PART II – OBSERVATIONS AND RECOMMENDATIONS

Development of a Small-Scale Whole Coconut Processing Facility Project

1.1 The Project is funded from the controversial Disbursement Acceleration
Program (DAP) and does not meet the criteria for DAP-funded projects.

The Development of a Small Scale Whole Coconut Processing Facility Project

(hereinafter referred to as the Project) was initially conceptualized as an Applied
Research and Development Program. Under the proposal, “the Bicol University will only
maintain the facility as a business enterprise solely for the purpose of undertaking the
conduct of research, training and further development of the technology. It will not in any
way compete with the farmers and the private sector, but will instead be a research and
training resource for small coconut farmers and the coconut industry.” The bulk of the
project cost will go to establishment, operations and management of the Whole Coconut
Processing Facility and will cover capital outlay (i.e. building and facilities, land
development, power supply and electrical works, water supply system and plumbing
works, and equipment) and factory working capital for its operation.

The initial project proposal was P45.5M composed of eight (8) components.
However, this was reduced to P38.8M with only three components (Annex A). The
program was projected as profitable, income-generating and self-liquidating and thus,
favorably recommended by the Secretary of Budget and Management to the President.

On August 16, 2013, Special Allotment Release Order No. B-13-01206

amounting to P38.8M was released pursuant to an Office of the President approval dated
August 2, 2013. This SARO was valid until December 31, 2013. A perusal of the
Memorandum of the Secretary of Budget and Management to the President dated July 1,
2013 revealed that the project was initially intended to be funded from “FY 2012 savings
carried over to FY 2013 or first quarter savings of the FY 2013 General Appropriations
Act.” However, based on a marginal note on the Memorandum from the Executive
Secretary to the Secretary of Budget and Management dated August 2, 2013, the
allotment was “charged to 2013 over-all savings” and therefore, from the controversial
Disbursement Acceleration Program.

The DAP is a stimulus package introduced in CY 2011 designed to fast-track

public spending. Thus, the Project which was “charged to 2013 over-all savings” is
covered by DAP. It (DAP) covers high-impact budgetary programs which will be
augmented out of savings implying the existence of a program whose appropriation was
found deficient. This is not the case in the instant Project which is, in fact a pioneering
project (pilot basis) which has not been previously funded under the General
Appropriations Act. In fact, it is claimed to be a “novel research and development
agenda” of the Bicol University. DAP-funded projects must meet the following
conditions: a) Fast-moving and quick-disbursing; b) Urgent or priority in terms of social
and economic development objectives; and c) Programs or projects performing well.

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Although the instant Project may be considered a “priority in terms of social and
economic development objectives” and may perhaps be considered as “fast-moving and
quick-disbursing,” it is definitely not a project which has been performing well (because
it is on a pilot basis). In addition, considering that there is no existing program and
appropriation for the Project, there is nothing to augment and therefore, beyond the intent
of the DAP.

On July 1, 2014, the DAP controversy has already been finally settled by the
Supreme Court which declared unconstitutional certain acts and practices under the DAP
such as:

a. The withdrawal of unobligated allotments from the implementing agencies and the
declaration of the withdrawn unobligated allotments and unreleased appropriations
as savings prior to the end of the fiscal year and without complying with the statutory
definition of savings contained in the General Appropriations Acts (GAA);
b. The cross-border transfer of the savings of the Executive to augment the
appropriations of other offices outside the Executive; and
c. The funding of projects, activities and programs that were not covered by any
appropriation in the GAA.

We recommended that Management justify the inclusion of the Project among

those funded by the DAP.

Management explained during the exit conference on August 4, 2012 that the
Department of Budget and Management (DBM), in response to its query, has issued an
opinion that the funding for the Project was not DAP notwithstanding the fact that it was
taken from FY 2012 and 2013 savings because not all savings were included in the
Disbursement Acceleration Fund. In addition, Management also explained that, even if
the fund source was DAP, it was not privy to the criteria for DAP funding. The Project
was not in the Detailed List of DAP Projects posted in the DBM website.

The Audit Team noted Management’s reply and agreed that the determination
whether a particular fund is sourced from DAP or not is a matter for the DBM to explain.

1.2 The Bids and Awards Committee (BAC) did not strictly follow the bidding
process and timelines prescribed by the New Procurement Law. Bidding
documents were haphazardly prepared.

The whole bidding process for procurement of goods in the New Procurement
Law (R.A. No. 9184) involves a nine (9) step process from the conduct of a pre-
procurement conference up to the issuance of a Notice to Proceed. Each step or stage has
its own timeline (Annex B). Examination of various documents pertaining to the project
revealed the chronology of events shown in Annex C. The following paragraphs
discussed our comments for each event vis a vis the prescribed process and the
requirements under the New Procurement Law.

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A. Posting of the Invitation to Bid in PhilGEPS was done on December 6, 2013
while advertisement in a newspaper of general nationwide circulation (i.e. Philippine
Daily Inquirer) was made on December 7, 2013 even before the Pre-procurement
Conference was conducted on December 12, 2013. Ordinarily, the Pre-procurement
conference is conducted first before any advertisement and posting of the
procurement opportunity is made because the purpose of the Pre-procurement
Conference is to determine the procuring entity’s readiness for the procurement to be
bidded.

A perusal of the Minutes of the Pre-procurement Conference showed that it

focused on the following:

a. Components 2 and 3 of the project;

b. What will be construed as a “similar project” in relation to the required
largest single similar completed project;
c. The division of the Approved Budget for the Contract (ABC) by
components;
d. The identification of deliverables by component; and the specific delivery
periods for each component;
e. The definition of equipment in the Terms of Reference (TOR);
f. The conduct of pre- and post-performance test of the system and expected
results;
g. Delivery schedule;
h. Duration of service; and
i. Applicability of granting advance payments.

This indicates haste in the advertisement and posting even before the above-
mentioned matters have not yet been fully threshed out.

B. Per Invitation to Bid as advertised in a newspaper, the Pre-Bid Conference was

scheduled on December 13, 2013. However, the Minutes of Pre-Bid Conference
examined by the audit team was dated December 26, 2013 (date of the bid opening).
The Audit Team believes that this was an inadvertence which the Bids and Awards
Committee (BAC) should however, take note of.

C. Inconsistencies were noted between the Minutes of Bid Opening and the Abstract
of Bids. The Minutes of Bid Opening on December 26, 2013 showed that the losing
bidder (Pitad, Inc.) should have been disqualified due to improper sealing and
marking of bids but due to the importance of the project and in the interest of
competitiveness, Pitad’s bid was considered. However, the Abstract of Bids showed
that Pitad was disqualified due to improper sealing and marking. Moreover, the
Minutes of Bid Opening also showed that the largest completed contract of Pitad
amounting to P1,200,000.00 was considered insufficient by the BAC compared to
the P19.4 M required (50% of ABC). However, the Abstract of Bids showed that
Pitad did not submit a certificate (sic, statement) of completed projects. It is unlikely

26
 that Pitad’s largest completed contract amounting to P1,200,000.00 was determined
without a submitted statement of completed contracts.

D. The Post-Qualification Evaluation Report was only for one of the potential JV
partners (Numerical Gate and Construction Supply) and not for the Joint Venture
between Coco Technologies Corporation and Numerical Gate and Construction
Supply as a separate legal entity although the JVA was already signed and notarized
at that time (Joint Venture Agreement was notarized on December 20, 2013 before
bid opening, evaluation, ranking and post-qualification).

E. The BAC Resolution recommending award to the Joint Venture Coco

Technologies Corporation-Numerical Gate and Construction Supply as the Single
Calculated Responsive Bidder was made on January 13, 2014 but the Notice of
Award (NOA) was issued only on March 6, 2014. The longest time allowed for the
issuance of the NOA under the New Procurement Law (Annex B) is only seven (7)
calendar days. However, it took 52 calendar days to issue the NOA for the Project.

On March 5, 2014, the draft Contract was presented to the BU Board of Regents
which approved the same as attested by the Board Secretary in his Certification issued on
March 12, 2014.

No Management reply was received for Items A to D, above. With regard to Item
E, Management explained that the delay in the issuance of the NOA was due to the
complexity of the Project.

In the future, the Bids and Awards Committee (BAC) strictly follow the prescribed
bidding process and comply with the timelines prescribed by the New Procurement Law.
It should exercise care in the preparation of bidding documents.

1.3 The competitiveness of the bidding process was stifled by an undue advantage to
one of the bidders contrary to Section 3 (b) of the New Procurement Law and
the existence of a conflict of interest in one of the Joint Venture partners
contrary to Section II, A, 4.1 (d) of the Instruction to Bidders.

Section 3 of the New Procurement Law provides, as one of the governing

principles the following:

“(b) Competitiveness by extending equal opportunity to enable private

contracting parties who are eligible and qualified to participate in public
bidding.”

Based on the Memorandum of the Secretary of Budget and Management to the

President dated July 1. 2013, it was gleaned that the real project proponent is a certain Dr.
Justino Arboleda who is reportedly an awardee “for his coco by-products inventions.”
The winning bidder is a Joint Venture between Coco Technologies Corporation and

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Numerical Gate and Construction Supply. Dr. Justino Arboleda (the proponent) is the
President of Coco Technologies Corporation.

Although the Project was publicly bid, whatever semblance of competition in the
bidding process that arose from the advertisement of the Invitation to Bid in a newspaper
of general nationwide circulation and posting of the same in the PhilGEPS, was stifled
by the fact that the Joint Venture between Coco Technologies Corporation-Numerical
Gate and Construction Supply had the added advantage of being privy to the details of
the Project, through Dr. Justino Arboleda. Such advantage defeats purpose of the “equal
opportunity” requirement in competitive public bidding.

Moreover, Section II, A, 4.1 (d) of the Instruction to Bidders provides:

“4. Conflict of Interest

4.1 All Bidders found to have conflicting interests shall be disqualified to

participate in the procurement at hand, without prejudice to the imposition
of appropriate administrative, civil, and criminal sanctions. A Bidder may
be considered to have conflicting interests with another Bidder in any of
the events described in paragraphs (a) through (c) below and a general
conflict of interest (underscoring supplied) in any of the circumstances set
out in paragraphs (d) through (f) below:

(a) xxxxx;
(b) xxxxx;
(c) xxxxx;
(d) A Bidder has a relationship, directly or through third parties, that
puts them in a position to have access to information about or
influence on the bid of another Bidder or influence the decisions of
the Procuring Entity regarding this bidding process. (underscoring
supplied) This will include a firm or an organization who lends, or
temporarily seconds, its personnel to firms or organizations which
are engaged in consulting services for the preparation related to
procurement for or implementation of the project if the personnel
would be involved in any capacity on the same project;
(e) xxxx; or
(f) A Bidder who participated as a consultant in the preparation of the
design or technical specifications of the Goods and related services
that are the subject of the bid.” (underscoring supplied)

As the real project proponent, Dr. Justino Arboleda, is covered by the above-
mentioned provision on general conflict of interest. In fact, on December 29, 2013, the
BAC received a Motion for Reconsideration filed by the losing bidder (Pitad, Inc.)
raising two (2) issues, to wit:

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 a. Conflict of Interest of Dr. Justino Arboleda as owner of Coco Technologies and
allegedly because he is “known in the industry and within the Bicol
University to be the consultant of the project.”
b. The appropriateness of his disqualification on the basis of track record (e.g.
below 50% of the ABC).

On December 30, 2013, the BAC issued a Resolution denying Pitad’s request for
reconsideration solely on the basis of lack of merit of the 2nd issue raised without tackling
the issue on conflict of interest for being “immaterial and irrelevant to the issue of its
disqualification.” The Audit Team however believes that the conflict of interest issue,
though not relevant to Pitad’s disqualification, is a valid issue against the winning
bidder’s qualification which Pitad can rightfully raise under Section 55.1, Revised IRR,
which provides that “decisions of the BAC at any stage of the procurement process may
be questioned by filing a request for reconsideration within three (3) calendar days upon
receipt of written notice or upon verbal notification.” Such provision does not limit
issues to be raised in the request for reconsideration to the grounds for the requestor’s
disqualification but allows a bidder to raise issues pertaining to a BAC’s decision
qualifying other/opposing bidders. Thus, the conflict of interest issue should have
disposed of clearly on the merits and not in an evasive manner especially considering the
importance of the Project involved.

Management informed the Audit Team that in response to the above-mentioned

audit observations, the bidding was declared a failure. It promised to abide with the audit
recommendations. Management also informed the Audit Team of the re-bidding of the
project and its status as of June 3, 2014 and informed the Audit Team that it sought the
guidance of the Office of the Solicitor General (OSG) as to the definition of conflict of
interest and is still awaiting the OSG’s reply.

We recommended that, in the future, the Bids and Awards Committee avoid
situations that would cast doubts on the integrity of the bidding process. Possible conflict
of interest in participating bidders and matters that would defeat fair competition among
bidders be carefully evaluated and considered before awarding a contract.

Bicol University Regional Center for Food Safety and Quality Assurance (Phase I
and II)

The Bicol University (BU) has two allied programs on Food Safety and Quality
Assurance, as follows:

Budget Item Amount

(in millions)
A Bicol University Higher Education Regional Center for Food
Safety and Quality Assurance
a. Construction of the Center (Phase I) P12.000
b. Procurement of Initial Laboratory Equipment 5.000
c. Construction of the Center (Phase II) 18.335

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 Budget Item Amount
(in millions)
B Research Program for Sustainable Regional Food Safety and
Quality Assurance for Potential Bicol Exportable Products 17.000
Total P52.335

The “Bicol University Higher Education Regional Center for Food Safety and
Quality Assurance” is funded partly from the controversial Disbursement Acceleration
Program (DAP) and the CY 2013 General Appropriations. The initial funding which was
coursed through the Commission on Higher Education (CHED) amounting P17 million
consisted of three components, namely:

a. The construction of the Research and Development Laboratory Center;

b. Procurement and establishment of laboratory facilities for –
i. Water Quality Analysis Laboratory;
ii. Soil Quality Analysis Laboratory;
iii. Microbiology Laboratory;
iv. Food Analysis Laboratory;
v. Packaging and Design Testing Laboratory; and
c. Provision of hands-on laboratory services to students and researchers and support
services to local food industry to comply with domestic and international food
safety standards.

The Construction of the Center, Phase II was, however, funded from the CY 2013
General Appropriations through ABM No. ROV13-0002067 amounting to P18.335
million.

The research program for “Sustainable Regional Food Safety and Quality
Assurance for Potential Bicol Exportable Products” is also funded from the DAP in the
amount of P17 million thru the CHED’s DAP allocation for Research Development
Extension.

The DAP-funded projects whose funding was coursed through CHED are covered
by CHED Memorandum No. 9, “Guidelines on the Grant and Allocation of the
Disbursement Acceleration Fund for State Universities and Colleges in Support of the
Reform Agenda for Public Higher Education” issued by CHED for the purpose. The
following paragraphs discussed our audit observations for each project.

Construction of Center - Phase I (P12 Million)

2.1 The Project did not meet the criteria for DAP-funded projects and did not
comply with Section 37.1.6 of the Implementing Rules and Regulations (IRR) of
the New Procurement Law, certain provisions of the Bicol University-
Commission on Higher Education (BU-CHED) Memorandum of Agreement,
and the Contract with the building contractor. Completion of the Project has
been long-delayed and yet the contract has neither been rescinded nor accrued

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liquidated damages amounting to P107,302.37 as of December 31, 2013 been
imposed.

The P12 million funding for this Project was received as early as October
2012. Based on the Bill of Materials and Detailed Cost Estimates, the P12 million
was allocated for the following:

Particulars Amount
(in millions)
Approved Budget for the Contract P11.580
Project Management Cost 0.420
Total Project Cost P12.000

The basic criteria for the evaluation of this Project are:

a. DAP Guideline No. 1.0 which was attached as Annex A to CHED Memorandum
No. 9;
b. The BU-CHED Memorandum of Agreement (MOA) executed on August 16,
2012; and
c. The Contract dated January 25, 2013 between the BU and the building
contractor amounting to P11,535,445.84.

DAP Guideline No. 1.0 provides for the guidelines in the implementation of the
“Infrastructure and Facilities Upgrading” component under the “Institutional
Capacity Building Programs of SUCs and Colleges.”

As already mentioned, the DAP is a stimulus package introduced in CY 2011

designed to fast-track public spending. It (DAP) covers high-impact budgetary
programs which will be augmented out of savings implying the existence of a
program whose appropriation was found deficient. This is also not the case in the
instant Project since it is an entirely new one. DAP-funded projects must meet the
following conditions: a) Fast-moving and quick-disbursing; b) Urgent or priority in
terms of social and economic development objectives; and c) Programs or projects
performing well. Again, although the instant Project may be considered a “priority
in terms of social and economic development objectives,” it is definitely not a
project which has been performing well because it is a new one. In addition,
considering that there is no existing program and appropriation for the Project, there
is nothing to augment and therefore, beyond the intent of the DAP.

As previously mentioned, the DAP controversy has already been finally

settled by the Supreme Court on July 1, 2014 which declared unconstitutional certain
acts and practices under the DAP.

Because fast-tracking of public spending is the rationale of the DAP, Item

VIII (3) of DAP Guideline No. 1.0 provides December 2012 to December 2013 as
the timeline for the turn-over of completed projects which must be “strictly

31
complied.” However, the MOA between BU and CHED provides for an earlier and
more agency-specific project implementation period up to May 31, 2013. A perusal
of the project documents (i.e. contract, Notice to Proceed, etc.) showed that the
initial target completion date was July 27, 2013 based on a 180 day contract period.
This initial target completion date is already beyond the May 31, 2013 deadline set in
the MOA. Various approved time extensions due to unfavorable weather conditions
and a variation order resulted in a revised contract period of 270 calendar days and
further extended the target completion date to October 29, 2013, which is 5 months
beyond the MOA deadline. Annex D shows that as of December 31, 2013, the
project remained unfinished, with only 95.2% accomplishment based on the last
progress payment on November 29, 2013. As of December 31, 2013, the completion
of Phase I has been 63 days delayed. Moreover, as of June 6, 2014 (the date of the
Audit Team’s ocular inspection), the project remained unfinished and was already
220 days delayed. Such delays do not live up to the “fast-moving and quick-
disbursing” and “urgent or priority” criteria of DAP-funded projects.

Item 5 of the Contract provides for the imposition of liquidated damages of

1/10 of 1% for every day of delay on the cost of the unperformed portion. The
amount of P107,302.37 accrued liquidated damages as of December 31, 2013
(Annex D) has not yet been imposed on the contractor. It must also be noted that
under Item 7, Annex E – Contract Implementation Guidelines for Infrastructure
Projects, Revised Implementing Rules and Regulations of the New Procurement Law
(R.A. No. 9184), the procuring entity is not precluded from imposing liquidated
damages even if the project is already 95% completed.

Item nos. 6 and 7 of the Contract also allows BU to rescind the contract,
forfeit the performance security, takeover the prosecution of the contract or award to
another qualified contractor in case the delay in project completion exceeds 10% of
the allowed time (including approved time extensions) and to blacklist the contractor
for violation of contract provisions. The 220-day delay in project completion as of
June 6, 2014 is 81% of the revised contract period of 270 days and therefore justifies
BU’s invoking Items 6 and 7 of the contract. Unfortunately, instead of sanctioning
the Contractor for violating the terms of the contract, the Contractor was also
awarded the contract for the construction of the Phase II of the Project on September
16, 2013. This award was made before the October 29, 2013 extended target
completion date for Phase I. Notwithstanding the unfinished portions of Phase I, the
Audit Team noted that the premises are now occupied by the Research and
Development Center (RDC), indicating a partial turn-over of the project to the end-
user.

Section 2.9 of the BU-CHED MOA also requires the grantee to faithfully
observe the provisions of R.A. No. 9184 and its IRR for the purpose of propriety,
transparency and accountability. However, the Audit Team noted that the Notice of
Award (NOA) was not posted in the Philippine Government Electronic Procurement
System (PhilGEPS) contrary to Section 37.1.6, R. A. No. 9184, as reiterated in
GPPB Circular No. 1-2005.

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 Moreover, Bicol University did not comply with certain provisions of DAP
Guideline No. 1.0 as follows:

a. Item VI (C) (3) of the Guideline requires the SUC-grantee to create a Project
Implementing Unit (PIU) to oversee the project implementation and submit the
necessary reports. No such PIU was formally created. However, project
documents examined show that project implementation is under the Vice-
President for Administration who also has control and supervision of the
Construction Section of the Physical Plant Development and Maintenance Office
(PPDMO).
b. Item VI (C) (4) also requires the SUC-grantee to create a Construction
Management Team for project costing at least P12 million. Although the
construction of Phase I costs P12 million, no such Construction Management
Team was formally created. However, project documents examined show that
actual construction works is being supervised by the Head of the Construction
Section, PPDMO.

We also noted that the project implementation period indicated in the MOA
(July 1, 2012 to May 31, 2013 ) preceded the date of MOA signing on August 16,
2012 indicating lack of due care in the preparation of such document.

Lastly, although Items 2.5 and 2.6 of the MOA require the submission of an
accomplishment/liquidation report within 60 days from completion, no such
liquidation report for the P12M has yet been submitted because Phase I is still
unfinished, though beyond the set deadline. Incidentally, it is worth mentioning that
the Executive Director of CHED, in his letter dated May 30, 2014, has sought the
assistance of SUC Auditors to require the concerned SUCs to submit the verified
liquidation reports and refund unutilized funds in accordance with their respective
MOAs with the CHED and COA Circular No. 94-013 (Rules and Regulation on the
Grant, Utilization and Liquidation of Funds transferred to Implementing Agencies).

We recommended that:

a. Management justify the Project’s inclusion among those funded by the DAP; the
non-creation of Project Implementing Unit and Construction Management Team;
and the delayed completion of the project beyond the MOA deadline and the
contract target completion date.
b. Management exert due care in the preparation of contracts and/or MOAs in the
future.
c. Management impose liquidated damages on the contractor and compel the full
completion of the project.
d. The Bids and Awards Committee (BAC) justify the non-posting of the NOA in the
PhilGEPS.

With regard to recommendation (a), above, Management explained that:

33
 i. It was not privy to the nature and conditions of the fund source and merely relied
on the CHED Guidelines for the Project.
ii. The BU has an existing institutional unit called the Physical Development
Management Office (PDMO) which is tasked to undertake infrastructure
projects of the University which is the reason why the Project Implementing Unit
and Construction Management Team was no longer created.
iii. The delayed completion of the Project was due to several revisions in the
building design in order to suit general and specific requirements of a high-end
laboratory using complex equipment. Compliance with certain laboratory
standards had to be discussed between the researchers/end-users and the project
engineers/architects. Management provided the Audit Team with a Revised
Project Implementation Timelines and assured that it has exerted due diligence
in the monitoring and supervision of the Project.

Management noted recommendation (b), above, but did not make any
comment/reply.

With regard to recommendation (c), above, Management informed the Audit

Team that the contractor was informed about the imposition of liquidated damages
even before receipt of the Audit Observations Memorandum. However, actual
imposition of the liquidated damages could only be done at the time of processing of
payment based on the actual billing received from the contractor. The contractor was
compelled to complete Phase II by August 2014 based on the Revised Project
Implementation Timelines while Phase I has already been completed, except for a
few punch lists.

With regard to recommendation (d), above, Management informed the Audit

Team that the NOA was posted on February 4, 2014 but whatever delays in posting
were due to system problems of the PhilGEPS.

Management also informed the Audit Team of the Financial and Physical
Status of the Project as of July 8, 2014 supported with pictures of the constructed
buildings (Phases I and II).

Procurement of Initial laboratory Equipment (P 5 Million)

2.2 The procurement of laboratory equipment was made beyond the deadline set in
the BU-CHED MOA. This was further aggravated by the non-installation of the
equipment delivered due to the delayed completion of the Bicol University
Higher Education Regional Center for Food Safety and Quality Assurance,
Phase I.

The P5 million funding for the procurement of initial laboratory equipment

was received as early as October 2012, together with the P12 million funding for the
construction of Phase I. It is governed by the same DAP Guideline No. 1.0 and by

34
the same BU-CHED MOA dated August 16, 2012 with a project implementation
period up to May 31, 2013.

Examination of various procurement documents showed that the Purchase

Request (PR No. RDC 1129) for 5 sets of various laboratory equipment amounting
to P4.450 million was immediately issued on November 12, 2012 or a month after
receipt of the funds. However, we noted that the Notice of Award amounting to
P4,390,000.00 was issued only in August 2013 and the Contract was signed and the
Notice to Proceed issued in September 2013, or approximately 10 months after the
requisition was made. This is far beyond the May 31, 2013 project implementation
deadline set in the MOA. It is also more than the latest allowable time of 124
calendar days for procurement of goods in Annex C, Revised IRR of the New
Procurement Law.

As of the date of ocular inspection by the Audit Team on June 6, 2014, these
procured equipment were already delivered and stored at the premises of the Project
but are not yet installed because the construction works on Phase I have not yet been
completed. According to the Research and Development Center Director, the
uninstalled equipment necessitated additional security measures to protect them from
theft. In addition, the unfinished portion of Phase I also poses unnecessary risk to the
stored equipment in case of inclement weather.

The delivered equipment, however, has not yet been paid because the
contract includes user training which cannot be done if the delivered equipment are
uninstalled. Specifically, Item No. 10 of the contract provides that the supplier will
shoulder cost of training of two BU personnel (operators) in Singapore as well as 3-
day on-site local training for all users. The failure to install the delivered equipment
and the consequent failure to conduct on-site training for users is due to the delayed
completion of the Project.

The Audit Team also noted Item II of the BU-CHED MOA provides that the
DPWH reserves the right to ownership over the purchased equipment and facilities
subject of the grant until full liquidation by the grantee. However, inquiry with Dr.
Arnulfo Mascariἥas, Director, BU Research and Development Center, disclosed that
DPWH was not involved in the project because the P17 million (P12 million for the
laboratory building and the P5 million for procurement of initial laboratory
equipment), was directly released by CHED to BU. This indicates poor review of the
MOA before this was signed.

We recommended that:

a. The Bids and Awards Committee facilitate the procurement of goods in

accordance with the timelines set in Annex C, IRR of the New Procurement Law.
b. Management carefully review specific provisions of MOAs before these are
signed.
c. Management compel the contractor to hasten the full completion of Phase I.

35
 Management justified that the delay in the procurement of the initial
laboratory equipment was due to the revisions in the specifications in order to fit the
requirements of the different research projects. Management provided the Audit
Team with the revised timelines for this particular transaction based on the BAC
records showing the award date as August 19, 2014.

Construction of Center - Phase II (GAA-funded)

2.3 The bidding for the Project (Phase II) was delayed considering that this was
funded out of general appropriations for CY 2013. This was further aggravated
by the delayed completion of the Project beyond the target completion date in
the contract. The grant of mobilization fee amounting to P2,737,764.48 to the
contractor was not necessary.

Unlike Phase I, this project was funded from the CY 2013 General
Appropriations through ABM No. ROV13-0002067 dated January 4, 2013
amounting to P18.335 million. The Invitation to Bid was published/posted in August
2013 and the contract amounting to P18,251,763.21 was awarded in September
2013. This award was made before the October 29, 2013 revised target completion
date of Phase I. The target completion date of Phase II is May 2, 2014 based on the
210 calendar day contract period from date of receipt of the Notice to Proceed (NTP)
on October 4, 2013.

Annex E shows that on November 20, 2013, the contractor was granted 15%
mobilization fee amounting to P2,737,764.48 and on November 29, 2013, a partial
payment of P7,464,971.15 was made for 40.9% accomplishment.

On the basis of the above-mentioned data, we observed the following:

1. The start of the bidding process in August 2013 was very late considering
that the project was funded from the regular capital outlay appropriation.
2. The payment of the 15% mobilization fee amounting to P2,737,764.48
was not necessary because the contractor was also the contractor of Phase
I. The purpose the mobilization fee is to enable the contractor to mobilize
or bring his equipment and workers to the project site. Considering that
Phase I was still unfinished as of November 20, 2013, and Phases I and II
are adjacent and contiguous, there was really no need for the grant
mobilization fee for Phase II.
3. The Project (Phase II) remained unfinished as of the date of our ocular
inspection on June 6, 2014 beyond the May 2, 2014 target completion
date.

Inconsistencies were noted on BAC Resolution 0913-BURDC-2013-010

dated September 13, 2013. The heading of said resolution was for the declaration of
NGP Construction as the bidder with the Lowest Calculated and Responsive Bid

36
 (LCRB). However, the last paragraph of the resolution was the declaration of Ajan
Jeada, Inc. as the LCRB and the recommendation for approval of the same. Again,
this indicates careless preparation of bidding documents by the BAC.

We recommended that Management justify the following:

a. The late bidding of the project.

b. The grant of mobilization fee to the contractor.
c. The delayed completion of the Project (Phase II).

In the future, Management should hasten the bidding and/or completion of

projects and be more circumspect in the granting of mobilization fee to contractors.

We reiterate that the BAC carefully review procurement documents (i.e. BAC
Resolutions) that it prepares before signing and issuing the same.

As in the case of Phase I, Management justified the late bidding of the Project
due to the more rigorous planning process needed to determine the specific design
parameters in the laboratory spaces in order to benchmark with other food safety
laboratories.

Management argues that the grant of advance payment is allowed under Item
4.0, Annex E, “Contract Implementation Guidelines for the Procurement of
Infrastructure Projects”, Implementing Rules and Regulations of R.A. No. 9184.

Auditor’s R ejoi
nder:

The Audit Team, however, insists that although the grant of advance payment
is allowed, it was no longer necessary in the case of Phase II.

Management explained that the delayed completion of the project was due to
three Variation Orders made on the original plans resulting in a revised target
completion date of August 21, 2014.

Research Program for Sustainable Regional Food Safety and Quality Assurance for
Potential Bicol Exportable Products

2.4 The Bicol University showed a low rate (18 percent) of fund utilization halfway
through the 24-month project implementation period contrary to the “fast
disbursing” criterion of DAP-funded projects.

An amount of P17 million was granted to BU as part of the “Research

Development and Extension” sub-component of the “Institutional Capacity Building
of Leading Universities” component of the CHED’s DAP Fund Allocation. The
initial release of P11.9 million (70% of total budget) was made in January 2013 with
the remaining P5.1 million still unreleased as of December 31, 2013.
37
 As in other DAP-funded projects, this program is covered by CHED
Memorandum No. 9. The basic criteria for the evaluation of this project is DAP
Guideline No. 1.2 which was attached as Annex B to CHED Memorandum No. 9
and the BU-CHED Memorandum of Agreement (MOA) executed on December 13,
2012.

DAP Guideline No. 1.2 provides for the guidelines in the implementation of
the Grants-in-Aid for Research Development Extension (GIA-RDE) Component of
the Institutional Capacity Building Programs of State Universities and Colleges.
Among the deliverables under Item (V)(B) of DAP Guideline No. 1.2 are the
accomplishment and monitoring reports and terminal/completion reports. These
requirements were substantially complied by BU as evidenced by the following
reports furnished the Audit Team:

i. Status Report as of September 30, 2013 (as to Physical aspects only) prepared by
RDC Director Arnulfo Mascarinas and noted by BU President Fay Lea Lauraya;
ii. Financial Report as of September 30, 2013 prepared and certified correct by the
Accountant showing total disbursements amounting to P1,027,168.01 and
unexpended balance of P10,872,831.99, representing 9% and 91% of the total
amount released, respectively; and
iii. Financial Report as of December 31, 2013 prepared and certified correct by the
Accountant showing total disbursements amounting to P2,157,046.46 and
unexpended balance of P9,742,953.54, representing 18% and 82% of the total
amount released, respectively.

Item (V)(D) of DAP Guideline No. 1.2 also provides that the timelines will
be in accordance with those set in the MOA. The BU-CHED MOA dated December
13, 2012 provides for a 24-month effectivity period from its execution, thus, up to
December 13, 2014. The Notice to Proceed from CHED to BU directed that the
completion of the project should be in accordance with the approved Work and
Financial Plan (WFP). Unfortunately, only a Program Work Plan (as to the physical
aspects only, without a financial forecast of spending or fund utilization) was
provided the Audit Team. This, however, could not be used as a standard for
evaluating fund utilization.

In the absence of any other standard that could be used in evaluating actual
fund utilization, the Audit Team based its evaluation on the Financial Reports,
above-mentioned. We noted that as of December 31, 2013 or halfway through the
project implementation period, the Agency only registered an 18% utilization for the
12-month period from January to December 2013. This indicates a slow rate of
financial utilization of the program funds received. Approximately 50% of the funds
received should have been spent after 12 months of program implementation but the
Financial Report shows only an 18% utilization. This defeats the DAP’s purpose of
fast-tracking public spending.

38
 It must be stressed that Item I, Section 2.8 of the BU-CHED MOA requires
the return of unutilized funds and BU has only 12 months left (from December 31,
2013) before the project implementation period ends in December 13, 2014.

The Schedule of Tranche Releases, which was an integral part of the MOA,
showed that the initial P11.9 million (70% of program fund) would be released
within 1 month from MOA signing; P3.4 million (20%) within 12 months upon
submission of an audited financial report for the first tranche; and P1.7 million
(10%) within 24 months upon submission of the final/terminal audited
financial/liquidation report. However, the release of the remaining P5.1 million has
been overtaken by the following events:

a. Letter of the Executive Director of CHED, dated May 30, 2014, which sought the
assistance of SUC Auditors to require the concerned SUCs to submit the verified
liquidation reports and refund unutilized funds in accordance with their
respective MOAs with the CHED and COA Circular No. 94-013; and
b. The declaration of the DAP as unconstitutional by the Supreme Court in its
decision dated July 1, 2014.

Management attributed the slow utilization of the fund to delayed

procurement of laboratory supplies and materials caused mainly by the following
factors:

a. Different sub-projects/components handled by different teams;

b. Separate Project Management Plan and Annual Procurement Plan for
each component;
c. Various modifications in specifications of laboratory supplies and
materials necessitating revisions in procurement documents;
d. The need to consolidate and prioritize the various purchase requirements
of all sub-projects/components based on the initial 70% release of funds;
e. The clearance requirements of the Philippine Drug Enforcement Agency
for some laboratory chemicals to be purchased;
f. The three failed biddings brought about by a combination of one or more
of the above-mentioned factors.

We recommended that Management coordinate with the CHED as to the

proper and final disposition of the funds received. It should submit an updated
liquidation report as of June 30, 2014 (the day the DAP was declared
unconstitutional) and refund any unutilized funds, if so ordered by the CHED.

B icol Uni versity S tud e n ts’ Grants -in-Aid Program for Poverty Alleviation
(SGP- PA)

The SGP-PA is one of the programs implemented by the Bicol University (BU) in
partnership with Department of Social Welfare and Development (DSWD) and the

39
Department of Labor and Employment (DOLE) as a long term instrument and
commitment to break with the vicious poverty cycle afflicting the poor.

The SGP-PA specifically aims to:

a. Ensure that grantees are enrolled in selected SUCs and that they are channeled to
the priority programs of the Commission on Higher Education (CHED);
b. Ensure that grantees are extended needed support that will guarantee the
completion of their studies which will qualify them for high-value added jobs;
c. Contribute to the increase of the number of enrolment in higher education in line
with the national government’s priority degree programs among poor households;
and
d. Support college graduate’s entry to labor markets through placement assistance.

The SGP-PA is intended to be implemented over four to five academic years

starting 2012-2013. Subsequent funding is intended to be sourced from the General
Appropriations Act (GAA) and such other sources made available by the national
government until beneficiaries obtain their degrees. Thus, unlike other Memoranda of
Agreement (MOAs) between BU and CHED for other programs which has specific
termination dates or timelines, the MOA for this purpose provides that it shall be “in full
force and effect until terminated,” implying its continuing nature.

The initial allocation for this program amounting to P500M was funded from the
controversial Disbursement Acceleration Program (DAP) - a stimulus package introduced
in CY 2011 designed to fast-track public spending. On July 1, 2014, the DAP controversy
has already been finally settled by the Supreme Court which declared unconstitutional
certain acts and practices under the DAP.

The initial DAP allocation for SGP-PA was coursed through the CHED and
downloaded to selected State Universities and Colleges (SUCs). The Bicol University, as
one of the recipient SUCs, received P18,360,000.00 as follows:

CHED Check Date BU O.R. No. Date Amount

No.
648508 08.13.2012 9414986 08.29.2012 P 11,750,400.00
1054072 02.19.2013 3421920 03.15.2013 6,609,600.00
Total P 18,360,000.00

Under the SGP-PA, financial assistance was provided to qualified beneficiaries

drawn from identified and classified poor households in municipalities covered under the
Pantawid Pamilyang Pilipino Program (4Ps) of the DSWD in Region V. These qualified
beneficiaries enrolled in five campuses of the Bicol University to take up the priority
degree programs that the CHED deems critical to national development (Annex F).

40
 The student-beneficiary is entitled to a maximum of Sixty Thousand Pesos
(P60,000.00) grant per Academic Year or Thirty Thousand Pesos (P30,000.00) grant per
Semester as follows:

Particulars Per Semester Per Academic Year

a. Tuition and Other Fees P10,000.00 P20,000.00

b. Textbook/other learning P2,500.00 P5,000.00
materials
c. Stipend (including board and P17,500.00 P35,000.00
lodging, transportation, @ P3,500/month for 5 @ P3,500/month for 10
clothing, health/medical school months school months
needs, basic school supplies
and other related costs)
Total P30,000.00 P60,000.00

The DAP-funded projects whose funding was coursed through CHED are covered
by the following:

a. CHED Memorandum Order No. 9, series of 2012 (as amended by CHED

Memorandum Order No. 22) “Guidelines on the Grant and Allocation of the
Disbursement Acceleration Fund for State Universities and Colleges in
Support of the Reform Agenda for Public Higher Education” issued by CHED
for the purpose;
b. DAP Guideline No. 2.0 which was attached as Annex C to CHED
Memorandum Order No. 9, pertaining to the guidelines in the implementation
of the SGP-PA;
c. The BU-CHED Memorandum of Agreement (MOA) executed on July 25,
2012; and
d. COA Circular No. 94-013 which was referred to in the DAP Guidelines and
which provides the guidelines on inter-agency transfer of funds from the
source agency (i.e. CHED) to the implementing agency (i.e. BU).

The above-mentioned guidelines are the basic criteria used by the Audit Team for
the evaluation of this project. The following paragraphs discuss the results of our
evaluation.

3.1 A total of 23 or approximately five percent out of the 474 grantees dropped-out
during Academic Years 2012-2013 and 2013-2014 resulting in a loss of
P771,044.71 to the government and in violation of DAP Guideline No. 2.0.

Item VII (3) of DAP Guideline No. 2.0 provides for the responsibilities of
recipient SUCs in order to ensure the attainment of the goals of the Program. These
responsibilities, which were reiterated in Item C of the MOA between the CHED and BU
included, among other things, the following:

41
 a. Orienting the SGP-PA beneficiaries of the policies and guidelines and other
requirements of the program;
b. Organizing and/or enhancing values formation and career guidance programs to
beneficiaries and their families or parents;
c. Providing services of Guidance Counselors as needed;
d. Monitoring and reporting academic performance of the grantee at the end of each
year until graduation;
e. Informing the National SGP-PA Committee of drop-outs for possible
replacements;

The monitoring and reporting responsibility of SUCs was further strengthened by

CHED M.O. 22 which amended Item XIII of DAP Guideline No. 2.0 by adding two
percent (2%) administrative cost chargeable against SGP-PA funds for monitoring project
implementation.

Moreover, on December 4, 2012, in a meeting called by the Director, OSS-

CHED (at the national level), SUCs were instructed to be flexible with grantees with
failing grades and, for this purpose, were required to submit a status report of the list of
dropouts to DSWD on December 15, 2012.

However, despite such interventions/pre-cautionary measures (i.e. orientation,

values formations, career guidance, counseling, administrative cost for monitoring) and
flexibility in favor of the grantees, a total of 23 or approximately five percent out of the
474 grantees dropped-out during Academic Years 2012-2013 and 2013-2014. The
cumulative amount spent for these grantees during the two academic years totaled
P771,044.70 as shown below:

Amount Spent Amount No. of % of

Campus AY 2012-2013 Spent AY Drop- Total Total
2013-2014 Outs
BU Tabaco P 269,115.00 P 55,274.21 7 P 324,389.21 42.07
Campus
BU Gubat 223,468.50 78,379.00 9 301,847.50 39.15
Extension
Program
BU College of 83,499.50 61,308.50 7 144,808.00 18.78
Agriculture and
Forestry
Total P 576,083.00 P 194,961.71 23 P 771,044.71 100

The amount of P 771,044.71 is considered wasted government money for failure

to attain the Program’s objective.

Our inquiries with concerned BU personnel and survey of student-grantees

revealed that these drop-outs were the result of a myriad of causes such as, but not
limited to, the following:

42
A. Lack of clear and program-specific SGP-PA policies and procedures (BU-initiated) to
supplement the general provisions of CHED Memorandum Order No. 9, DAP
Guideline No. 2.0, the BU-CHED MOA and COA Circular No. 94-013;

B. Program implementation problems such:

a. Delayed release of allowance,

b. Poor quality of food served by campus caterers,
c. Alleged discrimination among peers,
d. Difficulty in dealing with the major subjects (i.e. Mathematics, Sciences and
English) and with teachers.

The delayed release of allowance and complaints on food served by campus

caterers [Items B (a) and (b), above] are corroborated by a letter dated December 23,
2013 of Ms. Leila Belgica, Guidance Coordinator to the University Scholarship and
Grants in Aid Officer, Dr. B. D. Nebres regarding the sentiments raised by student-
grantees. The matter of processing and timely release of financial benefits, as well as
the provision of accommodation such as dormitories and accredited boarding houses
to grantees, are among the specific responsibilities of the Bicol University enumerated
in Item VII (3), DAP Guideline No. 2.0 and the BU-CHED MOA. Items B (c) and (d),
above, were experienced despite the various interventions conducted by the different
campuses (i.e. orientation, counseling, tutoring, etc.).

No Management reply was received for this Audit Observation.

If the SGP-PA is allowed to continue despite the DAP’s declaration as uncons-

titutional, we recommended that the BU Management address the above-mentioned
problems in order to prevent their recurrence.

3.2 There was a significant delay in the submission of Liquidation Reports for the
SGP-PA in violation of COA Circular No. 94-013.

CHED Memorandum Order No. 9 does not provide any specific timeline for the
submission of the liquidation report. However, it adopted in Item VIII, the policy of strict
and faithful adherence to government accounting and auditing rules and regulations. The
BU-CHED MOA and DAP Guideline No. 2.0 on the other hand, merely provide that the
implementing agency (BU) must submit a status and liquidation report but also does not
provide a specific timeline. However, Item XIII, DAP Guideline No. 2.0 makes reference
to COA procedures in liquidating SGP-PA disbursements. That COA procedure is
embodied in COA Circular No. 94-013, which, under Item 4.6 requires the submission by
the Accountable Officer to the Accountant of the Report of Checks Issued and Report of
Disbursement within 10 days after the end of each month to report on the utilization of
the funds received. Moreover, Item 6.5 of the same COA Circular requires the
Accountant to verify such reports within 10 days from receipt before submitting such
report with all the original supporting documents to the auditor of the implementing

43
agency for verification. Thus, liquidation reports must be submitted to the auditor within
20 days after the end of each month before the verified liquidation report can be
submitted to the CHED.

However, records at the Auditor’s Office showed only three reports submitted for
audit verification as follows:

Period Covered by the No. of months Date submitted for

Liquidation Report covered Audit Verification
1 6/25/12* – 9/30/13 13 months 10/10/13
2 10/1/13 – 12/31/13 3 months 2/14/14
3 1/1/14 – 3/31/14 3 months 4/21/14

* Date of MOA but before the actual receipt of funds on August 29, 2012.

The above Table shows that there was a significant delay in the submission of the
first liquidation report (as of September 30, 2013) which was submitted more than a year
after receipt of the funds and only after two letters from the Executive Director of the
CHED dated July 18, 2013 and September 9, 2013 requesting submission of the same.
The succeeding two reports each covered a three-month period instead of a month, in
violation of COA Circular No. 94-013. Because of these delays, the Executive Director of
CHED, on May 30, 2014, sought the assistance of SUC Auditors to require the concerned
SUCs to submit the verified liquidation reports in accordance with their respective MOAs
with the CHED and COA Circular No. 94-013.

Such delays were due to the lack of specific timelines in CHED Memorandum
Order No. 9 and the BU-CHED MOA, and a mere general reference to COA Circular
No. 94-013 in Item XIII, DAP Guideline No. 2.0 regarding the submission of status and
liquidation reports.

No Management reply was received for this Audit Observation.

If the SGP-PA is allowed to continue despite the DAP’s declaration as

unconstitutional, we recommended that the BU Management submit future Liquidation
Reports to the Auditor for verification within 20 days after the end of each month in
accordance with COA Circular No. 94-013.

3.3 Documentary deficiencies were noted in SGP-PA transactions totaling

P3,348,803.70 in violation of Section (4)6 of P.D. No. 1445 and pertinent
provisions of the Revised Implementing Rules and Regulations (IRR) of the
New Procurement Law (R.A. No. 9184).

Item VIII, CHED Memorandum Order No. 9 adopts the policy of strict and
faithful adherence to R. A. No. 9184 and government accounting and auditing rules and
regulations.

44
 Section 10 of the Revised IRR of R.A. No. 9184 prescribes Competitive Bidding
as the default method of procurement. However, Section 48.2 allows the use of
alternative methods of procurement under highly exceptional cases enumerated under the
law, such as Limited Source Bidding, Direct Contracting, Repeat Order, Shopping and
Negotiated Procurement. There are thirteen types of negotiated procurement, including
negotiated procurement after two failed biddings (Section 53.1) and Small Value
Procurement (Section 53.9).

A pertinent government accounting and auditing rule, under Section 4 (6) of P. D.

No. 1445 requires that all claims against government funds shall be supported with
complete documentation.

Transactions which violate specific provisions of law (i.e. R.A. No. 9184) are
considered illegal and may be disallowed in audit. On the other hand, transactions which
do not adhere to established rules, regulations, procedural guidelines, policies, principles
or practices that have gained recognition in law are considered irregular expenditures
and may be suspended and/or disallowed in audit.

Examination of supporting documents to SGP-PA disbursements submitted for

review showed the following transactions with documentary deficiencies:

Item Particulars Amount Total

No.
1 Procurement of Food and School Supplies by P 15,109.70
reimbursement and without canvass
1.1 Acquisition of various school supplies. P 2,109.70
1.2 Payment of snacks and lunch served 13,000.00
during the orientation of SGP-PA student-
grantees at the BU Amphitheater paid to the
Bicol University Multi-Purpose Cooperative.
2 Transactions without evidence of payment/
acknowledgement by the end-user of receipt P 220,744.00
of purchased items.
2.1 Cost of 155 pieces t-shirt materials and P 25,265.00
printing of logo for the BU delegates to the
Regional Assembly of Implementers and
Beneficiaries of the SGP-PA.
2.2 Payment of other/membership fees. 37,399.00
2.3 Payment for cost of uniform. 158,080.00
3 Procurement of Room and Board for SGP-PA
student-grantees without bidding and
awarded contract. P 3,112,950.00
3.1 Lodging/Dormitory Services P 861,900.00
3.2 Board/Catering Services 2,251,050.00
Total P 3,348,803.70

45
 For Item No. 1, the procurement of food and school supplies by reimbursement
and without canvass violates Section 48.2 of the Revised IRR of R.A. No. 9184 which
allows the use of alternative methods of procurement under highly exceptional cases.
Reimbursement is not among the acceptable alternative modes of procurement
enumerated under the law. It also violates Sections 52.1 (b) and 53.9 of the same IRR on
Shopping and Small Value Procurement (SVP) and GPPB Resolution No. 09-2009
(Guidelines on Shopping and Small Value Procurement) which requires a canvass from at
least three suppliers whenever the amount involved is within the monetary threshold of
P500,000.00 in Annex H, Revised IRR, R.A. No. 9184.

For Item No. 2, the purchased t-shirts and uniforms and payment of membership
fees violate Section 4 (6) of P.D. No. 1445 which requires that all claims against
government funds shall be supported with complete documentation. Complete
documentation in this case does not only mean evidence of payment to the supplier/payee
but also evidence of actual receipt or acknowledgement by the end-users/recipients.

For Item No. 3, the procurement of room and board for SGP-PA student-grantees
without bidding and awarded contract violates Section 10 of the Revised IRR of R.A. No.
9184 which prescribes competitive bidding for amounts exceeding the monetary
threshold of P500,000.00 in Annex H, Revised IRR, R.A. No. 9184, as in this case.

No Management reply was received for this Audit Observation.

We recommended that Management stop the practice of allowing reimbursements

of procured items. In case of shopping and small value procurements, we recommended
that the accountant ensure that these are supported by the required canvass from at least
three suppliers and that procured items which are distributed to end-users are properly
supported by written acknowledgment by the end-users. The concerned Bids and Awards
Committee justify the direct contracting of the board and lodging of student grantees
without the benefit of public bidding.

3.4 A total of P 8,845,834.10 representing 48.18 percent of the P18,360,000.00 SGP-

PA funds received was already disbursed as of December 31, 2013.

As already mentioned, the Bicol University received on August 29, 2012 and
March 15, 2013 a total amount of P18.36M from the CHED as an initial allocation for the
SGP-PA. Shown below is the utilization of said fund based on the Liquidation Reports
verified by the BU Auditor Team.

Total Outstanding
Period Covered Disbursements Balance
P 18,360,000.00
8/29/12 – 9/30/13 P 5,970,921.60 12,389,078.40
10/1/13 – 12/31/13 2,874,912.50 9,514,165.90
Sub-total 8,845,834.10

46
 Total Outstanding
Period Covered Disbursements Balance
1/1/14 – 3/31/14 1,170,201.00 8,343,964.90
Total P 10,016,035.10

The total amount disbursed as of December 31, 2013 and March 31, 2014
represent 48.18 and 54.55 percent of the total funds received, respectively.

No Management reply was received for this Audit Observation.

We recommended that Management hasten the processing of the financial benefits

already incurred but not yet paid as of July 1, 2014 (the declaration of DAP as
unconstitutional by the Supreme Court) lest any remaining unspent funds for this
Program be ordered returned by the CHED to the disadvantage of student grantees.

Miscellaneous Expenses

4.1 Miscellaneous Expenses amounting to P83,357.00 were paid in violation of COA

Circular No. 89-300, Section 23 of the General Provisions of the CY 2013
General Appropriations Act (GAA) and DBM Circular Letter 2004-7. The
augmentation of Miscellaneous Expenses was not justified due to the absence of
actual incurrence of the same.

The grant of Extraordinary and Miscellaneous Expenses is authorized yearly in

the General Provisions of the General Appropriations Act (GAA). As early as 1989, the
Commission on Audit issued COA Circular No. 89-300 providing the general guidelines
in the audit of these expenses, as follows:

a. The underlying principle behind the authority to use appropriations for

Extraordinary and Miscellaneous Expenses is the recognition of the need to grant
some form of assistance to officials occupying key positions in the National
Government to enable them to meet various financial demands that otherwise
would not have been made on them. By reason of their incumbency to these
positions, they have to incur expenses of the sort which are not normally charged
to or covered by their salaries and other emoluments. Thus, these officials should
be accorded as much flexibility as possible in the utilization of the funds involved,
subject to the limitations imposed by law.
b. The basis for the control in the disbursement of these extraordinary and
miscellaneous expenses is the amount fixed by the GAA.
c. No portion of the amounts authorized and fixed by law shall be used for salaries,
wages, allowances, intelligence and confidential expenses which are covered by
separate appropriations.
d. The entitlement is strictly on a non-commutable or reimbursable basis. The
corresponding claim for reimbursement shall be supported by receipts and other

47
 documents evidencing the disbursement, if these are available, or, in lieu thereof,
by a certification executed by the official concerned that the expenses sought to
be reimbursed have been incurred (emphasis supplied) for any of the purposes
contemplated under the specific provision of the GAA.

Section 23 of the General Provisions of the CY 2013 GAA authorizes the grant of
P90,000.00 for Extraordinary Expenses and P72,000.00 for Miscellaneous Expenses for
the Bicol University President (whose position is equivalent to a Department
Undersecretary). Such appropriation, under Section 63 of the CY 2013 GAA shall be
available for release and obligation until the end of FY 2013 (emphasis supplied). This
provision on the validity of appropriation was reiterated in Sections 3.2 and 3.12.1.1 of
National Budget Circular No. 545 dated January 2, 2013 (Guidelines on the Release of
Funds for CY 2013).

Our review of the accounting records showed the following:

Account Allowed Per Actual Difference

Particulars No. GAA Disbursements Over (Under)

Extraordinary 883 P 90,000.00 P 82,624.96 (P7,375.04)

Expenses
Miscellaneous 884 72,000.00 83,357.00 11,357.00
Expenses
P162,000.00 P165,981.96 P 3,981.96

The above Table shows that the Extraordinary Expenses actually incurred were
within the limit set by the GAA. However, we noted the following deficiencies with
regard to Miscellaneous Expenses:

a. The Miscellaneous Expenses incurred exceeded by P11,357.00 that allowed

under the GAA. The Budget Officer explained that the incurrence of P11,357.00
more than the GAA ceiling for miscellaneous expenses was authorized through
augmentation/realignment of savings which is allowed Section 3.1.3.4.4 of DBM
Circular Letter 2004-7 (Budget and Management Flexibilities for SUCs) and
Section 54 of the General Provisions, CY 2013 GAA. However, although Section
3.1 of DBM Circular Letter 2004-7 allows SUCs to realign/use savings without
prior DBM approval, it still requires, as a matter of general policy, prior approval
of the SUC governing board (BU Board of Regents) pursuant to pertinent
provisions of R.A. No. 8292 (providing for the uniform composition and powers
of governing board of SUCs). There was no such prior approval of the
realignment/use of savings by the BU Board of Regents.
b. A closer scrutiny of the disbursement voucher and Obligation slip showed that
the amount of P83,357.00 miscellaneous expenses disbursed paid under Check
Number 240739 dated December 16, 2013 was a single transaction representing
an advance payment to the BU President for expenses yet “to be utilized.”
Apparently, the check was issued because the validity of the

48
 appropriation/allotment would lapse by December 31, 2013. As of the date of
issuance of the check (December 16, 2013), no miscellaneous expenses have yet
been actually incurred and recorded in the books of accounts out of the
P72,000.00 allowed under the GAA. Thus, considering that Miscellaneous
Expenses are reimbursable in nature, there was no basis for the payment of
P83,357.00 because there was nothing to reimburse.
c. The incurrence of P11,357.00 in excess of the P72,000.00 allowed by the GAA
allegedly thru augmentation, is untenable. Augmentation, as defined in Section
53 of the CY 2013 GAA, “implies the existence xxx of a program, activity or
project with an appropriation, which upon implementation or subsequent
evaluation of needed resources, is determined deficient. In no case shall a non-
existent program, activity or project be funded by augmentation from savings.”

Although there was an existing appropriation for Miscellaneous Expenses, there

was no actual implementation/spending in order to conclude that the P72,000.00
appropriation allowed by the GAA is deficient. Thus, there was nothing to augment.

The Audit Team fully agrees that the BU President should be “accorded as much
flexibility as possible in the utilization” of the extraordinary and miscellaneous expenses.
However, we opine that such flexibility is circumscribed by existing laws, rules and
regulations on the matter.

Management acknowledged the audit observation and assured that necessary

measures would be taken to address the same.

We recommended that in the future, Management comply with the ceiling set by
GAA for Extraordinary and Miscellaneous Expenses. Payment out of the appropriations
for Extraordinary and Miscellaneous Expenses be based strictly on a reimbursement
basis, duly supported with receipts or other documents evidencing the disbursement or a
certification executed by the official concerned that the expenses sought to be reimbursed
have been incurred for any of the purposes contemplated under the specific provision of
the GAA. Realignments be duly approved by the BU Board of Regents.

Disposal of Property and Equipment, Products of Income Generating Projects and

Demolition of Buildings and Structures.

5.0 The Bicol University did not strictly comply with existing laws, rules and
regulations and basic internal control principles on the disposal of unserviceable
property/products of Income Generating Projects and demolition of buildings
and structures. The failure to drop from the books of accounts the disposed
unserviceable properties and demolished buildings and structures overstated the
pertinent Property, Plant and Equipment accounts by at least P6,119,747.66.

We have audited 14 disposal transactions of the Bicol University (Annex G)

categorized under three main types, as follows:

49
 No. of
Items Disposed/Type of Disposal Transactions
A Unserviceable Properties and Equipment 7
B Buildings and Structures (demolition) 2
C Products of Income Generating Projects (i.e. swine, goats,
fruits, copra, charcoal) 5
Total 14

The pertinent laws, rules and regulations for each of the three types of disposals
are briefly summarized below:

A - Unserviceable Properties and Equipment

1. Executive Order No. 888 (dated March 18, 1983)– which authorized heads of
government agencies to dispose of their respective unserviceable equipment and
disposable property; created a disposal committee at the national and regional levels
with COA as a member; outlined the duties of the disposal committee; identified the
disposal documents; modes of disposal; and mandated the dropping of the disposed
property from the books of accounts of the agency in accordance with existing
accounting and auditing regulations.

2. COA Circular No. 89-296 (dated January 27, 1989) – which provided the audit
guidelines on the disposal of property and other assets, basically, in accordance with
E.O. No. 888. Specifically, it provided the following procedures:

2.1 Return of unserviceable properties to the Property Officer and cancellation of

applicable Acknowledgment Receipt for Equipment(ARE)/Inventory Custodian
Slip (ICS);
2.2 Creation of a Disposal Committee who shall prepare an in-house appraisal which
shall serve as the floor price in the public auction;
2.3 Filing by the Property Officer of an application for disposal with the Auditor
supported by a copy of the Inventory and Inspection Report of Unserviceable
Property (IIRUP) or Waste Materials Report (WMR) and the in-house appraisal;
2.4 Review of in-house appraisal by COA technical services (if necessary);
2.5 Inspection by the Auditor of the items for disposal; determination whether the
items are with or without money value and recommendation as to the proper
mode of disposal;
2.6 Actual disposal of the unserviceable properties thru any of the following modes:

2.6.1 Public Auction (if with money value)

2.6.2 Sale thru negotiation (if public auction fails)
2.6.3 Barter (when there is an offer that would redound to the benefit of the
government)
2.6.4 Transfer (with or without cost) to other government agencies
2.6.5 Destruction or condemnation (if without money value and beyond
economical repair).

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 2.7 Dropping from the books of accounts of the items disposed.

Based on the above procedures, the documentary requirements include the

following:

a. Application for disposal with the Auditor;

b. Cancelled AREs/ICS;
c. Order creating the Disposal Committee;
d. Inventory and Inspection Report of Unserviceable Property (IIRUP) or Report
of Waste Materials (RWM);
e. In-house appraisal of items for disposal and COA report on the review of in-
house appraisal, if applicable;
f. Auditor’s recommendation as to the mode of disposal;
g. Disposal Committee Resolution (re: mode of disposal);
h. Agency Head’s approval of disposition;
i. Letter/Notice to the Auditor (re: date of actual disposal);
j. Documentary evidences applicable to the mode of disposition, i.e.

i. Advertisement, bids, abstract of bids, notice of award, etc. in case of public

auction;
ii. Pertinent documents in case of negotiation and barter;
iii. Invoice and Receipt of Property in case of transfer to other government
agencies;
iv. Approval by the head of the agency/campus and pictures (before and after),
in case of destruction and condemnation;

k. Official receipt for the proceeds of sale in case of public auction or negotiated
sale;
l. Journal Entry Voucher evidencing the dropping of the disposed items from the
books of accounts, including evidence of posting to the appropriate property
ledgers.

With regard to the creation of the Disposal Committee, Executive Order No.
309 (dated March 8, 1996) reconstituted its membership to exclude COA due to the
lifting of pre-audit activities at that time. In Bicol University, two Administrative
Orders have been issued on the matter, to wit:

a. Administrative Order No. 156, s. 2006 – which created the University Appraisal
and Disposal Committee with the OIC, Vice President for Administration as
Chairperson and Chiefs of the Administrative and Finance Offices as members.

b. Administrative Order No. 113, s. 2007 - which created the Campus/Cluster

Appraisal and Disposal Committee composed of the following: i) Chairperson –
Assistant Dean/ Director; ii) Member – Campus/Cluster Administrative Officer;
and iii) Member/Secretary - Campus/Cluster Supply Officer. This Committee
was responsible for the disposal of unserviceable property, except “building and

51
 structures” and was required to submit a copy of the Inventory and Inspection
Report of the disposed properties to the University Appraisal and Disposal
Committee.

B - Demolition of Buildings and Structures

1. Executive Order No. 285, s. 1987 – which specifically identified in Section 3.1 (e),
thereof, the DPWH as the agency in-charge of disposal of government-owned
buildings; and
2. DPWH-DBM-DENR Joint Circular No. 1 – which was issued pursuant to E.O. 285
and provided the procedures for the demolition of buildings.

These two (2) regulations were recently cited in a Government Procurement

Policy Board Non-Policy Matter Opinion No. 165-2012 dated December 28, 2012.
Unfortunately, however, a copy of the Joint Circular could not be downloaded from
the internet nor could a hard copy be obtained from the concerned agencies.

3. Section 1.02.03 of the Building Code of the Philippines which requires the acquisition
of a demolition permit from the authorized Building official.

In the absence of a copy of DPWH-DBM-DENR Joint Circular No. 1, the

requirement of the Building Code should at least be complied. Insofar as the disposal
of salvage materials derived from the demolition, COA Circular No. 89-296 [except
Item no. 2.1, above] should be applied.

C - Sale of Products of Income Generating Projects

1. Section 124, Government Accounting and Auditing Manual (GAAM), Volume I –

which requires Agencies authorized to sell products of agricultural, industrial and
other projects to deposit the proceeds thereof with the National Treasury to accrue to
the General fund unless otherwise provided by law or authorized by special provision
of the General Appropriations Act.

2. Section 5, General Provisions of the General Appropriations Act of 2013 – which

allows the establishment of Revolving Funds for receipts, including sale of products,
derived from business type-activities of government agencies which are expressly
created and authorized by law to be utilized for operational expenses of said business
activity. This essentially prevails over Section 124, GAAM, Volume I, being a law.

Aside from these two provisions, there are no other laws or regulations pertaining
to the sale/disposition of products of income-generating projects except for two old
regulations, as follows: a) National Budget Circular No. 331-A (dated 12/23/82) on
“Revolving Fund for School Agricultural and Manufacturing Operations” which also
includes the manner of disposal of agricultural products, and b) COA Circular No. 84-
329 on “Rules and Regulations Governing the Accounting of Agricultural Products.”
These two (2) regulations have been overtaken by the GAAM which took effect in 1992

52
and the New Government Accounting System which took effect in 2002. Thus, the Audit
Team’s assessment of the Agency’s actual practice was measured against basic principles
of internal control and Management’s responsibility for internal control as stated in
Sections 32 and 36, GAAM, Volume III, respectively.

Section 32 defines internal control as a plan of organization and all methods and
measures to ensure that government resources are used in accordance with laws, rules and
regulations and are safeguarded against loss, wastage or misuse, among other things.
Section 36 on the other hand entrusts to management the responsibility for establishing
good internal control.

Lastly, it is worth mentioning that although Section 504 of the Government

Accounting and Auditing Manual, Volume I, declares public auction as the primary mode
of disposal, other modes are acceptable, if bidding fails or is not possible. Nevertheless,
the overriding consideration in disposal/sale, as in any other government transaction, is
whatever is the most advantageous to the government.

Examination of the documents pertaining to the above-mentioned 14 disposal

transactions of Bicol University revealed that the Bicol University did not strictly comply
with existing laws, rules and regulations and basic internal control principles on the
disposal of Unserviceable Property/Products of Income Generating Projects and
Demolition of Buildings and Structures. We also noted inconsistent procedures and
practices among colleges/campuses with regard to disposals.

Hereunder are the specific audit observations:

Demolition of Buildings and Structures (Items 1 – 2 of Annex

H)

1. No demolition permit was obtained from the authorized Building Official in

violation of Section 1.02.03 of the Building Code of the Philippines.
2. The procedures as well as the documentary requirements for the disposal of
salvage materials resulting from the demolition did not strictly comply with COA
Circular No. 89-296.

a. We noted that in the case of demolition of buildings and structures (i.e. BUCE
- ELCOP rooms; BUCAF - Greenhouse and layers cages), the Campus
Disposal Committee took charge of the disposal. The University Disposal
Committee should have been in-charge in these cases because BU
Administrative Order No. 113, s. 2007 expressly excluded disposal of
buildings and structures from the authority and jurisdiction of the
Campus/Cluster Appraisal and Disposal Committee.
b. No appraisal was made of the salvage materials from the demolition of the
ELCOP Rooms of BU College of Education (BUCE). Salvage materials from
the demolition of ELCOP rooms were not sold (no amount was recovered)
and remained unaccounted.

53
c. The in-house appraisal of BUCAF layer cages and greenhouse was grossly
understated (P6,000 appraised value against P45,135.29 actual proceeds)
casting doubts on the reliability of the appraisal process done. This is crucial
as the appraised value serves as the floor price in case the items are disposed
through public auction.
d. The ELCOP Rooms were demolished without any inspection by the Auditor
which precluded the determination of whether the salvage materials had
monetary value or not and also the proper mode of disposal.
e. There was no Disposal Committee Resolution regarding the mode of disposal
of the greenhouse and layer cages of BUCAF. In the case of the BUCE,
although the demolition of the ELCOP Rooms was covered by a Disposal
Committee Resolution, there was no such resolution covering the mode of
disposal of the salvage materials.
f. There was also a significant delay in the approval of request for demolition of
BUCAF greenhouse and layer cages (initial request on March 2013 reached
the President's Office on July 2013) despite the perceived "danger to students
and personnel."
g. Notice to the Auditor about the actual date of disposal pertained only to the
demolition of the ELCOP room but not the salvage materials. Notice to the
Auditor about the actual date of disposal of the BUCAF Greenhouse and
Layer Cages was inaccurate (as indicated in a letter to COA received July 19,
2013 by Ms. Francia Abuid, the date of opening of bids was scheduled July
29, 2013, 2:30 p.m. but the Minutes of Meetings showed that the opening of
bids was held on 30 July 2013, 2:30 p.m.).
h. There were deficiencies noted on the Public Auction of the of BUCAF
greenhouse and layer cages, as follows:

- no advertisement and posting, no request for quotation, no abstract of bids,

no NOA (only a notice to proceed)
- noted discrepancies in the date of Notice to Proceed (signed by the Dean on
July 29, 2013) and the date of bidding per minutes of meeting of the
Disposal Committee (July 30, 2013)
- award was made to a bidder who submitted his bid after the deadline (date
of bid is July 30, 2013 but the deadline indicated in the request for quotation
is July 29, 2013)
- no formal documentation of actual weighing of steel (i.e. mere scribbled
notes on half sheet of bond paper without signatures; guard's logbook
indicating total amount/weight of disposed items).

i. Pictures of the demolished ELCOP rooms were transmitted to COA only on

March 10, 2014 although the demolition was completed on 22 November
2013.
j. In the case of BUCAF greenhouse and layer cages, we noted a letter dated
August 29, 2013 (copy received by COA September 12, 2013) executed by
the Administrative Officer, noted by the Dean and addressed to the BU
President requesting for the dropping from the books of accounts. Apparently

54
 no action was yet taken on this request. The request for dropping should have
been rightfully addressed to the Accountant supported by the IIRUP/WMR
and not to the BU President.

Disposal of Unserviceable Properties (Items 3 – 9 of Annex H)

1. Although all disposed unserviceable properties had applications for disposal with
the Auditor, we noted the following deficiencies:

a. The application for disposal of BUCAL requested for a COA representative to

join and assist the committee in the conduct of inspection and appraisal on
December 2, 2013 which was in fact the date of the opening of bids as
indicated in the invitation to bid.
b. The invitation of the BUCS for COA to inspect the items for disposal
(October 30, 2013) was just day before the actual disposal (auction).
c. The BUGASS invitation for COA to inspect the items for disposal (October
25, 2013) was after the Disposal Committee had already made a decision (on
October 24, 2013) to dispose through public auction.

In the above-mentioned three cases, the request was, in substance, just a

mere request to witness the opening of bids, not inspection that would allow the
auditor to evaluate whether the items for disposal had monetary value or not and
to recommend the proper mode of disposal as intended under COA Circular 89-
296.

2. BUCAL, IPESR and BUCAF did not submit the cancelled Acknowledgment
Receipt for Equipment (AREs) of the items disposed. In the case of BUCS, the
submitted AREs were not duly cancelled.
3. There was substantial compliance by the BU with regard to the creation of the
Disposal Committee because of the two administrative orders creating the
University Disposal Committee (Administrative Order No. 156, s. 2006) and the
Campus/Cluster Disposal Committee (Administrative Order No. 113, s. 2007).
However, it would have been better if the Campus Dean/s, reiterated A.O. 113
and specifically identified the individuals constituting the Disposal Committee as
it was done by BUCAL and the OSS where another Office memorandum signed
by the BU President dated June 18, 2012 was issued organizing the Appraisal and
Disposal Committee for Satellite Offices citing AO 113, s. 2007. In the case of
IPESR, the actual composition of the disposal committee was not in accordance
with A.O. 113. s. 2007 (i.e. members were Instructors and not the Supply Officer
and Admin. Officer as required). Mr. Lorenzo Nuἥez who is the designated
Supply Officer of IPESR was not included in the Disposal Committee.
4. Although all disposed unserviceable properties were supported by the IIRUP and
WMR, not all information required in the IIRUP/WMR form is indicated (i.e.
cost, accumulated depreciation, appraisal, proceeds from sale, etc.). The omitted
data limits the usefulness of the IIRUP/WMR. In the case of BUCAF, the IIRUP
pertaining to unserviceable properties lacked the required signatures/certification

55
 as to inspection and/or witness to disposition. In the case of BUCS, waste
materials reported by the contractor (LSL Construction and Supply) were not
properly accounted/disposed. Waste materials (i.e. assorted tiles) resulting from
the completion of CSB1, Phase IV reported by the Supply Officer were allegedly
transferred without cost to janitors for firewood!
5. Except for the disposal made by BUGASS and BUCAL, all others had no in-
house appraisal of the items for disposal by the Appraisal and Disposal
Committee. The in-house appraisal is important because it serves as the basis of
the COA Technical personnel in evaluating its reasonableness (if, necessary) and
serves as the floor price in the public auction of the items for disposal.
6. In five out of seven disposal transactions, the COA was not given an opportunity
to inspect the items for disposal in order to evaluate whether the items for disposal
had monetary value or not and to recommend the proper mode of disposal. This
inspection by the Auditor is an initial audit activity which is separate and distinct
from the witnessing of the actual disposal (whether thru auction, negotiated sale,
destruction or condemnation). The agency Disposal Committee cannot uni-
laterally decide on the mode of disposal without an Auditor’s inspection and
recommendation as to the appropriate mode to be used. However, once the
decision as to the mode of disposal is made by the Disposal Committee upon the
recommendation of the Auditor, the latter is not mandated to witness the actual
disposal because of the lifting of the pre-audit function.
7. In two out of seven disposal transactions, there was no documented resolution by
the Disposal Committee as to the mode of disposal to be used. In the cases where
there was a Disposal Committee Resolution, the decision as to the mode of
disposal was unilaterally made by the disposal committee and not based on the
Auditor’s recommendation.
8. All of the seven disposal transactions were approved by the BU President and/or
the Campus Dean/Office Director. However, in two instances, such approval was
not clearly documented but could only be inferred from other supporting
documents.
9. In three instances, the communication to the Auditor regarding the disposal did
not include the date of actual disposal. Such date is important for the auditor to
decide whether he would witness the actual disposal proceedings or forego it.
10. The following deficiencies were noted in the conduct of public auction:

- no documentation of advertisement/posting (BUCAF, IPESR).

- No uniform bids forms used [i.e. tabulation of bids were incorporated in the
minutes of meeting bids instead of using an Abstract of Bids (BUCAF); Notice
to Proceed is used in lieu of the Notice of Award (BUCAF); the Abstract of Bids
form used incorporates the Committee Resolution declaring the winning bidder
(BUCAL)].
- dubious basis for award by BUCAF [i.e. award was made to a bidder (K. Yuga)
who submitted his bid after the deadline or to a bidder (M. Nate) whose RFQ
was not dated; the only bidder (C. Barrios) whose bid/RFQ was clearly
submitted on time was not awarded the contract].

56
 -inconsistencies in the unit of measure used in Disposal Committee Resolution,
RFQ, Abstract of Bids, Summary of payment resulting to confusion as to the
real basis for payment (BUCAL).
- undocumented basis for the floor price of the transformer disposed by BUCAL
- no Notice of Award (IPESR)
- certain items were sold below floor price (in-house appraisal) because bidding
was per lot instead of per item (BUGASS)

11. As previously mentioned in Demolition of Buildings and Structures, Item 2 (b),

the salvage materials from the demolition of ELCOP rooms of BUCE were not
accounted for and accordingly, no proceeds were receipted. However, the
proceeds from the sale of the remaining 13 out of 14 disposals were all duly
receipted. In two instances, we noted the late collection of proceeds from sale
(BUCAF - date of sale was on July 30, 2013 but the official receipt dates were on
August 2 and 5, 2013; BUCS - date of disposal was on October 31, 2013 but the
date of official receipt for proceeds is December 17, 2013).
12. None of the disposed items were dropped from the books of accounts although in
the case of OSS, we noted a letter from Supply Officer B. Payonga to the
Accountant requesting for dropping from the books but was not acted upon. This
observation (no dropping from the books) was confirmed by Accountant himself
and the Audit Team’s analysis of property and equipment accounts which showed
that there were no recorded write-off of the costs (and related accumulated
depreciation) of the properties disposed.

Disposal/Sale of Products of Income Generating Projects (Items 10 – 14 of Annex H)

We noted that all proceeds from the sale of products of Income Generating
Projects were duly receipted. These were recorded in Fund 161 (IGP) as Other Business
Income (Account No. 648) and deposited in either of two current bank accounts as a
Revolving Fund in substantial compliance with Section 5, General Provisions of the
General Appropriations Act of 2013, previously mentioned. However, we observed the
following deficiencies:

1. In general, there is no written policy on the mode of disposal of IGP products; the
required approval for sale of products, the procedures to be followed, basis of
pricing, documentation requirements, etc.. This written policy is especially
important in the absence of existing rules and regulations on the matter and in
view of management’s primary responsibility for the establishment of adequate
systems of internal control pursuant Section 36, GAAM, Volume III.
2. For orchard, copra and charcoal, no applications for disposal are made. Only a
letter to the COA Audit Team informing of the results/proceeds of the sale is
made. In case of IGP-Swine Production, the Coordinator - Production and
Business Affairs sends COA a letter-request to the witness sale/disposal of
fatteners, and in certain cases, slaughtered culled sow or ill fatteners. In the case
of Goat Production, application for disposal is made by the Project Manager,
noted by College Veterinarian and approved by the Dean of BUCAF.

57
 3. For orchard, copra and charcoal, since no applications for disposal are made but
only a letter to the COA informing of the results/proceeds of the sale, COA is not
aware of the actual date of sale/disposal. In case of IGP-Swine Production,
although there is a letter-request for COA to the witness sale/disposal of fatteners,
no specific date of disposal is indicated. Instead, the inclusive period within which
the disposal will be made is indicated in the notice to COA. Thus, COA is not
informed of the actual date of disposal of fatteners. Separate letters are sent to
COA after the date of actual sale, usually just to inform about the proceeds of the
sale, not to witness the sale. However, in the case of Goat Production, actual date
of disposal is clearly indicated in the letter-application for disposal.
4. For the disposal/sale of products of all IGP projects, no advertisement/posting of
the intended sale is done. Such practice precludes the attainment of the most
advantageous price for the University.
5. In the case of Goat Production, the price per kilogram is outdated (based on a
Disposal Committee Resolution dated April 25, 2008). For other products, no
such basis (selling price) is used.
6. Sale of ill fattener and culled sow by BUCAF were made on credit to employees.
This is not covered by an internal policy and creates problems on billing,
collection, accounting and monitoring. A significant portion (61% to 88%) of the
sale is on credit to employees. Examination of the general ledger shows that
Account Receivable from Income-Generating Projects has significantly increased
from P393,058.70 as of December 31, 2012 to P541,993.97 or a 38% increase.

The above-mentioned deficiencies violate Section 36, GAAM, Volume III

because these reflect Management’s failure to establish adequate internal control
measures to ensure that the reported proceeds from sale of IGP products are complete and
correct and that the price/s obtained from the sale were the most advantageous to the
University. Item Nos. 2, 3 and 5, above, highlight the inconsistent procedures and
practices with regard to disposals.

The noted deficiencies with regard to demolition, disposal of unserviceable

properties and sale of IGP products were due to the following:

a. Lack of knowledge of existing laws, rules and regulations with regard to

disposal resulting from lack of in-house orientation/training of concerned
personnel.
b. Lack of an internal policy/procedures on areas not covered by existing laws,
rules and regulations (i.e. disposal of products of Income-Generating
Projects).

Finally, the failure to drop from the books of accounts the disposed unserviceable
properties and demolished buildings and structures overstated the pertinent Property,
Plant and Equipment accounts by at least P6,119,747.66 (Annex G).

58
 During the Exit Conference on August 4, 2014, Management mentioned that BU
has an Income-Generating Project (IGP) Manual which, however, was issued way back in
2005 although certain portions have reportedly been revised in 2012.

We recommended the following:

1. Training/orientation of all disposal committee chairpersons and members on

existing disposal rules and procedures.
2. Updating of the BU - IGP Manual to harmonize it with existing and pertinent
provisions of the GAAM and the General Appropriations Act. For this purpose,
guidance may also be sought from previously issued regulations on the matter
such as National Budget Circular No. 331-A (dated 12/23/82) on “Revolving
Fund for School Agricultural and Manufacturing Operations” which also
includes the manner of disposal of agricultural products and COA Circular No.
84-329 on “Rules and Regulations Governing the Accounting of Agricultural
Products.” Moreover, develop internal policies/procedures in order to fill the
gaps (i.e. lack of clear guidelines) and/or to supplement existing rules and
regulations.
3. Strict adherence to existing rules and regulations and the BU-prescribed
policies/procedures regarding disposals.

BU E-Registration Project

6.1 Management continued the BU E-Registration Project despite excessive delay in

its completion, noted flaws in the System and default by the contractor in his
obligations. Payments made violated specific legal provisions on the grant of
advance payments and imposition of liquidated damages.
The BU E-Registration Project was envisioned as a modernized enrolment
process thru the use of licensed customized electronic registration software, bundled with
compatible hardware in one complete package which includes user’s training, issuance of
IDs and technical support over the span of the project. Due to the proprietary nature of
the software and the difficulty of producing an in-house electronic registration software
in the short-run, the project was outsourced, through public bidding, and awarded to
Vladimiroff Technologies Corporation. The Terms of Reference (TOR) of the project
was prepared by Jerry S. Bigornia, VP for Production; reviewed by then BUCS Dean, Dr.
Amelia A. Dororsan (now VP for Administration); recommended for approval by Dr.
Helen M. Llenaresas, VP for Academic Affairs; and approved by Dr. Fay Lea Patria M.
Lauraya, President, Bicol University.

The Notice of Award for the original contract amounting to P4,975,000.00 was
issued on March 5, 2010; the contract was executed/signed on March 10, 2010 and the
Notice to Proceed dated April 16, 2010 was received by the contractor on April 26, 2010.
Per Bidding documents (i.e. Schedule of Requirements), the project duration was one (1)
year upon receipt of the NTP. Thus, the targeted completion date was April 25, 2011.

59
 On November 18, 2010, former BU Auditor Evangeline Bachiller requested for
the Contract Review and Inspection of the project. However, the said request was
returned unacted because of a Memorandum dated October 5, 2011 from Mr. Leonardo
Patilleros, SA III, requiring submission of lacking documents. On December 28, 2012,
former BU Auditor Evangeline Bachiller wrote a letter to the BU President requiring the
submission of documents requested by Mr. Leonardo Patilleros. Partial submission by
BU of the required documents was made on March 11, 2013 to the incumbent Audit
Team.

Upon realizing that the project should have been long completed on April 25,
2011 and in order to determine the proper course of action to be taken on the submitted
documents, the incumbent Audit Team wrote on March 22, 2013, a letter to Laarni
Pancho, Director, Information Management Office, requesting her to provide us with the
following:

a. Information about the status of the E-Registration Project both as to the physical
accomplishment and the total payments made.
b. Management’s plan with regard to the proper disposition of the project (i.e.
continue or terminate) in the light of mandatory contract provisions on liquidated
damages and termination of contract once the cumulative liquidated damages
reaches ten (10) percent (Section 68, IRR, R.A. 9184).
c. Necessary documents/correspondence after the targeted completion date on the
original contract.

Unfortunately, we received no written reply. However, based on our own

verification, the project has not yet been completed and not yet fully paid. Annex I shows
total payment of P3,038,730.00 or 61 percent of total project cost. A close scrutiny of the
payments showed the following deficiencies:

a. The contractor/supplier was given a 15% mobilization fee amounting to

P746,250.00 purportedly because the contract was categorized as a consultancy
contract and the grant of advance payment was allowed under Item 1, Annex F,
Revised IRR, R.A. No. 9184 (Contract Implementation Guidelines for Consulting
Services). However, a perusal of the bidding documents show that the contract
was, in fact, procurement of goods which does not allow 15 percent mobilization
fee/advance payment unless there is a bank guarantee from a universal or
commercial bank for an equivalent amount until the goods are delivered (Item 4.5,
Annex D, R.A. No. 9184 as amended by Memorandum Order No. 15, dated May
9, 2011).
b. The 1st partial billing amounting to P1,161,220.72 was favorably endorsed for
payment by the IMO Director despite negative findings/comments by the
designated Inspector/Programmer, Mr. Rollie Montealegre.
c. The 3rd and 4th partial billings amounting to P398,988.04 and P1,354,146.24,
respectively were both favorably endorsed for payment again, despite an
evaluation report of computer programmer Mr. Rollie Montealegre which still
had adverse findings (i.e trainings not evaluated; further trainings needed;

60
administrator not yet trained, and hard copies of manuals not yet provided by
supplier), noted “unresolved cases” and a categorical qualification that his
evaluation was “not a total evaluation” due to the supplier’s failure to deliver
several modules.

We noted that these 3rd and 4th partial payments were processed in
December 2013 but actually paid on January 10, 2014 and properly set-up as
Accounts Payable as of December 31, 2013. These were net of charges for
liquidated damages against the contractor totaling P303,873.00 which was
recommended by the VP for Administration and approved by the University
President “subject to government auditing rules and regulations” notwithstanding
a recommendation from the BU Internal Auditor to waive the imposition of
liquidated damages due to the amended contract dated November 25, 2013. This
amended contract adjusted the original technical specifications, provided new
technical requirements (without any adjustment in contract price) and
revised/extended the expected delivery dates from 30 to 90 days from date of
effectivity of the amended contract. Thus, the revised target completion date of
the remaining works to be done is approximately February 23, 2014 (90 days
from November 25, 2013). As of March 6, 2014 (audit date) and beyond the
revised completion date, the expected deliverables under the amended contract
have not yet been complied and accordingly, no final/full payment has been made.

We also noted that the imposition of the liquidated damages on the

contractor was delayed. As of the date of the 2nd partial payment (December 5,
2011), the contractor was already in default in the completion of the project
because the original targeted completion date was April 25, 2011. However, no
liquidated damages were imposed at that time. It was only in the subsequent 3rd
and 4th partial payments that the liquidated damages were imposed.

Moreover, the liquidated damages actually imposed amounting to

P303,873.00 was not sufficient. Annex I shows that the correct amount of
liquidated damages should have been P3,514,347.04 in accordance with Section
68, IRR, R.A. No. 9184. This computed amount of P3,514,347.04 already
considered the time extension under the amended contract.

Section 68, IRR, R.A. No. 9184 provides that all contracts shall contain a
provision for liquidated damages. The amount shall be “at least equal to one-tenth
of one percent (0.1%) of the total cost of the unperformed portion for every day of
delay. Once the cumulative amount of liquidated damages reaches 10 percent
(10%) of the amount of the contract, the procuring entity shall rescind the
contract, without prejudice to other courses of action and remedies open to it.”
The cumulative amount of liquidated damages of P3,514,347.04 represents 70.64
percent of the total contract cost and far exceeds the 10 percent limit set in
Section 68 and therefore, the contract should have been rescinded even as early as
December 5, 2011 when the liquidated damages was already P854,286.56 or
17.17 percent.

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 Noted flaws and control weaknesses in the e-Registration System (i.e. doubtful
reliability and accuracy of outputs; lack of supervisory controls; adverse finding of
inspectors and negative feedback from users) provides Management more reason to
terminate the contract.

No Management reply was received for this audit observation.

In view of all the foregoing, we recommended that Management, in consultation

with all affected users of the E-Registration System, discuss the pros and cons of
terminating or continuing its contract with Vladimiroff Technologies Corporation.
Should it decide to terminate the contract, the amount of unrecouped advance payment
amounting to P290,440.50 be recovered from the contractor. In the future, Management
strictly comply with legal provisions on the grant of advance payment and imposition of
liquidated damages.

Results of Cash Examination

7.1 Discrepancies were noted in the amounts and payees indicated in some official receipts
(ORs) indicating flaws/control weaknesses in the Electronic Registration System (E-
Reg) and casting doubts on the reliability of the Student Ledger, Certificate of
Registration and other outputs generated by the E-Reg System.

Section 73 of the Government Accounting and Auditing Manual (GAAM),

Volume I requires that in preparing official receipts, all copies of each receipt shall be
exact copies or carbon reproductions in all respects of the original. Normal bookkeeping
procedures also require the issuance of valid and reliable source documents (i.e. official
receipts) which are later recorded in the accounting reports/records (i.e. Report of
Collections and deposits; subsidiary ledgers). The accuracy of recording depends to a
large extent on the integrity of the source documents. Any unauthorized changes in the
source documents result in inaccurate and unreliable accounting reports/records.

In order to ensure reliable and accurate financial information, internal control

measures should be adopted in an organization. Sound internal control procedures
require, among other things, the following:

i. Proper authorization and execution of transactions (Section 49, GAAM, Volume

III)
ii. Segregation of incompatible duties such as the asset custody function from the
recording function in order to eliminate opportunities to conceal errors and
irregularities. (Section 50, GAAM, Volume III)
iii. Proper supervision of subordinates to ensure adherence to prescribed policies and
procedures. (Section 51, GAAM, Volume III)

The BU E-Registration Project, among other things, generates the following:

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 a. Official Receipt (in General Form 51 format) – with OR number and date, name
of payor, details of payment, amount in words and figures.
b. Certificate of registration - with student name, total assessment, total payment,
outstanding balance, OR number and date; and
c. Students ledger - with student name, debit, credit and balance.

Normally, the ORs are printed under the E-Reg using the usual General Form 51
and payments are automatically posted in the Student Ledger. When the E-Reg system is
off-line, the ORs (General Form 51) are manually accomplished. Collection reports are
also generated by the E-Reg.

Our review of collections during the cash examination covering the period
November 9, 2012 to July 31, 2013 revealed violations of Section 73 of GAAM, Volume
I, above-mentioned. Annex J highlights the discrepancies in the amounts and payees
indicated in the official receipts (General Form 51) as follows:

a. Manually-prepared Official Receipts (ORs) vs. E-Reg-generated ORs

i. Discrepancies in the name of the payor/student [Items a, c, d, e, and f]

ii. Discrepancies in the amounts [Items a, d, e, and f]

b. Original/s tudent’s cop y v s. dupl icate/audit or’s cop y of man uall y-prepared
ORs

i. Discrepancies in the amount [Items b]

ii. The amount in words are usually not indicated in the original and duplicate copies
of the manually-prepared official receipt [Items a, c, d, e, and f]. In one instance
[Item (b)], the amount in words was indicated only in the duplicate copy but not
in the original copy of the OR.

Annex J also shows that the payment of one student is credited to another student [Items
a, c, d, e and f]. Annex K shows the instances when the amounts in words and in figures
as well as the details of payment in the duplicate copies of the ORs were changed. In
most of these instances, the OR was not duly signed/initialed by the collecting
officer/cashier. This occurrence was prevalent in manually-prepared ORs.

These discrepancies are not the result of mere errors but indicate intentional
manipulation of the official receipts by the person in a position and given the opportunity
to do so. These observations are red flags which indicate flaws or control weaknesses in
the Electronic Registration System (E-Reg) in violation of Sections 49, 50 and 51,
GAAM, Volume III, above-cited. Specifically, the lack of authorization and validation of
the posting of collections in the Student Ledger allowed the posting of “payment” in
favor of another student to the disadvantage of the real student/payor. The
computerization of the enrolment process has merged the cashiering (collection/issuance
of OR) and the recording functions (i.e. posting in the Student ledger) in one person – the
cashier. Moreover, the lack of supervision by the cashier over her subordinates opened
the opportunity for the latter to: a) manually prepare ORs without amounts in words
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making it easier to alter the amount in figures, b) change amounts in words and in figures
as well as the details of payment in the duplicate copies of the ORs, and c) post fictitious
“payments” to the Student Ledgers using OR numbers of legitimate student/payors but
using different names and amounts.

As a result, the reliability and accuracy of the Student Ledger and Certificate of
Registration, as well as other outputs of the E-Reg System is doubtful. Such practice was
disadvantageous to the real student/payors.

All of the above discrepancies would not have happened had the BU E-
registration system incorporated sufficient built-in controls such as:

a. Proper authorization/validation of payment before these are posted in Student

Ledger;
b. Proper segregation of the cashiering and the recording functions;
c. Limiting the responsibility/authority to post collections/payment in the Student
ledger and Certificate of Registration to a responsible accounting official and;
d. Supervisory controls over the work of subordinates.

A cursory review of the E-registration Systems Manual revealed that

authorization/approval controls were inadequate in the following cases:

a. Assessment/Billing – changing assessed accounts and amounts; adding removing

accounts.
b. Debit/Credit Memo – adjustment of assessment (with direct link to the Student
Ledger and Statement of Account).
c. Student with Bad Accounts – blocking a student; removing a student from the
blocked list; allowing a student with back accounts to enrol.
d. Cashier Settings – inclusion of a person in the List of Supervisors and List of
Cashiers with specific authority and limitation to perform certain transactions
such as editing, deleting, voiding an OR which can only be made by a supervisor.
However, if the user is not a supervisor, the system merely requires a user ID and
a password.

In the above-mentioned cases, the E-reg system merely requires “user

authentication” through a password. Thus, any user could make the changes without
proper authorization/approval from a designated responsible official.

Inquiry with some users also disclosed that although the system allows the
printing of Accounts Receivables (from students), the same is not linked to the electronic
New Government Accounting System (E-NGAS). In fact, accounts receivables from
students are not set-up or recorded in the E-NGAS. We also noted that the E-Reg allows
a user to choose the OR format which, in our opinion is objectionable because Section 68
of the State Auditing Code (P.D. No. 1445) requires COA approval “where mechanical
devices are used to acknowledge cash receipts” and when exemption from the use of
accountable forms (i.e. General Form 51) is sought.

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 Management informed the Audit Team that corrective measures were already
incorporated in the E-Registration Procedures to address the noted control weaknesses.
Internal Auditors were deployed to augment supervision work especially during peak
(enrolment) season.

We recommended that:

1. A systems audit of the program developed by Vladimiroff Technologies

Corporation be conducted by an independent IT Team for the purpose of
determining the sufficiency of internal controls built into the system and the
reliability of the outputs generated by the system. This should provide BU
Management a basis for reviewing its contract with Vladimiroff Technologies
Corporation and deciding whether to terminate or continue the contract.
2. The cashier must properly supervise her staff with regard to OR preparation (i.e.
completeness of information indicated therein; making changes in the amounts
and details of payment) and assume full responsibility for the work of her staff.
3. Cashiers and those assisting in the collection should refrain from making
unnecessary erasures or alterations on the Official Receipts in order to avoid
doubt or suspicion. When changes are necessary, the initially-prepared OR
should instead be cancelled and a new one issued.

7.2 In three (3) instances, nine (9) Official Receipts were issued not in strict
numerical sequence contrary to Section 73 of Government Accounting and
Auditing Manual (GAAM), Volume I.

Section 73 of GAAM, Volume I requires that pre-numbered official receipts shall

be issued in strict numerical sequence. The pre-numbering of Official Receipts (OR) is
designed to have control in the issuance and accounting for the said form. It ensures the
completeness of reported and recorded collections and allows the easy detection of
unrecorded collections.

Review of collections during the cash examination revealed that some ORs were
not issued in strict numerical sequence contrary to the above-mentioned Manual. Table 1,
below, shows the actual usage of fourteen (14) stubs with inclusive serial nos. 4849201 to
4849250; 4849251 to 4849300; and 3447401 to 34478000.

Table 1

OR No. (AF 51) Date Manner of Preparation

Issued
4849201 – 241 4/4/13 4849201 to 240 - E-Reg prepared; 4849241 -
manually prepared
4849242 – 245 4/8/13 Manually prepared
4849246 – 250 4/5/13 E-Reg prepared
4849251 – 253 3/26/13 Manually prepared

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 OR No. (AF 51) Date Manner of Preparation
Issued
4849254 – 268 4/5/13 E-Reg prepared
3448001* 7/3/12 Manually prepared

Hereunder are our comments:

a. OR Nos. 4849251 to 253 were issued on March 26, 2013 ahead of the series
4849201 to 4849250 which were issued later on April 4, 5 and 8, 2013.
b. OR Nos. 4849246 to 250 were issued on April 5, 2013 while the immediately
preceding OR Nos. 4849242 – 245 were issued later on April 8, 2013.
c. OR No. 3448001 is way out of series. Besides, the preceding OR numbers
3447408 to 3448000 contained in approximately twelve (12) stubs are still
unused.

This practice defeats the very purpose of pre-numbering. It makes accounting for
completeness of reported/recorded transactions more difficult; provides an opportunity
for the fraudulent use of ORs; and heightens the risk that unrecorded collections will not
be immediately detected.

The concerned Accountable Officer acknowledged the noted deficiency and

explained that such was the result of her Office having only 1 staff but serving 2
units/colleges which necessitated the assistance of job order workers, who, in their haste
to serve the long lines of students, pulled out the wrong official receipt stub (i.e. not
sequential).

We recommended that cashiers and employees performing collecting functions

should issue ORs in strict numerical sequence.

7.3 The cashbooks and other records of the Cashier were not periodically reconciled
with the subsidiary ledgers maintained by the Accountant, contrary to Section
181 (c) of Government Accounting and Auditing Manual (GAAM), Volume I.

Section 181 (c ) of GAAM, Vol. I requires that the Accountable Officer shall
reconcile the book balance with the cash on hand daily and that he shall foot and close
the books at the end of each month. Likewise, it also mandates that the accountable
officer and the accountant should reconcile their books of accounts at least quarterly.

Reconciliation of the Cashbooks, Cash Receipts Record (CRR), Cash

Disbursement Record (CDR), and Check Disbursement Record (CkDR) of the
accountable officer and the subsidiary ledgers maintained by the Accountant is necessary
in order to detect errors in recording, unrecorded transactions or any adjustment that
should be made to reflect the correct balances of accounts in the books at any given
period.

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 Our cash examination of all the accounts covered by the accountabilities of Ms.
Ma. Suzette S. Madelar covering the period November 9, 2012 to July 31, 2013 disclosed
the following:

Particulars Amount

1. Unrecorded collections P 41,719.08

2. Unrecorded deposits 50,533.48
3. Unrecorded cash advances 792,740.16
4. Unrecorded liquidation of cash advance
a. Not yet taken up in the books 708,201.99
b. Delayed recording 1,779,348.85
5. Overstatement of recorded liquidations 25,906.25
6. Reconciling items pertaining to period prior to the cash
examination (before November 9, 2012) 1,851.18
7. Erroneous recording in other College, Fund or
Account 219,822.94
8. Overstatement of recorded collections 20.00
9. Understatement of recorded deposits 0.30
10. Difference between the subsidiary ledger balance and
the certified balance of undeposited collections during
the previous cash examination. 4,005.00
11. Others (unrecorded refunds or erroneous recording in
other accounts) 49,153.70

1. The P41,719.08 represents collections for Fund 101-CBEM amounting to P22,445.40

during the period November 9, 2012 up to July 15, 2013 and a total of P19,273.68 for
Fund 101-CSSP collected during the period March 22, 2013 up to June 13, 2013
which remained unrecorded as of July 31, 2013 (count date).
2. The P50,533.48 represents deposits of CBEM and CSSP under Fund 101 during the
period November 12, 2012 up to July 15, 2013 and March 22, 2013 up to June 2,
2013 amounting to P26,555.00 and P23,978.48, respectively, which were not taken
up in the books as of July 31, 2013 (count date).
3. Of the total unrecorded cash advances of P792,740.16 as of July 31, 2013,
P712,740.16 pertained to cash advances granted in July 2013 but were taken up in the
books only in August 2013 in spite of the agency policy to prepare the reports on a
weekly basis to facilitate the booking up of the transactions within the month. The
remaining amount of P80,000.00 (Fund 101/GASS/Account 103) pertained to cash
advances granted on June 25, 2013 per Check Nos. 1549529 and 1549530 with the
amount of P50,000.00 and P30,000.00, respectively, which were not taken up in the
books as of July 31, 2013 (count date).
4. The P708,201.99 represents unrecorded liquidations as of July 31, 2013 (count date).
5. The P1,779,348.65 consists of liquidations made on or before July 2013 but taken up
only in the books in August 2013 or beyond.
6. The overstatement of recorded liquidations amounting to P25,906.25 was due to the
lack of proper review by the accounting department before preparing the JEV for

67
 payrolls that had some refunds. This was also partly because the Accountable Officer
failed to indicate in the Report of Disbursements the amount of payroll actually paid
and the amount of refund, including the number and date of the Official Receipt.
7. The reconciling items that pertain to periods prior to this cash examination are
adjusting entries made as shown in the subsidiary ledgers (Fund 164/CBEM and
CSSP- Account 102). We have noted that the JEVs for adjusting entries lack
sufficient information that would facilitate tracing the source of the adjustment, such
as the JEV number or the check number and its date and a concise explanation for the
adjustment making it difficult, even for the accountant who prepared the JEV, to
recall the reason and source of the adjustment.

Had there been periodic (quarterly) reconciliation of records by the concerned

accountable officer and the accountant, the noted unrecorded transactions and errors
could have been detected and corrected earlier.

Although we noted that such errors and unrecorded transactions misstate affected
accounts in the meantime (i.e. as of count date), not all such misstatements affect the
balance of affected accounts as of December 31, 2013.

The former Cashier of the Daraga Campus admitted that no periodic

reconciliations were made unless errors were noted. She also explained the various
circumstances under which the audit observations occurred.

We recommended that Management:

1. Require the incumbent Accountant of CBEM/CSSP to effect immediately the necessary

adjustments for the reconciling items noted above.

2. Remind Accountants and Cashiers of all the operating units/colleges of the University
about the required quarterly reconciliation of the Cashier’s records with the
Accountant’s subsidiary ledgers.

3. Require all the Accountants of the University to attach the corresponding JEVs to the
DVs, payrolls and collection reports. Copies of Journal Entry Voucher(s) for
adjustments made or for any non-cash transactions recorded in the books should be
submitted to the Auditor’s Office, together with the supporting document, if any, on a
monthly basis.

4. Require all the Cashiers of the University to indicate properly in the Report of
Disbursements the actual amount paid for the payroll being liquidated and the amount
refunded including the date and number of the OR. If possible, photocopy of the OR
should be attached to the report.

After the Exit conference on August 4, 2014, the Accountant of the BU – Daraga
Campus provided the Audit Team with a copy of the adjustments made on the reconciling
items noted and an explanation that items which were not adjusted were already

68
previously recorded, albeit, delayed (after the cash examination date). The BU – Daraga
Campus Accountant assured the Audit Team about compliance with the other audit
recommendations in the future.

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