment Furniture and Fixtures Acquisition Cost P11,465,593.99 11,415,215.73 Amount of Depreciation P10,051,602.89 9,852,981.03

88

Accounts IT Equipment and Software Library Books Communication Equipment Technical and Scientific Equipment Other PPE Total

Acquisition Cost 25,281,197.45 714,551.00 1,566,557.50 21,148,809.21 4,122,078.20 P75,714,003.08

Amount of Depreciation 19,925,538.22 643,095.90 1,150,239.83 19,018,965.79 3,699,646.93 P64,342,070.59

On the other hand, although DENR-OSEC and two Regions provided depreciation for some of their property from CYs 1989 to 2012, the amount was however, deficient by P43,422,894.79, as computed below:
Fund DENR-OSEC Region 3 Region 5 Total Accumulated Depreciation/Depreciation Expenses As Provided Correct Amount Deficiency P144,835,233.96 3,513,165.87 0.00 P148,348,399.83 P187,122,424.87 4,623,821.40 25,048.35 P191,771,294.62 P42,287,190.91 1,110,655.53 25,048.35 P43,422,894.79

The above lapses are contrary to Section 4(o), Chapter 1 of the Manual on NGAS, Volume I as amended by COA Circular No. 2004-003 dated October 4, 2004, which states that depreciation should start on the following month after purchase of the property, plant and equipment irrespective of the date within the month. In summary, the following were the effects of the above observations/lapses on PPE accounts:
Accounts Affected Amount Understated Overstated

Deficiencies

Motor Vehicles IT Equipment a) Unrecorded acquisitions of Furniture and Fixtures PPE Land Government Equity Motor Vehicles b) Unrecorded transfers/donations IT Equipment of PPE to Regional Watercrafts Offices/LGUs Government Equity c) Transfer of vehicle with Motor Vehicles Conditional Order of Finality Government Equity d) Motor Vehicles Errors Government Equity in Office Buildings recordin g of PPE

P17,732,002.28

P20,278,228.0 0 776,000.00 210,547.00 1,474,099.92

89

Deficiencies

Accounts Affected

Amount Understated Overstated

transacti ons 14,130 IT Equipment and Software ,179.71 Reforestation-Upland Technical and Scientific Equipt. Other Machinery & Equipt. Other Structures Repairs and Maintenance Office Building e) Small value items taken up as Office Equipment PPE Furniture and Fixtures IT Equipment and Software Library Books Other PPE Various Inventory f) Unserviceable and obsolete property not yet reclassified to Other Assets g) Non-provision of/deficiency in depreciation Various PPE Other Assets Depreciation Expenses Accumulated Depreciation

936,800.92 491,069.92 286,671.00 159,060.00 5,029,088.04 3,554,988.12

4,609,292.63

4,609,292.63 78,212,488.08 78,212,488.08 107,764,965.38

15.3 The audit also disclosed the following lapses that rendered the account balance unreliable: g) Non/Incomplete conduct of physical count/ submission of inventory report - P2,949,466,908.32 During the year, it showed that the DENR-OSEC, two attached agencies and seven Regions had (i) not conducted inventory of its property accounts; (ii) undertaken partial count; and (iii) not rendered inventory report on the results of physical count the details of which together with the reason/s thereof are given below.
Office Amount Reasons With Partial Inventory Count DENR-OSEC P1,947,292,090.72 Lack of personnel LMB 67,031,700.42 Only one employee was assigned to conduct the count. Concerned employees are not available to present their accountabilities during

90

Office

Amount inventory taking.

Reasons

Sub-Total 2,014,323,791.14 With no Inventory report Region 2 27, 510, 860. 40 Region 6 163,729,965.12 Region 10 Sub-Total 8,865,953.55 200,106,779.07

Lack of personnel Physical Inventory still ongoing Preparation of report overlooked by the Property Section

With no Inventory Count Region 3 282,955,730.48 Region 12 142,891,081.68 Region 13 51,405,725.48 NCR 57,228,960.60 PAWB

Lack of personnel

Sub-Total Grand Total

Due to time constraint since the office transferred from Roxas Blvd. to East Ave. 200,554,839.87 Lack of personnel. The Property Section is also the lead unit of the Disposal Committee. The transfer of offices was due to the ongoing construction of the office building. 735,036,338.11 P2,949,466,908.32

The following regulations require however, that: o Section 490 of the GAAM, Volume I - Inventory taking is an indispensable procedure for checking the integrity of property custodianship. o Section 65 of the Manual on the NGAS, Volume II - The Report on the Physical Count of Property, Plant and Equipment 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 card and per count and shortage/overage, if any.

The non-conduct of physical count and non-rendition of the report thereon rendered the existence and accuracy of the balances of the PPE accounts totaling P2,949,466,908.32 unreliable as of year-end. Unreconciled Inventory Report (IR) and General Ledgers (GLs) P26,183,869.24 Comparison of the Inventory Report with the GLs of the PPE as of year-end of DENR-OSEC, FMB and Region 5 showed a disparity of P26,183,869.24 arrived at as follows:

h)

91

Office Per IR Per GL Per SL DENR-OSEC* P 2,684,700.00 P1,414,285.72 FMB 78,397,576.93 P 77,555,038.75 Region 5 80,579,371.96 104,650,288.74 Total P161,661,648.89 P182,205,327.49 P 1,414,285.72 *only the inventory report for Motor Vehicles was completed

Difference 1,270,414.28 842,538.18 24,070,916.78 P26,183,869.24

The discrepancy between the accounting records and the physical inventory report was the result of the non-conduct of regular reconciliation between the Accounting and the General Services Divisions as required under Section 491(i) of the GAAM, Volume I which provides that in the inventory taking, all discrepancies between physical and book inventories must be investigated and cleared immediately. balances - P586,302,209.71

i) Lacking/inadequate documentation and records to support PPE

PPE worth P586,302,209.71 were not supported with documents and records as shown below.
Amount of PPE P 958,400.00

Office Lacking Documents With Incomplete Documentation Region 10 Certificate of Land Title With lacking records CAR Property Cards (PC) and PPE Ledger Cards (PPELC) Region 2 PC Region 3 PC and PPELC/Schedule of PPE Region 6 PC/PPELC Sub-Total Grand Total

18,359,622.45 275,510,860.40 282,955,730.48 8,517,596.38 P585,343,809.71 P586,302,209.71

The absence of complete PC and PPELC is not in accord with Section 43(c) of the NGAS Manual, Volume I which states that the Accounting Unit shall maintain perpetual inventory records such as Supplies Ledger Cards for each inventory stock, Property, Plant and Equipment Ledger Cards for each category of plant, property and 92

equipment including work and other animals, livestock, etc. The subsidiary ledger cards shall contain the details of the General Ledger accounts. 15.4 We recommended that the DENR-OSEC, concerned attached agencies, and regional offices: a. The Accountants (i) take up the unrecorded acquisitions and transferred/donated items; (ii) make the necessary adjustments on the improper recording of acquired and transferred vehicles and items; (iii) reclassify obsolete/unserviceable PPE to Other Assets account and small value items to their appropriate inventory accounts; and (iv) provide the correct depreciation for assets; The Accountant and the Property Officer (i) reconcile their records on PPE accounts; and (ii) gather/obtain and maintain appropriate PPE records and documents; and Head of Agency/Region create an inventory team, even on adhoc basis, to conduct inventory taking of PPE accounts and render report thereon.

b.

c.

15.5 The management of the following offices gave these comments:

Office DENROSEC DENROSEC Comment The error in the recording of the vehicle transferred to FMB was already adjusted on January 31, 2013. The reclassification of the unserviceable and obsolete property to Other Assets, small value items and other adjustments for PPE accounts will be made in CY 2013. The appropriate depreciation will be provided for PPE accounts. Management committed to comply with the recommendations. A JEV was drawn on March 31, 2013 to correct the recording of PPE accounts. The General Services Section has started conducting inventory and will coordinate with the Accounting Section to reconcile the PPE accounts. The Property Section is still preparing the Inspection and Inventory Report for unserviceable property before these are reclassified. Committed to conduct another physical inventory taking and the result will be their basis in recording/adjusting their PPE accounts.

Region 3 Region 5 Region 12 Region 13 CAR

Inaccurate balance of Construction In Progress Reforestation Upland account P2.343 billion 16. The balance of the account Construction in Progress (CIP) ReforestationUpland as of December 31, 2012 of P2,343,757,416.44 was overstated by a net amount of P407,584,075.78 due to (a) unrecorded cost of seedlings for NGP totaling P1,262,064.00 of DENR-Region 2; (b) non-reclassification of 93

completed reforestation projects amounting to P453,664,708.66 from CIP Reforestation-Upland account to Reforestation-Upland account of five regions; (c) erroneous recording of advances to contractors to the account totaling P12,226,211.96 of DENR-Region 5; and (d) Upland Development Project (UDP) related disbursements totaling P57,044,780.84 were directly recorded/booked-up under account Reforestation-Upland instead of under account CIP-Reforestation-Upland by DENR-Region 11. Moreover, disbursements totaling P5,071,640.13 were recorded under account CIPReforestation Upland by DENR-Region 5 in the absence of documentation which casts doubt on the validity of the recorded transactions and not in consonance with the Section 4.6 of PD No. 1445. Further, the subsidiary ledgers (SLs) for account CIPReforestationUpland for UDP of DENR-CAR included adjustments totaling P5,396,772.53 which represent costs of completed projects although there were no previous recordings/entries of costs incurred for the projects while these were still in progress which resulted in negative balances in the SL. 16.1 Verification of the Construction in Progress Reforestation Upland account of DENR CAR and Regions 2, 5, 11, and 13 disclosed the following deficiencies: a) Unrecorded fruit/forest trees produced and planted for the NGP project - P1,262,064.00 Seedlings of various fruit/forest trees produced and planted for the NGP project totaling to 105,172 pieces at P12.00 per piece or a total amount of P1,262,064.00 of DENR Region 2 were not recorded in the books under Fund 101 because these were acquired through the initiative and voluntary efforts of the DENR personnel hence, no costs were incurred thereon. However, as part of the input of the project, general accounting standards require that these should be measured based on the fair market values of the produced seedlings used in the project and must be included as part of the cost thereof. This understated the balances of accounts CIP Reforestation Upland and Government Equity by that amount as of December 31, 2012. still recorded in the books

b) Completed reforestation projects P453,664,708.66

The following reforestation projects costing P453,664,708.66 of DENR CAR, Regions 2, 5, 11, and 13 were already completed as of year-end. 94

Agency Region 2 Region 5 Region 11 Region 13 CAR Total

Amount P 1,793,053.57 238,984,189.98 86,403,111.40 31,125,939.49 95,358,414.22 P453,664,708.6 6

These finished projects however, are still recorded in the books under account CIP - Reforestation-Upland as of December 31, 2012 instead of transferring the amounts to account ReforestationUpland 2 and subsequently transferring to the Registry of Reforestation Projects as required by COA Circular No. 2002-002 dated June 18, 2002. o Section 138 - CIP-Reforestation Projects Debit this account for cost incurred while the reforestation projects are still in progress and credit this account for transfer to Reforestation Projects account upon completion or discontinued reforestation projects. o Sec. 140 - Reforestation Projects Debit this account for completed/ turned over reforestation projects or discontinued reforestation projects and credit this account for transfer of completed/turned-over reforestation projects to the Registry of Reforestation Projects at the end of the accounting period.

The non-transfer of the costs of completed/turned-over reforestation projects from account CIP Reforestation-Upland to account Reforestation Upland and eventually to the Registry of Reforestation Projects resulted in the overstatement of accounts CIP Reforestation-Upland and the Government Equity of P453,664,708.66 as of year-end.

c) Disbursements erroneously charged to CIP - Reforestation Upland account P12,226,211.96 In DENR - Region 5, the 15 percent advance payment to contractors of P12,226,211.96 was recorded under account CIP Reforestation Upland instead of Advances to Contractors account. As of year-end, the advances were not yet recouped. 95

 COA Circular No. 2002-002 prescribes that account Advances to Contractors is debited upon payment of authorized advances to contractors. This erroneous recording of advance payment overstated the balance of CIP Reforestation - Upland account and understated the Advances to Contractors account both by P12,226,211.96 as of yearend.

d) UDP related disbursements directly recorded as Reforestation Upland - P57,044,780.84 At DENR - Region 11, payments for salaries, seedling production and other related expenses amounting to P57,044,780.84 for UDP were directly recorded/booked-up under account Reforestation Upland instead of recording them under account CIP- Reforestation Upland pending completion of the project pursuant to Section 138 of COA Circular No. 2002-002.

16.2

The non-recording of the above project expenses understated the balance of CIP - Reforestation - Upland account and overstated the account Reforestation-Upland both by P57,044,780.84 as of December 31, 2012. In summary, the above errors resulted in the following:
Accounts Affected CIP-Reforestation-Upland Government Equity CIP-Reforestation-Upland Reforestation-Upland CIP-Reforestation-Upland Advances to Contractors Reforestation-Upland CIP-Reforestation-Upland Overstated Amount Understated P1,262,064.00 453,664,708.66 12,226,211.96 12,226,211.96 57,044,780.84 57,044,780.84

16.3

Deficiency Unrecorded seedlings Completed reforestation projects still in the books Disbursements erroneously charged to CIP-Reforestation Upland UDP-related disbursements recorded under ReforestationUpland instead of CIPReforestation-Upland

P453,664,708.66

and overstated CIP Reforestation Upland by a net amount of P407,584,075.78. e) Other deficiencies i. Disbursements recorded under account CIP- Reforestation Upland without documentation - P5,071,640.13

96

During the year, the disbursements of P5,071,640.13 of DENR Region 5 were recorded under account CIP ReforestationUpland. The said disbursements were however, not supported with accomplishment reports and bills from the contractors to substantiate the transactions which was contrary to Section 4.6 of PD No. 1445 which requires that Claims against government funds shall be supported with complete documentation. The lack of documentation for the said transactions casts doubt on the validity of the recorded disbursements.

ii. Negative balances in the SLs for UDP P5,396,772.53 At DENR-CAR, the subsidiary ledgers/schedules (SLs) for account CIP Reforestation Upland for UDP included negative balances totaling P5,396,772.53 which represent adjustments for 18 completed projects. However, the said SLs for UDP do not show that there were previous recordings/entries of costs incurred for the projects while these were still in progress. This error reduced the balance of UDP per SL and caused discrepancy in the balances between the SLs and GL for account CIP Reforestation Upland.

16.4 We recommended that the Accountants of: a. Region 2 determine the cost of the planted seedlings for the NGP and thereafter record the same in the books; b. Regions 2, 5, 11, 13 and CAR draw a JEV to (i) transfer the costs of completed projects from CIP- Reforestation-Upland account to Reforestation Upland account; and (ii) drop from the books the costs of the completed projects transferred to the Registry of Reforestation Projects; c. Region 5 (i) reclassify the advances made to contractors from account CIP Reforestation-Upland to Advances to Contractors account; and (ii) support the disbursements of P5,071,640.13 recorded under account CIP Reforestation-Upland; d. Region 11 draw a JEV to reclassify the expenses amounting to P57,044,780.84 for UDP from Reforestation-Upland to CIPReforestation-Upland; and e. CAR trace from records the payments made for UDP while these were still in progress and match the same with those credited under account CIP Reforestation-Upland and post the said payments in the SL for that account. 97

Unreliable balances of Payable Accounts P1,391,825,995.03 17. The year-end balances of Payable accounts of P1,391,825,995.03 were inaccurate due to the (a) undocumented and outstanding liabilities for over two years of P80,477,638.77 of DENR-OSEC, LMB and three regions that remained unreverted to the Government Equity account contrary to Section 98 of PD No. 1445; (b) net overstatement of P125,119,129.78 attributed to the errors and omissions in recording payable transactions of DENR-OSEC, LMB and two PENROs; and (c) discrepancy of P1,623,401.99 between the payable records of DENR-NCR and results of confirmation with the source agencies. 17.1 As of year-end, the consolidated balances of four payable accounts amounted to P1,391,825,995.03. Review and analysis of these accounts disclosed several errors and deficiencies as discussed in the succeeding pages. a) Undocumented and outstanding payables for over two years P80,477,638.77 The DENR-OSEC, LMB and three regions have payables totaling P80,477,638.77 as of year-end, as shown below.
Aging Office DENROSEC Region 1 Amount Accounts Less than 2 years Over 2 years P2,471,939.77 8,199,468.00 7,712,240.48 P15,253,383.23 Other Payables Due to Other NGAs Accounts Payable 1,870,292.49 10,035,309.77 30,301,699.75 P47,425,375.47 4,633,305.28 P33,052,263.30 7,712,240.48 15,253,383.23 1,870,292.49 10,035,309.77 30,301,699.75 4,633,305.28 P72,278,170.77 Undocumented Documented

P2,471,939.77 8,199,468.00 7,712,240.48 15,253,383.23 1,870,292.49

Accounts Payable

P2,471,939.77 P8,199,468.00

Region 5

LMB NCR Total

10,035,309.77 30,301,699.75 4,633,305.28 P80,477,638.77

P 8,199,468.00

These payables were either not substantiated with documentation or have been outstanding for over two years, or both. However, the said amounts were not yet reverted to the Government Equity account as 98

required under Section 98 of PD No. 1445 which requires the reversion to unappropriated surplus of any unliquidated balance of accounts payable which has been outstanding for two years or more and against which no actual claims, administrative or judicial contracts, has been filed or which is not covered by perfected contracts on record. The payables of P72,278,170.77 were not supported with the required documents such as the disbursement vouchers, delivery receipt, purchase orders and such other proofs of indebtedness. As such, their existence and validity are doubtful.

b) Errors and omissions P125,119,129.78

in

recording

payable

transactions

Errors and omissions in recording transactions related to liability accounts were also noted as in the following instances:
Errors/Omissions Accounts Affected Accounts Payable Other Supplies Expenses Accounts Payable Amount Overstated 121,317.62 121,317.62 120, 064, 464. 97 Understated

Office

DENR-OSEC

Payment of payables was debited to Other Supplies Expense account instead of Accounts Payable. Payments of obligations for Fund 102 by the foreign lending institution, the World Bank, under the direct payment scheme was not recorded in the books due to failure to secure from DBM the Notice of Cash Availment Authority (NCAA) to support the recording of the liquidations of the obligations incurred. Liquidations were debited to expenses instead of account Due to Other NGAs. Payment of Payables was debited to Prior Years Adjustments instead of Accounts Payable. Retention fee recorded Accounts Payable instead Guaranty Deposits Payable as of

DENR-OSEC

Subsidy Income from National Government Due to Other NGAs Expenses Accounts Payable Prior Years Adjustments Accounts Payable Guaranty Deposits Payable 1,631,559.21 1,631,559.21 3,301,787.98

120, 064, 464. 97

LMB Region 2 PENRO Cagayan Region 5 PENRO Camarines Sur

3,301,787.98 1,317,201.86 1,317,201.86

99

In summary, the following accounts were affected:

Amount Overstated Understated P 124,804,772.43 1,631,559.21 P 1,317,201.86 P 126,436,331.64 P 1,317,201.86 P 125,119,129.78 P 1,752,876.83 P 3,301,787.98 120,064,464.97

Accounts Accounts Payable Due to Other NGAs Guaranty Deposits Payable Total Net Effect on Payable Accounts Other Accounts Affected Expenses Prior Years Adjustments Subsidy Income from National Government

c) Discrepancies in the balance of payables account per books and per confirmation P1,623,401.99 A difference of P1,623,401.99 between the balance of Due to Other NGAs account per books of NCR of P317,433.71 and per results of confirmation of P1,940,835.70 with NAMRIA was noted in audit thereby rendering the balance of that account unreliable as of yearend.

17.2 We recommended that the Accountants of: a. DENR - OSEC, Regions 1 and 5, LMB and NCR revert to Government Equity the undocumented payables and which have been outstanding for more than two years;

b. DENR OSEC, LMB and PENROs Cagayan and Camarines Sur prepare the necessary adjustments in the books for the errors and omissions in recording payables and other transactions; c. DENR OSEC request from DBM the issuance of the corresponding NCAA for Accounts Payable for the amount paid by the World Bank for Fund 102 under the direct payment scheme to liquidate the recorded obligations. Pending the receipt thereof, disclose in the Notes to Financial Statements the amount involved. Thereafter, request for NCAA upon receipt from the World Bank on payments made; and d. DENR NCR determine the causes of the discrepancy in the amount of the payable to NAMRIA and the account Due to Other NGAs and thereafter effect the necessary adjustments. 17.3 The following comments were submitted by the concerned offices: 100

Office DENR-OSEC

LMB Region 1 Regions 5 PENRO Camarines Sur NCR

Management Comment Adjustments were already made to revert the P917,314.12 outstanding and undocumented payables. The errors totaling P458,481.16 were already corrected. Management already received the said NCAA and adjustment was already made per JEV No. 2013-03-0406 dtd. March 31, 2013. Management agreed with the recommendation and had advised the Bookkeeper to make the necessary adjustments to take up the unrecorded liquidations. Management informed that the amount of P3,571,037.12 was already reverted as of March 31, 2013. The Accountant of PENRO Camarines Sur committed to make the necessary adjustments and henceforth, will record the transactions in accordance with the Standard Chart of Accounts. Management had already reverted the payables to ALT Court in the amount of P351,987.58 on March 31, 2013.

Procurement not in accordance with R.A. No. 9184 and its IRR 18. The provisions of R.A. No. 9184, the Government Procurement Reform Act, on the requirements of DENR-OSEC, eight regions and one PENRO in the procurement of goods and services and provisions for liquidated damages, warranty security and performance security, among other, were not complied with in the procurement of planting materials, office equipment, IT equipment and goods and services totaling at least 31,048,761.64 thus, defeating the purpose of transparency, competitiveness and accountability in the procurement process. 18.1 Review and verification of procurement documents and records for CY 2012 disclosed the following violations of RA No. 9184, the Government Procurement Reform Act, of DENR-OSEC, Regions 1, 2, 3, 7, 9, 11, 12, and 13:
Agency DENROSEC Deficiencies Catering services were procured from caterers who are not registered with the DTI, and without Business Permits from the concerned city. Commonly used supplies were not procured from PS-DBM. Amount P 6,945,597.86 Section Section 52.3 of IRR Provisions At least three (3) price quotations from bona fide suppliers shall be obtained. Effect This ultimately redounds to the disadvantage of the government, in general, in terms of uncollected Mayors fees, business and income taxes in particular. The agency missed the opportunity to avail of supplies at lower prices.

Region 1 Region 2PENRO Isabela Region 12

1,225,592.71

1,931,115.29

Section 53 (e) of IRRA

322,941.89

Purchases of goods from another agency of the Government, such as the Procurement Service of the DBM, which is tasked with a centralized procurement of commonly used goods for the Government in accordance with Letters of Instruction No. 755 and

101

Agency

Deficiencies

Amount

Section

Provisions EO No. 359, series of 1989. Each procuring entity shall establish in its head office a single BAC to undertake the functions specified in Section 12 of this IRR in order to facilitate professionalization and harmonization of procedures and standards. Where, in the interest of project sustainability or to achieve certain specific objectives, it is desirable in selected project components to call for participation of local communities in the delivery of services, the procuring entity shall propose the procedures, specifications, and contract packaging which are subject to the approval of the GPPB. The performance security shall be in an amount equal to a percentage of the total contract price. Surety bond callable upon demand issued by a surety or insurance company duly certified by the Insurance Commission as authorized to issue such security have a 30% amount of Performance Security. For the procurement of goods, in order to assure that manufacturing defects shall be corrected by the supplier, a warranty security shall be required from the contract awardee for a minimum period of three (3) months, in the case of Expendable Supplies, or a minimum period of one (1) year, in case of Non-

Effect

Region 2

Conduct of canvass and selection of suppliers were undertaken by the Human Resources Development instead of the Procurement Office and the BAC.

605,553.75

Section 11.1.1 of IRR

The HRD, because of its functions, could not efficiently undertake the harmonizing of the procedures and standards in procurement because these are appropriately the BACs functions. Casts doubt on the integrity of the contracts and the reasonableness of the contract price.

Region 3

PENROs resorted to another alternative mode of procurement which is Community Participation but their specifications, procedures and contract packages were not approved by the GPPB

Not indicated

Section 53.12 of IRR

Performance security posted by the contractors in the form of surety bond was only 1% of the total contract price which is short of the required 30%.

Not indicated

Section 39.2 of IRR

Performance security which is short of the required percentage could not address/ answer for any defects in case there is a default on the performance of the recipient POs with the terms and conditions of the contract/agreement. Management will have no hold on the supplies/contractors for any uncorrected discovered defects and third party liabilities because no amount was retained to answer for the said defects.

There was no provision for warranty security.

Not indicated

Section 62.1 of IRR

102

Agency

Deficiencies

Amount

Section

There was no provision for liquidated damages.

Not indicated

Section 68

Region 7

Region 7 Region 9 Region 11 Region 13 Region 11

The Regional Office did not declare as failure the bidding for the five months rental of I.T. and office equipment and awarded the contract split to the two non-responsive bidders who bid for the parts of the contract despite the non-adherence to prescribed bidding procedures. Did not conduct public bidding in procurement of operational needs.

2,330,000.00

Section 41

Provisions expendable Supplies, after acceptance by the procuring entity of the delivered supplies. All contracts executed in accordance with the Act and this IRR shall contain a provision on liquidated damages which shall be payable by the contractor in case of breach thereof. The Head of the Procuring Entity reserves the right to reject any and all kinds of bids, declare a failure of bidding, or not award the contract if the BAC found to have failed in following the prescribed bidding procedures.

Effect

Absence of the provision on liquidated damages will leave the CENRO/PENRO officials no hold on the contractor in case of breach of the contract. The non-compliance with the bidding procedures, in effect altered the rules in the bidding process which defeated the foundation of a fair and competitive public bidding.

1,039,460.45 1,905,175.81 700,000.00 643,320.00 1,399,069.63

Section 10

Requires that all procurement shall be done through competitive bidding except as provided for in Article XVI (Alternative Methods of Procurement) of the Act.

Lease of IT Equipment were made thru shopping instead of public bidding.

754,740.00

Section 46

Region 13

The amount awarded and paid to the supplier is over and above the Approved Budget for the Contract (ABC) posted in the PhilGEPS. The agency resorted to

925,544.25

Section 7

Lease of construction and office equipment, including computers, communication and information technology equipment are subject to the same public bidding and to the processes prescribed under this Act. All procurement should be within the approved budget of the procuring entity and should be meticulously and judiciously planned. Subject to the prior

Failure to extend equal opportunity to enable private parties to participate in the public bidding and deprive the agency of obtaining the most advantageous price that may be obtained from the market.

747,900.00

Section

The Project Procurement Management Plan was not followed thus, affected the budget of the agency for other operational requirements. Impedes in ascer-

103

Agency

Deficiencies Direct Contracting as their mode of procurement though none of the three conditions will qualify the agency to avail of direct contracting method.

Amount

Section 48.1

Procurement for the supply and delivery of quality planting materials was awarded to a supplier without undertaking the required prequalification to determine the suppliers capacity to bid.

9,572,750.00

Section 53

Provisions approval of the Head of Procuring Entity, and whenever justified by the conditions provided in this Act, the procuring entity may, in order to promote economy and efficiency, resort to any of the alternative methods of procurement provided in this Rule. In all instances, the procuring entity shall ensure that the most advantageous price for the Government is obtained. Provides that Negotiated Procurement is a method of procurement of goods, infrastructure projects and consulting services, whereby the procuring entity directly negotiates a contract with a technically, legally and financially capable supplier, contractor or consultant only in the following cases: 53.1 Two failed biddings.

Effect taining whether or not prices paid are reasonably advantageous and beneficial to the Agency.

Deprive the agency from obtaining the best price.

53.1.1 After conduct of the mandatory review of the terms, conditions, specifications and cost estimates, as prescribed in Section 35 of this IRR, the BAC shall revise and agree on the minimum technical specifications, and if necessary, adjust the ABC, subject to the required approvals. However, the ABC cannot be in-

104

Agency

Deficiencies

Amount

Section

Provisions creased by more than twenty percent (20%) of the ABC for the last failed bidding. 53.1.2 The BAC shall invite and engage in negotiations with a sufficient number of suppliers, contractors or consultants to ensure effective competition.

Effect

Total

P31,048,76 1.64

18.2 We recommended that the concerned officials of the General Services Division/Sections (GSD/GSSs) of DENR offices (i) strictly abide with the provisions of RA No. 9184 and its IRR to ensure that the government is at an advantage in all its procurements; (ii) conduct public bidding at all times and resort only to other modes of procurement in cases of failed bidding and emergency situations; and (iii) ensure that the correct amount of performance bond is collected and provisions for warranty and liquidated damages are incorporated in the contracts to ensure that the government is protected in cases of default of suppliers/contractors on their obligations. 18.3 We also recommended that the Management Division of the DENROSEC (i) review its processes/procedures adopted in the evaluation and selection of prospective caterers to avoid transacting with non-bonafide establishments; (ii) conduct a pre-qualification of prospective caterers and maintain a roster as basis to determine those qualified to transact business with the agency; and (iii) study the possibility of centralizing the acquisition of food/catering services at the Procurement Section of the GSD to get the optimum benefits from the procurement process. 18.4 We further recommended that the BAC of Region 11 handle all procurement activities, including catering services, in order to harmonize the procedures and standards in procurement. The selection on the method of procurement for catering services be covered with minutes of meetings and BAC resolution for proper accountability and transparency.

105

18.5 As mentioned earlier, the Management of DENR-OSEC informed that they have already drafted the Guidelines on the Procurement of food/Catering Service for in-house meeting, trainings and workshop. 18.6 Management of Region 11 issued Special Order No. 380 series of 2012 revoking the Special Order No. 104 series of 2004 and transferring the responsibility of procurement of food/catering and venue/accommodation services from the HRD Section to the BAC.

Gender and Development Fund 19. The requirements on the preparation of the GAD Plan and the provision of the five percent budget for GAD activities as required by Section 28 of the General Provisions of RA No. 10155 were not complied by a PENRO, an attached bureau and three regions. Moreover, the GAD Plan prepared by DENR-OSEC was only used for the purpose of the Focal Point System. Furthermore, the disbursements for GAD activities of DENR-Region 1 were not in accordance with the GAD Work and Financial Plan. 19.1 The General Provisions of RA No. 10155, the General Appropriations Act for FY 2012, requires the formulation of a GAD Plan within their concerned sectors or mandate and implement applicable provisions in the Convention on the Elimination of all Forms of Discrimination Against Women, the Beijing Platform for Action, the Millennium Development Goals (20002015), the Philippine Plan for Gender-Responsive Development (19952025), and the Framework Plan for Women. 19.2 Verification on the compliance of the DENR with the above provision of law disclosed that: a. DENR Region 3 - Formulated Gender and Development plans in accordance with RA No. 10155. b. DENR OSEC - The GAD Plan did not indicate the activities that are to be undertaken for those mainstreamed with other programs and projects. The Plan was for the use of the Focal Point/Secretariat only. c. Region 1 - Some disbursements were not in accordance with the GADWork and Financial Plan (WFP). d. PENRO Zamboanga Sibugay Province No GAD Plan was formulated. 106

19.3 Further, the audit revealed that the required allotment for GAD projects/activities of least five percent (5%) of the total budget was not complied with by the following offices:
Office Region 3 Region 6 Region 7 LMB Amount Total Budget Allotment for GAD P518,259,849.00 P 617,500.00 66,532,000.00 185,000.00 553,750,000.00 491,000.00 0.00 601,401.90 Percentage 0.119 0.278 1.77

19.4 It is noteworthy though that PAWB and Region 11 were able to accomplish their targets for GAD planned activities without necessarily spending in full their budgets as presented in the table.
Office PAWB Region 11 Budget P 2,218,000.00 P 1,500,000.00 GAD Actual Expenses P P 1,679,999.00 826,195.00 Percentage of Utilization 76.00% 55.08% Physical Accomplishments 100% 100%

19.5 Moreover, the following offices have mainstreamed their GAD activities and fully accomplished the same as planned through the following activities:
Office Region 2 GAD Activities Raising GADs awareness and building GAD related capabilities with the installation of policies, structures and systems that facilitate and institutionalize the pursuit of gender equality and womens empowerment. The Regional GAD Focal Point System has been religiously observing the celebration of womens month. Collection and maintenance of sex-disaggregated data of personnel, participants to trainings, clientele of seedlings under the Forest Management Sector and applicants for the titling of residential lands for the Land Management Service. Institutionalizing the program to the main agencys plans, programs, projects and activities through (a) releases to the Community Based Farm Management (CBFM) where the NGO/POs could benefit from the planting of trees and fruits under their selected areas for development; and (b) active participation in WINGS organization activities by giving seminars on Implementing Rules and Regulations (IRR) of RA No. 9184.

Region 5

Region 10

19.6 We recommended that the Focal Point Person: a. DENR - OSEC (i) formulate an over-all framework plan and direction of the OSEC-GAD that incorporates all the envisioned GAD initiatives as well as the focused beneficiaries in consultation with the Budget Office and other concerned offices/divisions which would implement the mainstreamed activities; 107

b. c. d.

Region 1 ensure that disbursements are in accordance with the WFP; Region 9 Zamboanga, Sibugay Province formulate GAD Plan; and Regions 3, 6, 7 and LMB work out for the increase of their GAD budget to comply with the five percent requirement of RA No. 10155.

19.7 DENR-OSEC Management commented that the DENR GAD Focal Point System has a Strategic Plan for CYs 2005-2010. However, since it was prepared in CY 2005, there is a need to revisit such document and update it taking into consideration new developments on gender and development. Programs for Senior Citizens and Differently-abled Persons 20. The DENR-OSEC did not prepare a Work and Financial Plan for CY 2012 for senior citizens and differently-abled persons while LMB did not formulate plans and programs for these sectors of society. Further, the budget for programs of senior citizens and differently-abled persons of DENR-OSEC and LMB were inadequate. For DENR-Region 3 and its PENROs, no specific programs were formulated for these persons. These deficiencies were not in accordance with Section 29 of RA No. 10155. 20.1 Section 29 of the CY 2012 General Appropriations Act provides that All agencies of the government shall formulate plans, programs and projects intended to address the concerns of senior citizens and differently-abled person and integrate the same in their regular activities which shall be at least one percent (1%) of their budget. 20.2 Verification disclosed that the following:
Office DENR-OSEC Amount P 300,000.00 Deficiency No approved Work and Financial Plan (WFP) for the implementation of the programs/activities intended to benefit the senior citizens and differently-abled persons. In lieu of the WFP, the PWD and Senior Citizen Desk Officer furnished the audit team with the proposed budget of P863,000.00 for CY 2012. However, only P300,000.00 was budgeted for programs for senior citizens and differentlyabled persons. There were however, no planned activities in the WFP. The budget was concentrated for expenses related to activities for differently-abled persons thus, neglecting the senior citizens welfare. No plans/programs and guidelines to conduct/implement

LMB

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Office

Amount 152,000.00

Deficiency senior citizens and differently-abled persons related activities. The allotted amount for programs for the senior citizens and differently-abled persons was not utilized. No specific programs/guidelines to implement activities to benefit the senior citizens and differently abled persons. DENR Regional Office had however, installed a ramp to provide easy mobility for disabled persons.

Region 3 and the PENROs

200,000.00

20.3 We recommended that the Focal Person: a. DENR-OSEC (i) prepare a comprehensive Work and Financial Plan for the senior citizens and differently-abled persons; and (ii) include in its programs the senior citizens;

b. LMB (i) formulate plans and programs for these sectors; and (ii) comply with the required amount of allotment for senior citizens and differently-abled persons; and c. DENR-Region 3 and its PENROs formulate specific programs for these sectors.

Compliance to Tax Laws 21. PAWB and nine DENR regions had complied with Section 58 of Revenue Regulation No. 2-98 dated April 17, 1998 on the withholding and remittances of taxes. On the other hand, as of year-end, DENR-OSEC, an attached bureau and two regions have unremitted taxes of P14,494,675.81 attributed to non-remittance in full and on time of the taxes withheld which is not in consonance with the said Revenue regulation. 21.1 Section 58 (A.2) of Revenue Regulation No. 2-98 dated April 17, 1998 requires the remittance of taxes withheld, whether creditable or final, within ten days after the end of each month except for taxes withheld for December which shall be filed on or before January 25 of the following year. 21.2 Relative to the regulation, the following offices were reported as compliant thereto:
Office CAR Region 3 Region 6 Region 10 Amount of Taxes Remitted P 23,300,422.96 58,323,447.71 2,030,355.95 17,817,023.93

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Office Region 11

Amount of Taxes Remitted 26,307,060.08

21.3 The PAWB, Regions 1, 2, 7 and 13 also reported compliance with the tax regulations but did not provide details on the amount of taxes withheld and remitted in CY 2012. 21.4 As of year-end, the taxes withheld by the DENR-OSEC, LMB, NCR and Region 9 amounting to P14,494,675.81 were not yet remitted to the BIR. Details are shown on the next page.
Amount Withheld Remitted P 68,236,836.96 P 59,012,616.73 6,997,423.27 11,164,202.70 14,190,247.87 P100,588,710.80 4,963,209.44 10,780,177.30 11,338,031.52 P86,094,034.99 Unremitted Balance P 9,224,220.23 2,034,213.83 384,025.40 2,852,216.35 P14,494,675.81

Office DENROSEC LMB NCR Region 9 Totals

21.5 The significant amount of unremitted taxes was attributed to the practice of these agencies of not remitting the collected amounts in full and on time. Further, the DENR-NCR does not maintain subsidiary ledgers to monitor the taxes withheld and the amount remitted. 21.6 We commended the Management of PAWB and the nine Regions for complying with the provisions of tax laws. 21.7 We recommended that DENROSEC, LMB, NCR and Region 9 (i) remit immediately all unremitted taxes; and (ii) henceforth, remit in full and on time all taxes withheld. 21.8 The Management of DENR-OSEC informed that the balance of P9,224,220.23 as of December 31, 2012 was remitted on January 15, 2013 thru various TRAs and that pending the development of a Document Tracking and Remittance System, the Accounting Division is committed to observe the recommendation. 21.9 The LMB management stated that reconciliation/verification of the account is on-going and immediate remittance of the outstanding balance will follow. Settlement of Suspensions, Disallowances and Charges

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22.

The audit suspensions, disallowances and charges of DENR-OSEC, two attached bureaus and eight Regions amounting to P49,609,320.92, P37,511,245.30 and P40,760,431.08, respectively, net of the amount of P29,198,866.58 which are under appeal, remained unsettled as of year-end contrary to COA Circular No. 2009-006 dated September 15, 2009, the Rules and Regulations on the Settlement of Accounts. 22.1 As of year-end, the balances of suspensions, disallowances and charges of the following agencies were:
Office DENR-OSEC LMB PAWB CAR Region 1 Region 3 Region 5 Region 7 Region 9 Region 10 Region 13 Total Suspensions P7,091,062.24 252,273.00 1,046,461.49 3,310,194.66 8,960.00 26,053,432.42 10,244,219.80 1,602,717.31 P49,609,320.92 Disallowances P17,093,543.87 8,864,316.82 144,900.00 6,511,433.68 409,653.65 1,454,702.73 303,517.91 45,037.84 1,444,215.37 23,200.00 1,216,723.43 P37,511,245.30 Charges P40,760,431.08 Total P24,184,606.11 49,624,747.90 144,900.00 6,763,706.68 1,456,115.14 4,764,897.39 303,517.91 53,997.84 27,497,647.79 10,267,419.80 2,819,440.74 P127,880,997.30

P40,760,431.08

22.2 Of the total disallowances, the amount of P3,363,277.52 were already final and executory, broken down as follows:
Office LMB Region 7 Region 8 Region 12 Total Amount P 2,400.00 655,320.00 2,573,466.68 132,090.24 P3,363,277.52

22.3 The P40,760,431.08 charges issued by the audit team assigned at the LMB which is over two years was not yet settled as of December 31, 2012. 22.4 Further, of the total unsettled disallowances of P37,511,245.30, the amount of P29,198,866.58 were appealed by the following offices:
Office OSEC LMB FMB Region 5 Region 8 Total Amount P16,992,014.72 7,424,758.39 4,407,725.67 59,367.80 315,000.00 P29,198,866.58

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22.5 Of the P16,992,014.72 disallowances under appeal by DENR-OSEC, P325,485.68 were already settled by the persons liable who retired from the service. 22.6 Settlements during the year amounted to P22,262,673.10, as summarized below.
Office OSEC LMB PAWB Region 3 Region 7 Region 10 Region 13 Total NS P 2,350,000.00 3,656,749.31 10,855.00 10,403,668.65 4,217,773.01 P20,639,045.97 ND P 338,985.68 970,900.00 183,363.80 1,600.00 3,000.00 72,903.00 38,874.65 P1,609,627.13 Charges P Total 338,985.68 3,320,900.00 183,363.80 3,658,349.31 13,855.00 10,476,571.65 4,270,647.66 P22,262,673.10

P14,000.00 P14,000.00

22.7 COA Circular No 2009-006 dated September 15, 2009, the Rules and Regulations on the Settlement of Accounts, provides however, the following on settlement of accountabilities: a. Section 7.1 The head of the agency, among others, shall ensure that the settlement of disallowances and charges is made within the prescribed period. Section 9.4 - A suspension should be settled within ninety (90) calendar days from receipt of the Notice of Suspension, otherwise the transaction covered by it shall be disallowed /charged after the auditor shall have satisfied himself that such action is appropriate. Sections 10.4 and 11.4 the settlement of disallowances and charges is made within six months from receipt of the Notice of Disallowances or Charges.

b.

c.

22.8 We recommended that the Management, of DENR-OSEC, LMB, PAWB and regions, through their Accountants, (i) send demand letters to all persons responsible for suspensions and persons liable for disallowances and charges to settle in full and immediately their accountabilities pursuant to COA Circular No. 2009-006; and (ii) in case of failure to settle the same, resort to other legal means to enforce settlement thereof. 22.9 The following were the comments of Management:
Office DENR-OSEC CAR Management Comment Management informed that for CY 2013, total settlements amounted to P96,333.34. Management agreed with the recommendation and assured that the

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Office Region 5

Management Comment settlement of disallowances will be continued thru payroll deductions. Management informed that refund is made thru salary deduction for persons liable for the disallowances who are still connected with the DENR. For those who are no longer in service, it will be difficult to collect the amount disallowed, but it will try to contact the persons or their families and inform them to refund.

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