Mindanao Daily

DETAILS OF SIGNIFICANT FINDINGS
AND RECOMMENDATIONS

Finding No. 7
Withdrawal of supplies carried in stock from the warehouse of the City General Services Office valued in the books at P729,808.09 were made thru vales instead of the required Requisition and Issue Slip, contrary to Section 116 of the New Government Accounting System (NGAS). Its failure to report the issuance to the Accounting Office causes the inventory cost at year-end to be overstated.
Procedures under Section 116 of the New Government Accounting System for requisition of supplies carried in stock require that it shall be made thru the preparation by the department or office of the Requisition and Issue Slip (RIS). Once supplies are available, an Obligation Slip (OS) must be attached containing certification from the department head as to the necessity of the supplies for official use and the availability of appropriations from the Budget Officer. Approved RIS and OS are bases for the supply officer in charge of the custody of the supplies for the issuance to end-user.
An examination of stock inventory for supplies carried in stock disclosed that as of December 31, 2008, there were issuances thru vales that were made by the General Services Office without the duly approved RIS. There are vales that bear only the signature of staff employees hence, were not approved by the Head of Office or Department needing the supplies.

Total amount of supplies already withdrawn from the warehouse is valued at P729,808.09. Breakdown of the withdrawals as to who were the end-user and supply classification, are as follows:

Total Amount
Accounting Office
P     25,132.46
City Mayor’s Office
449,070.04
General Services Office
108,543.34
Tourism
31,929.59
Barangays
73,600.70
Treasurer’s Office
10,619.70
Dapitan City Resort Hotel
8,434.25
Human Resource Management Office
6,672.00
Sangguniang Panlungsod
5,733.00
Other Offices
10,073.01
TOTAL
P   729,808.09

The irregular withdrawal of supplies from stock without the prescribed approved requisition form overstated the inventory account as of December 31, 2008 because the usual Supplies and Materials Issued Report which consolidates all issuances of supplies coming from stocks, are not yet prepared for the purpose, hence, the same were not duly recorded in the books of accounts.
The uncontrolled and unauthorized issuances of supplies coming from stock of the General Services Office have to be properly reviewed by the City General Services Office in order to enhance proper accountability of those persons in charge of the custody, otherwise, losses to the city government will remain unchecked.
Management Comment:
The General Services Office justified that it decided to issue these supplies out of immediate necessity to end-users of the different offices in order not to hamper its normal operations. Nevertheless, the Requisition and Issue Slips are already routed for approval by concerned Department Heads.
Rejoinder:
The practice of stock issuances without duly approved RIS is devoid of any administrative policy and is a complete breakdown of existing control measures to safeguard its assets. This practice continues to thrive because preparation of requisitions of supplies needed by the departments or offices is made only as the need arise without observing the normal procurement processes, thus substantial delays could not be avoided.
Recommendation to Isabela City Government:
Direct the General Services Office to stop the practice of issuing stock unless an approved RIS is presented. Essential items may be issued only in exceptional cases such as emergency where vale maybe entertained provided an RIS will follow. Also require those personnel in charge in the custody of stocks to periodically reconcile stocks with records. Any variances should be looked into.
1. The Acting Accountant failed to submit paid disbursement vouchers and payrolls covering the period May- December 2008 for post-audit purposes in violation of the provisions of Section 107 of Presidential Decree No. 1445 and Article 218 of the Revised Penal Code, thus casting doubt on the propriety and legality of these transactions.
Provisions of Section 107 of PD. 1445 states:
“ In the absence of specific provision of law, all accountable officers shall render their accounts, submit their vouchers, and make deposits of money collected or held by them t such times and in such manner as shall be prescribed in the regulations of the commission”( underscoring supplied)
Provisions of Article 218 of Revised Penal Code:
“ Failure of accountable Officer to render accounts- Any public officer, whether in the service or separated therefrom by resignation or any other cause, who is required by law or regulation to render accounts to the Insular Auditor (now Commission on Audit) , or to  provincial auditor and who fails to do so for a period of two months after such accounts should be rendered, shall be punished by prision correccional in its minimum period, or by a fine ranging from 200 to 6,000 pesos, or both”
Despite several verbal follow ups made by our office to the Acting Accountant during the calendar year 2008, the disbursement vouchers/ paid payrolls  from the period May and June 2008 were not submitted to our office. He alleged that he is still checking if the supporting documents to the vouchers are complete including signatures to avoid receiving Notice of suspension from the Auditor’s Office. This is an indication that the Acting Accountant does not conduct pre-audit on the said vouchers during processing. Vouchers and Summary of Payrolls were not verified as to completeness, legality and correctness. He only checks if the requirements are complete after the vouchers had been paid resulting to delay in its submission to our office. This practice reflects poor internal control. Pre-audit should be done before payment and not after. The non-submission of vouchers resulted in the non-verification of transactions in the books of accounts, non-post-audit of transactions covering the period May to December 2008, thus casting doubt on the propriety and legality of the transactions.
During the exit conference last February 12, 2009, the Acting City Accountant reasoned out that the submission of disbursement vouchers for May 2008 to December

2008 was further delayed due to the instruction of the City Mayor to have all disbursement documents be photocopied before submission. The creation of the Internal Control Unit was also considered by the City Mayor to review all disbursements documents before payment thereof.
Recommendation to Isabela City Government:
We recommend that the Acting Accountant should submit the disbursement vouchers and paid payrolls covering the period May to December 2008 immediately to the Auditor’s Office and all subsequent transactions within 10 days of each month after it has been recorded in the books of accounts pursuant to Section 107 of PD. 1445 and. Furthermore, he should conduct pre-audit of transactions by checking its legality and completeness of the supporting documents during processing before payment will be effected as part of a sound internal control system. Otherwise, appropriate charges for Failure to Render Account under Article 218 of the Revised Penal Code shall be instituted against concerned accountable officer.
2. The outstanding balance of Advances to Officers and Employees, all funds, amounting           P 32,686,866.52  as of December 31, 2007 had increased to        P 42,596,307.85, or 30% as of September 30,  2008 due to poor monitoring system in place especially on the part of the Accountant to strictly impose the provisions of Section 4.1.2, 4.1.3, 4.1.4 and 5.1.3 of COA Circular No. 97-002 Dated  February 10, 1997 and Section 48 (k) of COA Circular No. 92-382 which resulted to overstatement of Cash/Receivable account and understatement of Expense account.
Stated below are the pertinent provisions of COA Circular No. 97-002:
“ 4.1.2- No additional cash advance shall be allowed to any official    or employee unless the previous cash advances given to him is first settled or a proper accounting thereof is made.
4.1.3- A cash advance shall be reported on as soon as the purpose for which it was given has been served.
4.1.4– Only permanently appointed officials shall be designated as disbursing officers. Elected officials may be granted a cash advance only for their official traveling expenses. “
5.1.3 -  Official Travel – within sixty (60) days after return to the Philippines in the case of foreign travel or within thirty (30) days after return to his permanent official station xxx
Failure of the AO to liquidate his cash advance within the prescribed period shall constitute a valid cause for the withholding of his salary and the institution of other sanction xxx

Section 48 (k) of COA Circular No. 92-382 states:
“ The cash advances shall be liquidated as follows:
* Salaries, wages, etc. – within 5 days after each 15 days/end of the month pay period.
* Petty operating expenses- within 20 days after the end of the year; subject to replenishment during the year.
* Foreign travel- within 60 days after return to the Philippines”
Provisions of Article 218 of the  Revised Penal Code:
“ Failure of Accountable Officer to render accounts- Any public officer, whether in the service or separated therefrom by resignation or any other cause, who is required by law or regulation to render account to the Insular Auditor (now Commission on Audit) or to provincial auditor and fails to do so for a period of two months after such accounts should be rendered, shall be punished by prision correccional in its minimum period, or by a fine ranging from 200 to 6,000 pesos, or both”
The Trial Balance of the General Fund, Trust Fund and Special Education Fund  as of September  30, 2008 disclosed  that  the consolidated balances of Advances to Officers and Employees account  amounted to P42,596,03.85 (See Annex “C”)  The Advances of Officers and Employees account includes cash advances for travel, catering services for ZPRAA athletic activities, purchase of vehicles, purchase of office equipment, freight and handling and other purposes of officials and employees which had remained unliquidated after their purposes had been served Most of the personnel have several outstanding cash advances which were not liquidated although they were issued demand letters by the Acting Accountant and this office. Some of the cash advances were granted way back 1995. The Acting Accountant failed to impose sanction on the erring officials and employees, instead they were still granted additional cash advances. The Schedule of  Advances to Officers and employees  of the  General Fund submitted as of September 30, 2008 amounting to P38,311,435.46 had not been   reconciled with the General Ledger balance of P 41, 161.738.76. Similarly, the Payroll Fund has still an outstanding balance of P19,723,834.00 as of the said date. This amount includes unliquidated cash advances for salaries and wages of the Officer-in- Charge amounting to P 296,120.94 and the outstanding balance of the previous city treasurer.   This practice is an indication of a poor monitoring system in place and management had not created strategy to address the problem.  The continuous increase in the balances of Advances to Officers and Employees would greatly affect the overall financial status of the city since it had overstated the Cash and Receivable accounts and understated the corresponding Expense accounts for current and previous years.

The City Mayor commented that she has already written the former City Treasurer regarding his unliquidated cash advances and sent demand letters to all city officials and employees for the immediate liquidation of their cash advances. She further stressed that she will stop granting cash advances to all officials and employees with outstanding cash advances and initiate a salary deduction scheme to apply on their long overdue accounts.
Recommendation to Isabela City Government:
Stop the practice of granting additional cash advances to officers and employees who still have outstanding cash advances. Require all personnel with unliquidated cash advances to settle the same immediately either by submitting the liquidation report or refunding the amount taken. In the event the officers or employee refuse to do so, the amount should be deducted from their salary or appropriate charges may be filed for failure to render accounts pursuant to Article 218 of the Revised Penal Code. Furthermore, the Acting Accountant should reconcile the total balance per schedule with the General Ledger.

3. The Bank Reconciliation Statements (BRS) required as proof of the accuracy and correctness of the Cash in  bank account were still not prepared and submitted by the Acting City Accountant in violation of 3.1, 3.2 and 3.3 COA Circular No. 96-011 dated October 2, 1996 which resulted to non-reconciliation of balances between the Cashbook, General Ledger (GL) and the Bank Statements (BS) .
Sections 3.1 and 3.2 of COA Circular No. 96-011provide that :
“ 3.1- The depository/servicing banks shall furnish the Local accountant with the Bank Statement(BS) including debit/credit memos (DM/CM), paid checks, etc, within five (5) days after the end of each month which shall be the basis for the preparation of  the monthly Bank Reconciliation Statements (BRS).
3.2- The local accountants shall within ten(10) days from the receipt of the Bank Statements, reconcile the same (BS)  with the General Ledger (GL) and prepare the BRS in five copies, xxx
3.3- the accountant shall draw journal vouchers to record all valid reconciling items that require adjustment and correction in the GL.
This finding is being reiterated from our CY 2005 audit report.  Despite the recommendation to require the Acting Accountant to prepare and submit BRS, he and his staff continuously failed to do so.Verification of records by the audit team was limited to  those for the CY 2005 to 2007 and records prior to CY 2005 were not verified. The non-preparation of the BRS resulted to the failure of the Acting Accountant to uncover that there were checks drawn from January 2005 to May 2007 totalling P 23,998,312.99 in the General Fund which were not recorded in the books. This deficiency was already
reported in the CY 2007 Annual Audit Report. The checks drawn represent those without lawful appropriations and those without duly approved disbursement vouchers. Had the Acting Accountant prepared the BRS on a monthly basis, this irregularity could have been prevented or detected and subsequently a reconciliation between the General Ledger, Cashbook and BRS can be effectively made. Also the Cash in Bank account as of Sept. 30, 2008 is overstated by P 23,998,312.99.
The Acting City Accountant alleged that their office is now in the process of preparing the adjustments for erroneous entries of the cash accounts. The bank reconciliation statement as of September 2008 for Trust fund was already submitted to the auditor. The Mayor further commented that she will recruit a CPA to assist the Accountant’s Office in the preparation of bank reconciliation statement.
Recommendation to Isabela City Government:
Require the Acting City Accountant to reconcile the records with the Treasurer’s Office from the last BRS to date to establish the correct balance of the Cash in Bank account especially in  the General Fund. Otherwise an administrative case may be charged against the accounting personnel concerned for the  continuous failure to submit the BRS pursuant to 3.9 of COA Circular No. 96-011 which states:
3.9- xxx , the Director concerned shall, after evaluation, recommend the filing of administrative charges against officials responsible for the delayed submission/non-submission, if warranted on the basis of the evidences/documents.
4. The present Bids and Awards Committee ( BAC)  did not conduct pre-procurement and pre-bid conferences to thresh out issues and concerns regarding problems in procurement with  observers from COA  and NGOs to   promote transparency in   the procurement proceedings in violation of IRR Sections 20.1, 20.1.3, 20.1.4,  22.1 & 22.2 and Section 13 of R.A 9184.
Sec. 20.1, 20.1(3) and 20.1(4) of IRR of RA 9184 states:

“ Section 20.1 – Prior to the advertisement or the issuance of the Invitation to Apply for Eligibility and to Bid  for each procurement undertaken through a public bidding, the BAC, through its Secretariat, shall call for a pre-procurement conference. The pre-procurement conference shall be attended by the BAC, the Secretariat, the unit or officials, including consultants hired by the procuring entity who prepared the technical plans, technical specifications, TORs, bidding documents xxx
20.1.3. Review, modify and agree on the criteria for eligibility

screening to ensure their fairness, reasonableness and that they are of   the “pass/fail” type and are written in such manner

20.1.4 Review, modify and agree on the criteria for evaluation of bids/ proposals to ensure their fairness,  reasonableness and applicability to the procurement at hand;”
Sections 22.1 & 22.2 IRR of R.A 9184 also states that:
Xxx At least one pre-bid conference shall be conducted for each procurement, unless otherwise provided in IRR. Subject to the approval of the BAC, a pre-bid conference may also be conducted upon the written request of any prospective bidder xx.
xxx  The pre-bid conference/(s) shall be held within a reasonable period before the deadline for receipt of bids to allow prospective bidders to adequately prepare their bids, xxx and
Section 13 of R.A 9184 states that:
“  xxx To enhance the transparency of the process, the BAC shall in all stages of the procurement process, invite in addition to the representative of Commission on Audit, at least two (2) observers to sit in its proceedings, one (1) from a duly recognized private group in a sector or discipline relevant to the procurement at hand and the other from a non-government organization; Provided, however. That they do not have any direct or indirect interest in the contract to bid out.  The observers should be duly registered with Securities and Exchange Commission xxx.”
The  BAC did not conduct pre-procurement and pre-bid conferences for procurement made by the City Government of Isabela even if the procurement of goods is  over one million pesos (P1,000,000.00). The Committee did not convene to clarify and /or explain any of the requirement, terms, conditions and specifications stipulated in the bidding documents, the technical and financial components of the contract to bid and for the procurement of goods, and  the eligibility requirements. Pre-procurement is important because at this stage, the BAC will determine the shortlist of suppliers and contractors who are qualified to bid. From the list, the canvasser will pick-up the prospective bidders based on their items offered for sale. The determination on the potential bidders should be from the shortlist set by BAC.  In no instances should the discretion be left to the canvasser. Furthermore, other observers from NGOs were not invited to attend the proceedings like opening of bids and pre-procurement/ pre-bid conferences to thresh out issues. Copies of the minutes of the BAC meeting were not furnished to the observer.

The BAC Chairman alleged  that the BAC has already conducted the pre-procurement and pre-bid conferences in CY 2008 after they received an Audit Observation Memorandum regarding the deficiency.  However, minutes of the conferences were not made available to us despite demands.
Auditor’s Rejoinder:
Despite the allegations made by  the BAC Chairman that the BAC is conducting pre-procurement  and pre-bid conferences, our office noted that the BAC only conducted conference  at the beginning of the  year for eligibility screening of suppliers. However, when there are additional suppliers who  participated in the bidding process during the year especially those from Manila and other places, no conferences were held to pre-qualify them or to thresh out problems in procurement before awarding of contract were made or Purchase Order were issued
Recommendation to Isabela City Government:
The BAC should conduct at least one pre-procurement / pre-bid conference or as the need arises to clarify terms and conditions and specifications stipulated in the bidding documents. The Committee should  set or create a shortlist of suppliers and contractors as a guide to canvassers on whom to serve canvass papers and invitation letters should be send to observers to witness/ attend the proceedings of the  conference and special meetings to enhance transparency,  in compliance with implementing rules and regulations of R.A 9184. The BAC should act independently free from pressure of any officials to effectively discharge its function.
5. Donations amounting to P 1,027,809.75  were paid through reimbursement with Reimbursement and Expense Receipt (RER) attached but  were not supported with the required Certificate of Indigency and Social Case Study Report in violation of Administrative Order No. 54 s. 2003.
Provisions of Administrative Order No. 54 s. 2003 provide that:
A. For request requiring funding assistance amounting to
P 2,000.00 or below:
1. General Intake Sheet
2. Certificate of Eligibility
B. For request requiring assistance of over P2,000.00 but
below P 5,000.00
1. General Intake Sheet
2. Certificate of Eligibility
3. Referral
4. Any proof of hospitalization or death if such is the
reason for requesting assistance

C  .For  requests requiring assistance P5,000.00 and over
1. General Intake Sheet
2.Certificate of Eligibility
3. Referral
4. Any proof of hospitalization or death if such is the reason for
requesting assistance
5. Social Case Study Report
Reimbursement and Expense Receipts (RER) ranging from P1,000.00 to P 7,000.00  were attached to the reimbursement voucher of the OIC, Treasurer’s Office representing financial assistance/donations granted to individuals without  conducting interview by the personnel of the City Social Welfare and Development Office to check on the eligibility of the clients. In most cases, the RER were not properly accomplished as to the printed name and the address of the persons asking for financial assistance/donations.  The ideal procedure is for the client to visit the CSWDO for interview and filling up of the required forms before approaching the mayor for approval of amount to be granted. However, in this practice, the CSWDO no longer interview clients since it is the Mayor or City Administrator doing the interviews and prepare immediately routing slips with the amount indicated which were forwarded directly to the OIC, Treasurer Office for filling up of RER and then cash is given to the client without preparing all the required supporting documents.  Although the practice entail  less time but the standard procedures and documents required to be accomplished for financial assistance to be given  were taken for granted  in violation of rules and regulations in the grant of financial assistance/donations.
Recommendation to Isabela City Government:
Strictly follow the step by step procedure in the grant of financial assistance/donations to ensure that only indigent can avail. All donations regardless of amount should be paid by check.

Management Comments:
The City Treasurer commented that the audit observations are well taken and that the audit recommendation will be properly observed.

6. Acquisition of construction materials thru takay system in the amount of P1,443,126.35 did not conform with the Rules and Regulations on Supply and Property Management in the Local Governments (COA Cir. No. 92-386), hence, quantity, specification and reasonableness of the cost could not be ascertained.
Provisions of COA Circular No. 92-386 state that:

“ Section 27. Public Bidding as the Primary Mode of Procurement. -Except as

otherwise provided herein, acquisition of supplies or property by local government units shall be through competitive public bidding.
Section 29. Procurement Organization. -In every province and city, the office of the general services officer shall exercise the function of acquiring for the province or city all its supply or property requirements. xxx
Section 114.a. Purchase made by the local government units must be inspected and verified by their authorized inspector for conformity with specifications in the order. Xxx
Section 115. Submission and Approval of, Inspection Reports.- The property inspectors of the local government units shall promptly submit reports of all inspections finished during the day to their supervisors for evaluation and approval. The approved inspection report and other documents pertaining to the inspection shall form part of the supporting papers of the disbursement voucher covering the payment of the purchases”.
The city implements all its infrastructure projects by administration.  One of the projects implemented during the first quarter of 2008 was the repair and rehabilitation of farm to market road at Calvario-Maligue, wherein the material requirements such as crushed stones, finger corals and filling/binder materials in the total amount of P1,443,126.35 were acquired through takay system. Audit of payments of materials delivered disclosed that the claims were supported with summary of payrolls and payroll jackets indicating the volumes of deliveries, the names of the laborers who made the deliveries and the corresponding amount. Based on the documents submitted, the Project Engineer and the City Engineer who supervised the implementation of the project, were also responsible in the acquisition/acceptance of materials. There was no bidding or competitive selection of   pakyaw labor. Also contract papers and  Inspection and Acceptance Report (IAR) were not submitted to establish that volume of the materials delivered and to determine whether what has been delivered meet the required quantity and specifications per program of work and were obtained at the lowest price possible, in violation of the above cited regulations. There was no evidence to show that the deliveries were inspected by property inspector from accounting department, which is the usual practice. The transaction is found to be irregular since only two (2) personnel were involved in the procurement and execution of the project. This practice if allowed to continue would result in the breakdown of internal control and contravene the main objectives of the government which is to ensure transparency, regularity and validity of the transactions.
The City Engineer reasoned out that upon receipt of the Audit Observation Memorandum (AOM) relative to procurement of materials through takay system, an inspectorate team composed of the personnel of the City Engineer’s Office was created. Moreover, the City Mayor commented that since the farm to market projects were already completed, she is requesting that the said projects be inspected to determine/establish the volume of the deliveries of materials. She also assured that the deficiencies noted will not be repeated.

Recommendation
Require the City Engineer and Project Engineer to explain in writing as to why the standard procedures on the procurement of construction materials were not followed. Furthermore, we recommend that management should strictly abide with the rules and regulations on supply and property management in the acquisition of materials use in the implementation of infrastructure projects by administration to avoid suspension or disallowance in audit.
VALUE FOR MONEY AUDIT:
7.  The city had collected P 2,208,585.29  on real property taxes or  merely 17.66% of its targeted collections amounting to P P12,500,000.00 due to the failure of the City Treasurer to intensify collection campaign.
It is the duty of the City Treasurer to see to it that the Statement of Income Projection certified by her in the Approved Annual budget are attainable and will be collected during the budget year. This is necessary in order to achieve  the programs and projects   lined up for implementation during the year.
Based on the CY 2008 annual accomplishment report submitted by the City Treasurer, it revealed that the total amount collected by that office for real property taxes for the year amounted to P 2,208,585.29 or 17.66% of the total projected income of P 12,500,0000.00. The total projected income includes real property taxes for current year, previous year and penalties amounting to P6,5M, P4M and P2M respectively. Due to the ordinance passed by the  Sangguniang Panglunsod which gave amnesty to delinquent taxpayers to boost collections, there was a slight increase of 7% compared to last year. However, the amount is still way below the estimated income to be collected. With the tax incentives given, the city could have collected at least 50% of the total project income on real property taxes.
The City Treasurer, in her letter dated February 11, 2009, stated that the low collection on real property tax was due to the prevailing economic crisis and that the projected income for CY 2008 includes the tax liability of Basilan Electric Cooperative in the amount of P6.5M which has remained unpaid during the year. She also gave her assurance to increase the tax collections in the coming year by way of viable strategies and to be more conservative in projecting revenue income.
Auditor’s Rejoinder:
The reason given by the Present City Treasurer was also cited by the previous city treasurer on why the collection efficiency of the city on real property taxes was so low compared to the certified income as per approved budget. This collectible may not yet be realized because of present financial condition of the electric cooperative.   Per analysis,
the projected income was bloated to make it appear that the city has enough income to fund/ justify the huge expenditures of the city.

Recommendation to Isabela City Government:
Require the City Treasurer to certify only in the Statement of Projected Income in the proposed budget the amount which are realistic and can be collected during the year so that the expenditures for the ensuing year will not be overstated for budget purposes and to intensify collections so that all programs and projects earmarked for the year can   be implemented.

DETAILS OF SIGNIFICANT FINDINGS
AND RECOMMENDATIONS

Finding No. 6
The failure of the BAC Secretariat to consolidate the approved Purchase Request submitted by each department/office heads resulted in the piecemeal acquisition of goods and services, thus advantages in bulk procurement could not be availed of. Likewise, the old practice of sending Price Quotation or personal canvass to known suppliers by the personnel of GSO or BAC Secretariat is still observed, thus, favoritism with suppliers could not be discounted.
Each procuring entity shall prepare, maintain and update an Annual Procurement Plan that includes Project Procurement Management Plan (PPMP) and approved by the City Mayor consistent with the duly approved yearly budget. Consistent with the government fiscal measures, only those crucial to the efficient discharge of government functions or those required in the day-to-day operations or in pursuit of the principal mandate of the city shall be included in the APP.
The function to consolidate the APP is lodged with the Bids and Awards Committee Secretariat in accordance with Section 7, Rule 1, of the Implementing Rules and Regulations of Republic Act No. 9184.
Likewise, the sending of Price Quotations to suppliers is now discontinued as Section 21 of RA 9184 provides that the Invitation to Apply for Eligibility and to Bid for public bidding is mandated to be posted in conspicuous places in the premises of the procuring entity in addition to the posting in its website and the Government Electronic Procurement Service (GEPS).
The only instance where the price quotation is obtained is when shopping, as the alternative mode of procurement, is applied provided the conditions for its application is present and when the Bids and Awards Committee recommends and approved by the City Mayor.
In the verification of various procurements made by the City Government and during interview, it was observed that the serving of “Price Quotation” by personnel of the Bids and Awards Committee to suppliers is still being practiced. The preparation of price quotation by the BAC is based on individually approved purchase request, thus  voluminous documents are being processed by BAC during the bid opening, instead of consolidating it and preparing only one Invitation to Apply for Eligibility and to Bid, to give them sufficient time to conduct the detailed evaluation and review of the bid tender of participating and complying bidders; comply with the rules and regulations on RA 1984 and improve the necessary procurement process of the City Government.
This practice not only violates the procedures in public bidding but also deprive the city government of any discounts that maybe given by suppliers in bulk procurement.

Management Comment:
The consolidation of duly approved purchase requests has already been made effective February 2009 by the BAC Secretariat, however, due to reluctance of some other suppliers to participate in the public bidding, the sending of consolidated PR/Price Quotations is still made for the procurement to be competitive.

Recommendation to Isabela City Government:
Direct the BAC Secretariat to consolidate all received approved Purchase Requests into one Price Quotation according to similar classification such as: Drugs & Medicines; 2. Construction Materials; 3. Office/Computer Supplies; 4. Office/Communication Equipment; 5. Furniture & Fixtures; Agricultural/Veterinary Supplies; (6) Spare Parts; and 7. Groceries/Janitorial Supplies as attachment to the Invitation to Apply for Eligibility and to Bid.
Discontinue the sending of Price Quotation to prospective suppliers to avoid favoritism by personnel assigned to distribute the same.

DETAILS OF SIGNIFICANT FINDINGS
AND RECOMMENDATIONS

Finding No. 5
Unserviceable Property, Plant and Equipment valued in the books at P2.655,000.00 was not yet dropped from the books of accounts due to the failure of the Committee on Awards to dispose, thru public auction or negotiated sale, and submit the Inventory and Inspection of Unserviceable Motor Vehicle Report to the Accounting Office, hence, the reported property accounts as of December 31, 2008 was overstated.
Section 162 of Rule 21, Title V on the Rules and Regulations on Supply and Property Management in the LGU’s, provide:
“When Supplies or Property of any local government unit have become unserviceable for any cause or are no longer needed, the same shall be disposed of in accordance with the procedures prescribed.”
The City General Services Officer is responsible for the disposal of supplies or property of the city government which have become unserviceable or no longer needed. Public auction is the primary mode of disposal, however, for justifiable reasons, it may be also disposed either sale thru negotiations, transfer without cost to other offices or department or other government agencies; and or by destruction.
The disposal of unserviceable equipment/vehicles shall be made thru the preparation of Inventory, Inspection and Appraisal Report (General Form No. 17-A) which are submitted to the assigned local auditor for determination whether the same are with value or without value. If the same are found to be valuable, it will recommend its sale thru public auction, otherwise, he shall recommend its destruction. The report is then returned to the General Services Office thru the Committee on Awards who shall appraise and consider the floor price of the unserviceable property.
The Committee on Awards shall then prepare the Invitation to Bid which shall contain the date of issuance; location of the supplies or property; quantity and adequate description of the supplies and property to be disposed of; statement of reservation or option on the part of the LGU to accept or reject any or all bids and to waive any formal defects in the bid; and clear instruction on how the bids are to be accomplished and submitted.
Opening of bids shall be made at the time, date and place stated in the invitation. The Committee shall within three (3) days from the opening date, decide the award and notify the awardees. Award shall be given to the highest complying bidder provided that offer is not less than the appraised value of the property being sold.
When public auction is impractical, negotiated sale maybe resorted to as such price as determined by the Awards Committee.
The City General Services Office forwarded an Inventory and Inspection of Unserviceable Property containing seven (7) unserviceable vehicles of different make or brand. The reason for its consideration that the unit is unserviceable was due to “Beyond Economical Repair”. These unserviceable properties are valued in the books at P2.655 million (See Annex “H”) and was acquired by the city government twelve (12) years ago.
When the report was forwarded to the Auditor’s Office for inspection, it was returned requiring the city government to submit its appraisal report as the Inventory Report did not show the appraised valuation for the proper determination of the floor price when these are to be sold thru public auction or negotiated sale as the circumstances warrant. To date the report is now with the City General Services Office pending preparation of the appraisal report and has yet to be returned to COA for appropriate action.
The failure of the City General Services Office to act immediately on the Inventory and Inspection Report of Unserviceable Motor Vehicle valued in the books at P2.655 million, denied the City Accounting Office to drop from its books of accounts the value of these assets for lack of appropriate documents for disposal.
In addition, these unserviceable motor vehicles, which are occupying enough space in the City General Services Office compound, will only diminish its salvage value owing to its exposure to various kind of element and that the space occupied could have been used for storage or garage for city-owned motor vehicles.
Management Comment:
Management agreed with our observation and promised that effective April, 2009, those inventory records of unserviceable properties will be duly acted with dispatch and appraisal report will be made immediately to facilitate disposal.
Recommendation to Isabela City Government:
Assign a responsible person from the Motor Pool Division of the City Engineering Office, preferably a Mechanical Engineer, to prepare immediately the appraisal report for the determination of the floor price of the unserviceable vehicle ready for auction sale. After the disposal, submit the report to the Accounting Office for the proper recording in the books of accounts.

DETAILS OF SIGNIFICANT FINDINGS
AND RECOMMENDATIONS

Finding No. 4
Depreciation for calendar year 2008 was inadequately provided due to incomplete records of Property, Plant and Equipment acquired in prior years, thus, the reported expenses was understated by P2,545,232.24.
The provision of depreciation is in accordance with the International Accounting Standards and based on the concept that the cost incurred for the revenues and benefits should be recognized as expense over the same period when such revenue and benefits are realized.
Section 4(o) of the Manual on the New Government Accounting System for LGU’s (COA Cir. 2002-003 dated June 20, 2002) provides the method of depreciation that should be used for acquired property, plant and equipment.
Likewise, COA Circular No. 2003-007 December 11, 2003 adopted the revised estimated useful life in computing depreciation expense for the said acquired property, plant and equipment, as follows:

Property, Plant and Equipment
Estimated Useful Life
Buildings:
Wood
10
Mixed
20
Concrete
30
Office Equipment, Furnitures & Fixtures:
Office Equipment
5
Furnitures & Fixtures
10
IT-Equipment-Hardware
5
Library Books
5
Machineries and Equipment:
Machineries
10
Agricultural, Fishery and Forestry
10
Communication Equipment
10
Construction and Heavy Equipment
10
Medical and Dental Equipment
10
Sports Equipment
10
Technical and Scientific Equipment
10
Other Machineries and Equipment
10
Transportation Equipment
Motor Vehicles
7
Watercrafts
10
Other Property, Plant and Equipment
5

The computation of depreciation is based on straight-line method. A residual value equivalent to ten percent (10%) of the acquisition cost shall be deducted before effecting the depreciation by dividing over its estimated useful life.
The property, plant and equipment accounts subject to depreciation as of December 31, 2008 of the General Fund, are as follows:
Electrification, Power & Energy Structures          P      8,259,004.65
Buildings                     61,875,246.79
Other Structures       130,617,072.25
Office Equipment           4,940,809.74
Furniture and Fixtures           3,001,508.46
IT-Equipment            8,411,614.05
Agricultural, Fishery & Forestry Equipment           199,358.32
Communication Equipment          2,724,337.85
Construction and Heavy Equipment       65,638,962.66
Medical, Dental & Laboratory Equipment           201,201.00
Military & Police Equipment               30,543.00
Sports Equipment              146,806.10
Technical and Scientific Equipment            634,740.00
Other Machineries              445,023.00
Motor Vehicles         23,883,169.63
Watercrafts               483,132.00
Other Transportation Equipment              44,470.00
Other Property, Plant and Equipment       20,602,650.70
———————
TOTAL    P332,139,650.20
============
Based on the account balances above, the computed depreciation expense (See Annex “G”) is P9,148,768.15, however, the accounting records revealed that as of December 31, 2008, only P6,603,535.91 were recorded, hence, an understatement of P2,545,232.24 of the accumulated depreciation at year end, thus the reported net income for the same period was overstated by the same amount.
The understatement of the depreciation expense was due to incomplete maintenance of records by the Accounting Department of the acquired property, plant and equipment. While the General Services Office is the one in charge in the custody of all property records, the same is not reconciled with the accounting. In addition, the Inventory Committee created by the Office of the City Mayor has yet to submit a report thereon.
Management Comment:
The City Accountant maintained that records of acquisition of property, plant and equipment were already collated, however, these have to be classified yet according to kind, nature and the proper office custodian, for easy location when inventory is to be made and for proper computation of depreciation expenses.
Recommendation to Isabela City Government:
Require the accounting department to adjust the account by preparing Journal Entry Voucher (JEV) reflecting the correction, viz:

Debit     Credit
Surplus Adjustment                     2,545,232.24
Accumulated Depreciation-PPE     2,545,232.24
Direct the City General Services Office to reconstruct the records of those properties acquired in prior years. For newly acquired properties, require the records officer to maintain a log book containing information on the custodian’s name, date acquired, complete property description and other relevant data, for easy reference.

DETAILS OF SIGNIFICANT FINDINGS
AND RECOMMENDATIONS

Finding No. 3
Cash advances as of December 31, 2008 amounting to P11,350,979.73    remained unliquidated, in violation of Section 89 of PD 1445 and COA Circular No. 97-002 dated February 10, 1997, hence, the reported expenses at year end is understated.
Section 89 of PD 1445 provides the limitations on cash advances which states that:
“No cash advances shall be given unless for a legally authorized specific purpose. A cash advance shall be reported on and liquidated as soon as the purpose for which it was given has been served. No additional cash advance shall be allowed to any official or employee unless the previous cash advance given to him is first settled or a proper accounting thereof is made.”
COA Circular 97-002 dated February 10, 1997 provides for the restatement with amendments of the rules and regulations on the granting, utilization and liquidation of cash advances provided for under COA Circular No. 90-331 dated May 3, 1990 which requires that:
“4.1.1 No additional cash advance shall be allowed to any official or employee unless the previous cash advance given to him is first settled or a proper accounting thereof is made.
A cash advance shall be reported on as soon as the purpose for which it was given has been served.

When a cash advance is no longer needed or has not been used for a period of two (2) months, it must be returned to or refunded immediately to the collecting officer, and
All cash advances shall be fully liquidated at the end of each year. Except for petty cash fund, the AO shall refund any unexpended balance to the Cashier/Collecting Officer who will issue the necessary receipt.”
Likewise, Sec. 3.1.2 of the same Circular provides that:
“the cash advance for travel shall be liquidated by the officials/employee concerned strictly within thirty (30) days after his return to his official station as required under Section 16 of Executive Order No. 248, as amended, otherwise, his salary shall be suspended until he complies therewith.”
The cash advances which remained outstanding as of December 31, 2008 in the total amount of P11,350,979.73 (Annex “F”) and classified according to position of the accountable officials are shown in pie chart presentation, as follows:

Breakdown of Outstanding Cash Advances
According to Position Classification of AO

Current elective officials  P     523,719.35
Office/Department/Division Head     3,428,171.26
Other Officials and Employees     4,226,515.79
Retired Officials/Employees      1,341,231.16
National Officials & Employees     1,817,702.17

The balance of unliquidated cash advances of those retired/resigned/deceased officials and employees of P1,341,231.16 includes those granted to elected persons who have lost in the election in the total amount of P933,971.66.

Exhibited below, also in pie chart form, is the cash advances distributed according to number of years outstanding as of December 31, 2008, viz:

As shown above, P5,593,354.63 remained outstanding below one (1) year; P687,194.59 are more than one year; P1,009,129.24 above two years and P3,908,403.27 above three years.
The unliquidated cash advance aged more than three (3) years also includes those granted to the retired former chief of police of the city of P1,000,000.00 who was formally charged together with the former City Mayor, the case of which is now pending with the Sandiganbayan.
Likewise, records showed that there were officials and employees who were granted additional cash advances despite their failure to liquidate or render an accounting of the previous cash advances, in violation of Section 4.1.1 of COA Circular No. 97-002 dated February 10, 1997, as stated above.
In addition, despite the big amounts of outstanding cash advances, these officers were still granted additional cash advances, which further posed difficulties in accounting/liquidating thereof, that resulted to the overstatement of assets and understatement of the reported expenditures.

These Accountable Officers should have made a proper accounting of these cash advances granted to them as provided for under Section 5.8 of the said COA Circular.
Failure to properly monitor its settlement and the laxity in the granting of the same not only caused the accumulation of such account to millions of pesos but also deprived the city government on the use of the said amount.
Management Comment:
Management agreed with our comment and assured us that demand letters will be sent to those who have outstanding cash advances.  Likewise, they contended that for cash advances granted in 2008 which remained outstanding as of December 31, 2008 of P5.593 million, 19.74% or P1,104,547.25 thereof were already liquidated as of January 31, 2009.
Recommendation to Isabela City Government:
The City Mayor should cause the issuance of demand letters, thru the initiative of City Accountant. If after two (2) notices these accountable officers still fail to liquidate, the matter should be brought to the City Attorney for proper disposition, copy furnished the Commission on Audit.
The City Mayor, being the Local Chief Executive, who is primarily responsible for all government funds and property pertaining to the City and being the approving officer, should enforce the liquidation of these cash advances in accordance with COA Circular No. 97-002 and Sec. 89 of PD 1445.
Failure of the accountable officers to liquidate their cash advances within the prescribed period shall constitute a valid cause for withholding of their salaries and the institution of other sanctions as provided for under paragraph 9.3 of the said circular and Section 128 of PD 1445.

DETAILS OF SIGNIFICANT FINDINGS
AND RECOMMENDATIONS

Finding No. 2
Procurement of goods in the total amount of P3,625,932.46 from January 1, 2008 to November 30, 2008 of different offices were made on a reimbursement basis, in violation of Section 3, Rule 1 of the Implementing Rules and Regulations of Republic Act No. 9184, thus depriving the Bureau of Internal Revenue of the taxes due thereon
The procurement of goods and services by the government is governed by fundamental principles. One of these principles is the so- called “Competitiveness” which extend equal opportunity to private contracting parties, who are eligible and qualified, to participate in public bidding, being the general rule in acquiring  goods and services.
However, when justified by the conditions provided under Section 49 to 52 of R.A. 9184, the procuring entity may, in order to promote economy and efficiency, resort to any of the alternative methods of procurement, such as:
1. Limited Source Bidding;
2. Direct Contracting;
3. Repeat Order;
4. Shopping; and
5. Negotiated Procurement
The application of any of the alternative method shall be resorted to only in highly exceptional cases and is subject to the conditions that exist at the time of procurement and subject to the approval of the head of the procuring entity upon the recommendations of the Bids and Awards Committee provided under Section 12.1, Rule V of the same law.
In the verification of procurement of goods acquired by the different department of the city government, it was observed that a total of P3,625,932.46 disbursements were made in the name of various employees. These disbursements partake of a nature of a reimbursement by the employee concerned certifying that SHOPPING was made and that the price obtained at the time was most advantageous to the government.
The mere certification by the payee that “shopping” as the alternative mode of procurement, is inadequate in the absence of the signed price quotations from at least three (3) known suppliers. Likewise, the required conditions for the use thereof are not indicated which should be made only in any of the following cases:
1. Where there is an unforeseen contingency requiring immediate purchase; provided, however, that the amount shall not exceed fifty thousand pesos (P50,000); or
2. Procurement of ordinary or regular office supplies and equipment not available in the Procurement Service involving an amount not exceeding two hundred fifty thousand pesos (P250,000) provided, however, that the procurement does not result in splitting of contracts, as provided in Section 54.1 of IRR-A; provided further, that at least three (3) price quotations from bonafide suppliers are obtained.
The failure of the Bids and Awards Committee to consolidate the Purchase Request is a manifestation that the same is acquired thru piecemeal when it has all the authority to act on said purchase requests expeditiously. The inaction and/or delayed procurement by the Bids and Awards Committee (BAC) aggravated the situation which justified the department heads decision to purchase the materials immediately in order not to hamper their operations.
Likewise, this practice deprived the Bureau of Internal Revenue of the withholding taxes that may be collected and/or due thereon.
Section 4 of Revenue Regulation No. 10-93 dated June 16, 1993, as amended, provides:
“Withholding Agents Charged with the Duty to Withhold and Remit.- All Local Government Units, represented by the Provincial/City/Municipal/Barangay Treasurer xxx or any  person holding similar position and performing similar function, xxx shall deduct and withhold the prescribed creditable value-added tax before making any payment to seller of goods and services.
Management Comment:
Due to unavailable regular office supplies at the GSO and the delayed processing of purchase requests, department heads decided to immediately procure the supplies out of necessity.
Rejoinder:
The used of shopping, as the alternative mode of procurement, should be supported with at least three (3) price quotations from the suppliers to comply with the competitiveness aspect of RA 9184.
Recommendation to Isabela City Government:
1. Limit the procurement of goods on a reimbursement basis, unless the circumstances warrant its application.

2. Secure at least three (3) price quotation from known suppliers if reimbursement could not be avoided.
3. Direct the City General Services Officer to procure all supplies and materials in bulk in order for the department heads not to resort to shopping and to make the supplies readily available to them when the need arises.
4. Require the department heads to submit the Annual Procurement Program of their offices for consolidation by the Bids and Awards Committee and to procure the supplies and materials for stock purposes.

DETAILS OF SIGNIFICANT FINDINGS
AND RECOMMENDATIONS

Finding No. 1
The City Government could have saved P1,811,605.12 on the payment of overtimes services covering the period from January-November 30, 2008 to permanent, temporary and casual employees had it implemented CSC-DBM Joint Circular No. 2, series of 2004 on the non-monetary remuneration of overtime services.
Joint Circular No. 2, series of 2004, of the Civil Service Commission and Department of Budget and Management dated October 4, 2004, provides for the non-monetary remuneration for overtime services rendered.
The circular provides for a uniform policy to avail of compensatory time-off in lieu of overtime pay pursuant to Section 1(d) of Administrative Order No. 103, issued by the Office of the President directing the continued adoption of austerity measures in the government.
Under this policy, an employee who renders services beyond the regular working hours will be given Compensatory Overtime Credit (COC) which could be used as time-off within the year these are earned, subject however to its uses and limitation, thus, if availed, he is excused from reporting to office during the regular official time with full pay and benefits.
The city government for the period from January, 2008 to November 30, 2008 pays a total amount of P1,811,605.12 for overtime services to various regular and casual employees assigned to different offices, details of which are as follows:
Office/Department
Amount
City Tourism Office
P   653,196.74
City Accountant’s Office
202,182.55
City General Services Office
222,755.66
City Engineering Office
313,386.54
City Treasurer’s Office
128,328.82
City Budget Office
179,797.19
City Agriculture’s Office
54,980.03
Dapitan City Resort Hotel
49,694.31
Management Information Office
4,713.56
Commission on Election
1,589.20
City Mayor’s Office
980.52
TOTAL
P1,811,605.12
The verification disclosed that generally, the overtime services are those that are not urgent in nature as to require completion within a specified time or that can be undertaken or could be well accomplished during the regular working office hours except for a few whose services are beyond the normal course of activity of an office that could not be avoided.
Also, it was observed that the determination by the Department Heads of the necessity to render overtime services was not properly evaluated. The specific outputs/services to be accomplished were not specifically indicated and quantified as basis for assessment by the City Mayor before authority to render overtime is granted. In addition, the overtime accomplishments attached to the payroll are inconsistent with the activities indicated in the remarks column of the daily time record likewise attached.
Apparently, the overtime services could be minimized if only department heads closely monitor and supervise their staff employees to maximize daily outputs.
Had the city government implemented the non-monetary remuneration for overtime services rendered in accordance with the guidelines under CSC-DBM Joint Circular No. 2, it could have saved the amount of P1,811,605.12 or the same could be utilized for more important programs, projects and activities beneficial to the general public.
Management Comment:
The city government agreed with our comments and informed us that effective October, 2008 overtime services were totally stopped with the exception of Accounting, Budget and the Treasury Offices for which the City Mayor issued Office Memorandum excepting these offices from the non-monetary remuneration of overtime services.
Recommendation to Isabela City Government:
1. The City Mayor, thru the City Administrator, must implement CSC-DBM Joint Circular by issuing Executive/Administrative Order on the non-monetary remuneration for overtime services.
2. Authority to render overtime services should be limited to those offices/employees whose services are urgently necessary in accomplishing specific outputs after thorough evaluation and assessments of such necessity.
3. Direct the concerned Department Heads to closely supervise and monitor their employees to maximize daily accomplishment/output.

DETAILED FINDINGS AND RECOMMENDATIONS

6.  Motor vehicles owned by the city government are not marked with “For Official Use Only” with the name and logo of Office using the same which is in contrast to COA Circular No. 77-61 which attributed to the use of government vehicles for purposes other than official business and for other purposes in violation of Administrative Order No. 239, dated September 15, 2008.
Pursuant to Commission On Audit Circular No. 77-61, as amended, all motor     vehicles owned by local government should be permanently marked with “For Official Use Only” under which should be written the corresponding name of the Office using the same.
While Administrative Order No. 239 prohibits the use of government vehicles for purposes other than official business, and for other purposes, it also requires to strengthen the government effort against the use of government vehicles other than official business in line with the government’s energy saving and anti-graft and corruption campaigns.
It was noted that motor vehicles of the City Government are not marked with “For Official Use Only” with the name and logo of the agency, for which unauthorized use thereof is very imminent. Much more, funds were utilized to provide its fuel, spare parts, repair and maintenance.
Marking of government vehicles with “For Official Use Only” serves as deterrent to daring government officials and employees from unauthorized use of the same.

Management Comment:
* The General Services Office is in the process of procuring materials for the marking of all city government motor vehicles with “For Official Use Only” with the corresponding name and logo of the agency as well as the name of Office where it is assigned.

Recommendation to Dipolog City Government:
* Require the City General Services Officer to cause the marking with “For Official Use Only” and name and logo of the agency to all motor vehicles owned and operated by the city government pursuant to COA Circular   77-61 and Administrative Order No. 239.

DETAILED FINDINGS AND RECOMMENDATIONS

5. The City Government hired and paid two (2) Consultants for Personnel Administration, Environment and Community Affairs and for National Concerns with corresponding professional fees at P18,000.00 each per month or a total amount of P432,000.00 as of December 31, 2008, which contravened Section 163 of Article 2, GAAM -Volume I.
Section 163 of Article 2,  GAAM – Volume I, provides that:
“Article 2. Prevention of Irregular, Unnecessary, Excessive or Extravagant or Unconscionable (IUEEU) Expenditures.
Section 163. Unnecessary expenditures. – The term “unnecessary expenditures”, pertains to expenditures which could not pass the test of prudence or the obligation of a good father of a family, thereby no-responsiveness to the exigencies of the service. Unnecessary expenditures are those not supportive of the implementation of the objectives and mission of the agency relative to the nature of its operation. This could also include incurrence of expenditure not dictated by the demands of good government, and those the utility of which cannot ascertained at a specific time. An expenditure that is not essential or that which can be dispensed with without loss or damage to property is considered unnecessary. The mission ad thrusts of the agency incurring the expenditure must be considered in determining whether or not the expenditure is necessary.”
The services of these consultants could be dispensed with without loss or damage to property of the City Government of Dipolog. In addition, the Local Chief Executive has duly appointed Human Resource Management Officer, City Environment and Natural Resources Officer and City Legal Officer who could perform personnel administration, environment and community affairs as well as national concerns, respectively, thus the total amount of P432,000.00 paid for the services of these consultants was considered unnecessary. (See Annex “C”)
It was further observed in the verification of records that there were no specific accomplishments reported as their outputs for us to consider the necessity in the exigency of the government service.

Recommendations:
* We recommend that the contracts of consultancy of these two consultants shall no longer be renewed.

* Utilize the services of the City Legal Officer, Human Resource Management Officer and the City Environment and Natural Resources Officer in the performance of duties and functions done by the consultants to avoid unnecessary expenditures and instead, promote effectiveness, efficiency and economy in the pursuit of good governance.

DETAILED FINDINGS AND RECOMMENDATIONS

4.  Delayed submission of Inspection and Acceptance Report for deliveries of medicines totalling P1,364,551.25 deprived COA to conduct inspection and get samples for the necessary testing by the Bureau of Food and Drugs, in contrast to Section 116, and Section 117 of COA Circular 92-386, known as the “Rules and Regulations on Supply and Property Management in the Local Governments.”
Section 116 of COA Circular 92-386 provides that:

“Surprise and Selective Inspections by the Local Auditors. – The provincial, city or municipal auditor or their representatives shall conduct a surprise and selective inspections of deliveries soon after their acceptance by the local government units.”

Section 117 of COA Cir. No. 92-386 also provides that:

“Drugs, Chemicals and Medicine. – Utmost care and caution shall be exercised at all times in the inspection of the following items:

a.) medicines and pharmaceuticals preparations – the analyses must conform to their formulas;
b.) drugs, chemicals including disinfectants – their analyses must conform to the USP, NF, BHF or BFD requirements; and
c.) insecticides, fungicides, etc. – the quality of these items shall be determined through laboratory analysis.
Quantity of samples required:

tablets . . . . . . . . . . .    30 tablets
ointments . . . . . . . .    100 grams
liquids . . . . . . . . . . .   100 cc.
solids . . . . . . . . . . . .   50 grams
capsules . . . . . . . . . .   5 capsules
The samples to be sent to BFAD for the necessary test shall be taken at random and shall be placed in a free- contamination container. The same shall be properly sealed with a strip of onion skin paper bearing the signature or initial of the dealer, requisitioner and inspector.  The order, invoice and requisition numbers and the descriptions of the items shall be indicated on the container.”

It has been observed that submission of Inspection and Acceptance Report for large volume of deliveries of drugs and medicines amounting to P2,405,471.24 were delayed, thus, enabling COA no room for inspection while they are still in the bodega. The IAR were only verified long after the deliveries have been paid and the medicines were already issued to end users thus, samples were no longer available for necessary testing by BFAD.

Further evaluation of disbursement vouchers, disclosed that the agency failed to enforce the posting of performance bond by the suppliers to guarantee in case of non-compliance of the conditions and specifications provided in the contract of delivery or any other inconsistencies such as, quality failure in the samples inspected by BFAD.

Moreover, delayed delivery for twenty-five (25) days under DV No. 100-2008-04-2206, amounting to P430,942.06 was not imposed with liquidated damages of P11,383.37, against the supplier which should have been deducted from the contract price.

Management Comment:
* During the exit conference, it was agreed that samples will be taken at random and be sent to BFAD for testing at the expense of the agency and/or be charged to the supplier.
* The distribution of drugs and medicines to end users shall be made without prejudice to the result of the laboratory testing.

Recommendations:
* Require the City General Services Officer to submit the Inspection Report to the Agency Auditor after inspection and acceptance of the deliveries by the agency for verification purposes and to facilitate getting of samples for testing by the Bureau of Food & Drugs (BFAD) to ensure whether or not the medicine would conform and meet the specifications indicated.
* Require Bids and Award Committee to enforce posting of performance bond by the supplier of drugs and medicines as required under RA 9184 as a measure of guarantee of faithful performance and compliance with his obligations specified in the contract, otherwise, it shall be forfeited in favor of the agency.
* Liquidated damages should be imposed on delayed delivery amounting to P11,383.37.