PART II - OBSERVATIONS AND RECOMMENDATIONS

A. Financial Audit

1. The reliability of the DILG’s financial statements cannot be

ascertained due to various accounting errors which resulted in the
overstatement of total Assets and Equity amounting to ₱26,646,479.13 and
₱40,879,641.96, respectively, and the understatement of total Liabilities
amounting to ₱14,233,162.83. Moreover, accounting deficiencies totaling
₱1,914,762,357.48 affected various accounts due to unaccounted
discrepancies and dormant balances.

1.1 Section 27 of the PPSAS 1 and Section 7, Chapter 19 of the Government

Accounting Manual (GAM) further provides that “The Financial
Statements shall present fairly the financial position, financial
performance and cash flows of an entity. Fair presentation requires the
faithful representation of the effects of transactions, other events, and
conditions in accordance with the definitions and recognition criteria for
assets, liabilities, revenue and expenses set out in Philippine Public Sector
Accounting Standards (PPSAS).”

1.2 Our audit disclosed that accounting errors and omissions on various
accounts resulted in the overstatement of total Assets and Equity
amounting to ₱26,646,479.13 and ₱40,879,641.96, respectively, and the
understatement of total Liabilities amounting to ₱14,233,162.83.
Moreover, accounting deficiencies totaling ₱1,914,762,357.48 affected the
validity and accuracy of the financial statements rendering the reported
accounts unreliable.

 Accounting Errors/Omissions

1.3 The summary of accounting errors/omissions is shown below:

Obs. Nature of Amount of (Over)/Understatements

No. Error Amount Assets Liabilities Equity
1.a Errors affecting ₱14,306,795.42 ₱9,793,267.34 ₱11,594,832.51 (₱1,801,565.17)
Cash accounts
1.b Errors affecting 77,882,640.83 (19,366,517.93) 694,301.01 (20,060,818.94)
Receivable
accounts
1.c Unrecorded 2,500.00 2,500.00 2,500.00
collections
1.d Errors affecting 6,781,410.31 2,581,041.27 2,581,041.27
Inventory
accounts
1.e Errors affecting 25,096,137.58 (19,721,479.26) (212,745.00) (19,508,734.26)
PPE accounts

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Obs. Nature of Amount of (Over)/Understatements
No. Error Amount Assets Liabilities Equity
1.f Erroneous 2,748,838.07 64,709.45 2,156,774.31 (2,092,064.86)
recording of
transactions
Total Misstatement ₱126,818,322.21 (₱26,646,479.13) ₱14,233,162.83 (₱40,879,641.96)
Materiality Level (1% ₱116,978,695.77
of Total Assets)

1.4 Details are presented in Annex A.

a. Errors affecting Cash accounts - ₱14,306,795.42

Effect
Nature of
Office Accounts Affected Overstatemen Understatemen
Error
t t
1. Non- CO Cash-MDS, Regular ₱6,515.00
adjustment of Other Payables
stale checks III Cash-MDS, Regular 355,890.15
Accounts Payable
IV-B Cash-MDS, Regular 45,143.76
Accounts Payable
Total 407,548.91
CAR Cash in Bank, LCCA 1,480.00
Due to NGAs
I Cash in Bank, LCCA 32,290.88
Accounts Payable
II Cash in Bank, LCCA 382,611.12
Accounts Payable
III Cash in Bank, LCCA 37,200.00
Accounts Payable
V Cash in Bank, LCCA 154,457.67
Accumulated Surplus
Total 608,039.67
4. Non- VII Cash in Bank, LCCA 10,661,956.60
adjustment of
Appropriate Liability
unreleased 10,661,956.60
account
checks
6. Non- NCR Cash in Bank, LCCA 71,745.00
adjustment of
cancelled Due to LGUs 71,745.00
checks
8. Unrecorded CO Cash in Bank, LCCA 25,392.96
interest
Accumulated Surplus 25,392.96
income
9. Unrecorded CO Cash in Bank, LCCA 2,000.00

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 Effect
Nature of
Office Accounts Affected Overstatemen Understatemen
Error
t t
deposit Cash - Collecting
₱2,000.00
Officer
10. Unrecor V Cash in Bank, LCCA 33,103.19
ded
reconciling Accumulated Surplus 33,103.19
items
11. Unrecor VIII Cash in Bank, LCCA 2,255,764.04
ded Accumulated Surplus
disbursement 2,255,764.04
s
12. Over- III Cash in Bank, LCCA 241,245.05
recording of
Accumulated Surplus 241,245.05
disbursements

Stale checks

1.4 Stale checks pertain to checks that has been long outstanding for over a
period of time: six months for commercial checks as prescribed under
GAM while three months for Modified Disbursement (MDS) checks as
stated under Treasury Circular No. 03-2017.

1.5 In the Central Office, a stale check dated June 13, 2018 amounting to
₱6,515.00 was not cancelled and still included in the BRS of MDS
Account Fund 101 - Account No. 11-2057-9003-12. In Regions III and IV-
B, stale checks totaling ₱355,890.15 and ₱45,143.76, respectively, were
not restored to the cash balance awaiting the return of the checks by the
payees for replacement.

1.6 Stale checks totaling ₱608,039.67 were not adjusted and recorded in the
books of Regions I, II, III, V and CAR. In Region V, stale checks totaling
₱154,457.67 included checks issued from CY 2013 to CY 2018.

Unreleased checks

1.7 Section 56, Chapter 19 of GAM Vol. I, states that, “All unreleased checks
at the end of the year shall be reverted back to the cash accounts. A JEV
shall be prepared to recognize the restoration of the cash equivalent to the
unreleased checks and the recognition of the appropriate liability/payable
account.

1.8 In Region VII, 36 drawn checks amounting to ₱10,661,956.60 remained

unreleased at year-end but were not restored to the cash account.

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 Cancelled checks

1.9 The cancelled checks in NCR amounting to ₱71,745.00 were still included
as disbursements and were not returned to the Regional Peace and Order
Council (RPOC) fund as of December 31, 2018.

Unrecorded reconciling items

1.10 In Region V, various reconciling items such as debit/credit memos, etc.

amounting to ₱33,103.19 remained unrecorded as of year-end.

Unrecorded disbursements

1.11 The unrecorded disbursements in Region VIII such as salary for December
16-31, 2018, monetization of leave credits and 2018 CNA totaling
₱2,255,764.04 was attributed to the cut-off observed in the reporting of
financial transactions by the provincial/city offices.

b. Errors affecting Receivable accounts - ₱77,882,640.83

Accounts Effect
Nature of Error Office
Affected Overstatement Understatement
1. Unrecorded II Cash-MDS,
₱485,884.60
fund transfers Regular
Due from
₱485,884.60
LGUs
IV-A Cash-MDS,
17,283,835.98
Regular
Due from
17,283,835.98
LGUs
3. Unrecorded I, IV-A Due from
39,734,020.10
liquidations LGUs
Accumulated
39,734,020.10
Surplus
5. Unrecorded III Cash in Bank,
700,000.00
receipt of funds LCCA
from LGA Due to NGAs 700,000.00
6. Double VIII Due from
19,424,230.47
recording of LGUs
liquidations Accumulated
19,424,230.47
Surplus
5. Excess VIII Due from
248,970.69
liquidations LGUs
Accumulated
248,970.69
Surplus
6. Prepayments NCR Office 76,356.09
to PS-DBM Supplies
recorded as Inventory

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 Accounts Effect
Nature of Error Office
Affected Overstatement Understatement
payment of Accounts
5,698.99
accounts Payable
payable Due from
70,657.10
NGAs

Unrecorded fund transfers

1.12 The unrecorded fund transfers in Regions II and IV-A amounting to

₱17,769,720.58 was due to lack of proper monitoring of the funds
transferred to the implementing agencies contrary to the provisions of
COA Circular No. 94-013 and stipulations in the Memoranda of
Agreement (MOA).

1.13 The status of unliquidated fund transfers to National Government

Agencies (NGAs), Government owned or Controlled Corporations
(GOCCs), Local Government Units (LGUs) and NGOs/POs is discussed
in paragraph no. 2.0.

Unrecorded liquidations

1.14 The unrecorded liquidations in Regions I and IV-A amounting to

₱19,993,094.70 and ₱19,740,925.40, respectively, pertained to outstanding
fund transfers to various LGUs for the implementation of BuB,
SALINTUBIG and CMBS projects.

Unrecorded receipt of funds from LGA

1.15 In DILG-RO III, the unrecorded LGA fund transfer amounting to

₱700,000.00 was for the implementation of various projects.

Double recording of liquidations

1.16 The double recording of transactions in the amount of ₱19,424,230.47 in

Region VIII pertained to liquidations of funds transferred to the
Municipality of Jaro, Leyte for the implementation of RAY 2.

Excess liquidations

1.17 The total recorded liquidation of transferred funds to Macrohon, Southern

Leyte for the implementation of BUB projects was overstated by
₱248,970.69 which pertains to cash counterpart of the implementing LGU.

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c. Unrecorded collections - ₱2,500.00

Nature of Error Office Accounts Affected Understatement

Unrecorded proceeds V Cash - Collecting
₱2,500.00
from sale of bid Officer
documents Accumulated Surplus 2,500.00

1.18 In Region V, the DILG Sorsogon collected payments from sale of bidding
documents and issued five ORs amounting to ₱2,500.00. The proceeds
were not reported to the Regional Accounting Office nor deposited to
AGDB of the Agency contrary to the pertinent provisions of GAM,
thereby understating the Cash – Collecting Officer and Accumulated
Surplus accounts by the same amount.

d. Errors affecting Inventory accounts - ₱6,781,410.31

Accounts Effect
Nature of Error Office
Affected Overstatement Understatement
1. Issued CO Semi-Expendable
₱1,188,383.59
supplies still ICT Equipment
included as Semi-Expendable
inventories ICT Equipment ₱1,106,095.05
Expense
Subsidy to ROs 82,288.54
NCR Semi-Expendable
Office 99,265.00
Equipment
Semi-Expendable
Office
99,265.00
Equipment
Expense
3. Issued CAR Other Assets 290,403.81
supplies still Accumulated
included as Surplus 290,403.81
Other Assets
5. Unrecorded VIII Inventory 522,132.12
issuance of Accumulated
inventories 522,132.12
Surplus
4. Erroneous VIII Inventory 333,346.14
computation Accumulated
of inventory Surplus 333,346.14
issuances
5. Inventories IV-A Accountable
1,800.00
recorded as Forms
outright Accountable
1,800.00
expenses Forms Expenses
NCR, IV- Office Supplies
3,185,810.81
A, IV-B Inventory

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 Accounts Effect
Nature of Error Office
Affected Overstatement Understatement
Office Supplies
3,185,810.81
Expenses
IV-A, IV- Other Supplies
B and Materials 1,160,268.84
Inventory
Other Supplies
and Materials 1,160,268.84
Expenses

1.19 Section 7, Chapter 8 of GAM Vol. I states that when inventories are sold,
exchanged or distributed, their carrying amount shall be recognized as an
expense in the period in which the related revenue is recognized. If there is
no related revenue, the expense is recognized when the goods are
distributed or the related service is rendered.

1.20 In CO, due to the late submission of RSMI by the Property Accounts
Section to the Accounting Office, various Semi-Expendable ICT
Equipment totaling ₱1,188,383.59 already issued to end-users and/or
transferred to DILG Regional Offices were still included in the inventory
accounts resulting in the overstatement of the Semi Expendable ICT
Equipment and the understatement of the Semi-Expendable ICT
Equipment Expense by the same amount. Likewise, issued Semi-
Expendable Office Equipment in NCR amounting to ₱99,265.00 were still
recorded as inventories thereby overstating the Semi-Expendable Office
Equipment and understating the Accumulated Surplus accounts by the
same amount.

1.21 In CAR, the Other Assets account included semi-expendable items of

₱290,403.81 which were already issued but not yet recorded as expenses.
This resulted in the overstatement of the Other Assets and Accumulated
Surplus by the same amount.

1.22 In Region VIII, the Accountant did not book up the issuance of inventories
upon receipt of the Report of Supplies and Materials Issued (RSMI) for
CY 2017 and November to December 2018 in the aggregate amount of
₱522,132.12, resulting in the overstatement of the Inventory and
Accumulated Surplus accounts by the same amount.

1.23 Also in Region VIII, verification of the recorded inventory consumptions

for January to October 2018 revealed that inventory issuances per RSMI
for the period totalling ₱333,346.14 were recorded twice in the books
resulting in the understatement of inventory accounts and Accumulated
Surplus.

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 1.24 Section 9, Chapter 8 of GAM Vol. I provides that supplies and materials
purchased for inventory purpose shall be recorded using the perpetual
inventory system, where regular purchases shall be coursed through the
inventory account and issues thereof shall be recorded as they take place
except for supplies and materials purchased out of PCF for immediate use
or on emergency cases which shall be charged directly to the appropriate
expense accounts.

1.25 In NCR, Regions IV-A and IV-B, inventories totaling ₱4,347,879.65 were
recorded as outright expenses resulting in the understatement of Office
Supplies Inventory, Accountable Forms and Other Supplies and Materials
Inventory and the overstatement of the Accumulated Surplus account.

e. Errors affecting PPE accounts - ₱25,096,137.58

Effect
Nature of Error Office Accounts Affected
Overstatement Understatement
1. Disposed PPE CO Communication
₱733,205.85
still included in Equipment
the books ICT Equipment 1,143,000.00
Accumulated
1,876,205.85
Surplus
2. Donated PPE CO Furniture and
295,864.00
still included in Fixture
the books ICT Equipment 4,590,380.60
Office Equipment 965,751.00
Accumulated
5,851,995.60
Surplus
3. Unrecorded CO Communication
107,700.00
transfers to Equipment
Regional ICT Equipment 2,983,020.95
Offices Motor Vehicles 4,319,370.14
Accumulated
7,410,091.09
Surplus
II ICT Equipment 1,935,383.52
Accumulated
1,935,383.52
Surplus
4. Lost items still CAR Appropriate PPE
110,424.08
recorded in the accounts
books Accumulated
₱110,424.08
Surplus
5. Capitalized VIII Building 11,303.00
minor repairs Repairs and
11,303.00
Maintenance
6. Office building VIII Building 4,983,875.30
recorded twice Accumulated
4,983,875.30
Surplus

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 Effect
Nature of Error Office Accounts Affected
Overstatement Understatement
7. Undelivered XIII Furniture and
52,500.00
purchases Fixture
already Office Supplies
23,615.00
recorded as Inventory
PPE, inventory Semi-Expendable
and payable Other Machinery 136,630.00
and Equipment
Accounts Payable 212,745.00
8. Assets below CO ICT Equipment 72,902.75
capitalization Medical Equipment 32,950.00
threshold Other PPE 1,634,820.85
included as Sports Equipment 165,120.00
PPE
Accumulated
1,905,793.60
Surplus
9. Unrecognized CO Furniture and
560,156.56
assets procured Fixture
through lease Other Machinery
196,960.60
purchase and Equipment
Accumulated
757,117.16
Surplus
10. Inaccurate CAR Appropriate PPE
1,981,758.42
provision of accounts
depreciation Accumulated
1,981,758.42
Surplus
11. Properties VIII Office Equipment 1,500,995.00
recorded as IT Equipment and
expenses 429,217.00
Software
Various Expenses
1,930,212.00
Accounts

Disposed PPE

1.26 The PPE disposed in the CO on February 28-29, 2012 amounting to

₱1,876,205.85 were still included in the books.

Donated PPE

1.27 Various PPE totaling ₱5,851,995.60 which were donated by the DILG to
various charitable, education and cultural associations sometime in July
2013 were still included in the books.

Transferred PPE to Regional Offices

1.28 Review of Property Transfer Reports (PTR) disclosed that properties in the
CO such as laptop computers, camera, projector and unserviceable
vehicles totaling ₱7,410,091.09 which were transferred to various

66
 Regional Offices and to the National Fire Training Institute (NFTI) from
2017 to 2018 were not dropped from the books of accounts.

1.29 In Region II, 86 units of computer sets were transferred from the CO in
CYs 2015 and 2017 with a total cost of ₱1,935,383.52. The properties
were issued to end-users without proper coordination with the
Property/Supply Section and submission of necessary documents to the
Accounting Section; thus, were not taken up in the books of the Region.

Lost items still included in the books

1.30 In CAR, lost PPE items amounting to ₱110,424.08 were still recorded in
their respective PPE accounts and some were depreciated in 2018.
According to the Property Custodian, no application for relief and Report
of Lost, Stolen, Damaged, Destroyed Property (RLSDDP) was submitted
by the Accountable Officers to the Accounting and General Services
Sections contrary to Section 41 Chapter 10 of GAM Volume I. Thus, the
Accounting Section has no basis to record the loss of these items.

Minor repairs capitalized

1.31 In Region VIII, the costs of minor repair of windows, extraction and repair
of tiles and emergency repair of water tank totaling ₱11,303.00 were
capitalized overstating the PPE accounts and understating the repair
expenses accounts.

Office building recorded twice

1.32 The error in Region VIII pertained to the double recording of the
reclassification of office building from Construction in Progress account
to Building account of Samar Provincial Office amounting to
₱4,983,875.30.

Undelivered purchases already recorded as payables

1.33 In Region XIII, purchase of Semi-Expendable Other Machinery and

Equipment, Semi Expendable Furniture and Fixture, ICT Equipment, and
Office Equipment totaling ₱212,745.00 was recognized in advance; thus,
overstating the PPE, Inventory and Accounts Payable accounts by the
same amount.

Assets below capitalization threshold included as PPE

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 1.34 Section 4, Chapter 10 of GAM Vol. I provides that the capitalization
threshold of ₱15,000.00 represents the minimum cost of an individual
asset recognized as PPE in the Statement of Financial Position.

1.35 In the Central Office, Medical Equipment, Other PPE and Sports
Equipment totaling ₱1,832,890.85 below the threshold were recorded as
PPE, however, no reclassification was made by the Accounting Section. In
addition, ICT equipment amounting to ₱72,902.75 consisting of notebook
computers, server rack, software and license and analyst extension for
software were also recognized as PPE.

Inaccurate provision of depreciation

1.36 In CAR, the discrepancy of ₱1,981,758.42 in the computation of

depreciation was caused by the failure of Management to implement the
change in estimated useful life prescribed under DILG Circular 2017-02
effective January 1, 2017 for PPEs already recorded in the books of
accounts but not yet fully depreciated.

Properties recorded as expenses

1.37 In Region VIII, procured IT Equipment and Software and Office
Equipment in the total amount of ₱1,930,212.00 that meet the recognition
criteria as asset were not recorded in the books of accounts under the
appropriate PPE accounts.

f. Erroneous recording of transactions - ₱2,748,838.07

Effect
Accounts
Nature of Error Office Overstatemen
Affected Understatement
t
1. Undelivered XIII Accounts Payable ₱781,976.40
supplies Office Supplies
recorded as 738,576.40
Expenses
expenses in CY Training
2017 Expenses 43,400.00

4. CY 2019 XIII Accounts Payable 564,128.00

training-related Printing and
expenses Publication 484,628.00
recorded as CY Expenses
2018 expenses Training
79,500.00
Expenses
7. Incorrect NCR Office Supplies
₱28,573.50
classification of Inventory
accounts Due from NGAs 28,573.50

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 Effect
Accounts
Nature of Error Office Overstatemen
Affected Understatement
t
II Communication
1,915,326.69
Equipment
ICT Equipment 1,915,326.69
IV-B Due from LGUs 100,000.00
Due from NGAs 100,000.00
X Rent Expenses 265,340.67
Training
255,975.04
Expenses
Travelling
9,365.63
Expenses
XIII ICT Equipment 212,000.00
Office Supplies
1,826,952.82
Inventory
Other Assets 212,000.00
Other Supplies
and Materials 1,579,525.00
Inventory
Semi-Expendable
Office Equipment 29,200.00
Communication
Expenses-Mobile 218,227.82
10. Repairs and IV-B Other Supplies
maintenance, and Materials 7,367.00
and other Inventory
supplies Fuel, Oil and
117,037.00
recorded as FOL Lubricant
Repairs and
Maintenance - 109,670.00
MV
13. Taxes CAR Cash in Bank,
275,570.27
withheld LCCA
reported as Due to BIR 3,502,878.71
disbursements Subsidy from
National 511,048.78
Government
Accumulated
2,716,259.66
Surplus
16. Erroneous CO Medical Supplies
1,004.22
recording of Expenses
prior year Office Supplies
839,256.79
issuance of Expenses
inventory as Other Supplies
expense and Materials 22,818.21
Expenses

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 Effect
Accounts
Nature of Error Office Overstatemen
Affected Understatement
t
Semi-Expendable
Machinery and
38,489.36
Equipment
Expenses
Accumulated
901,568.58
Surplus

1.38 The nature of errors in item nos. 1 and 2 in Region XIII pertained to the
recording of liabilities before the actual delivery of goods and/or
performance of services which violates the matching principle of income
and expenses.

1.39 Taxes withheld at year-end in CAR (Item No. 6) were reported as

disbursements even in the absence of actual checks drawn by the agency
or actual remittance of the amount to the Bureau of Internal Revenue.
Accordingly, these amounts are deducted from the cash in bank balances
at month-end.

1.40 We recommended that Management require the concerned

Accountants to:

a) effect the necessary adjustments on the errors and omissions to

correct the reported balances of the affected accounts; and

b) observe the proper recognition and adjustments of accounts and

transactions in accordance with the GAM and relevant accounting
rules and regulations.

1.41 Management provided the following comments:

a) Stale, cancelled and unreleased checks were adjusted through various

JEVs from January to March 2019.

b) The unrecorded reconciling items, collections, deposits and

disbursements were taken up under JEV Nos. 2019-01-000106, 107,
and 0026 in January 2019.

c) The issuance of inventories were already recorded under JEV Nos.

2019-01-003550, 003553, 003540, 003545, 18-12-0134 and 0121.

d) Necessary adjustments concerning the disposed and donated PPE were

made under JEV Nos. 2019-01-003449, 002287, 002294, 002404,
002641, 002645, 00328, 002645, 002640 and 002641, while the

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 transfer of PPE to Regional Offices were recorded by the Central
Office under JEV Nos. 2019-01-00350, 003358 and 00360.

 Accounting Deficiencies - ₱1.915 Million

1.42 Accounting deficiencies in recording and reporting financial transactions

were also noted:

Accounting Deficiencies Accounts Amount

a. Discrepancy between cash Cash in Bank ₱17,742,509.52
balance per books and bank
confirmation
b. Discrepancy between Due from 373,816,845.72
balances per books and NGAs,
confirmation with GOCCs, ROs,
Implementing Agencies (IAs) NGOs/ POs,
LGUs
c. Unreconciled difference PPE 299,628,271.54
between the accounting and
property records
d. Untitled land and building PPE 34,490,044.00
e. Non-disposal of unserviceable PPE 210,816,850.22
properties
f. Dormant account balances Receivable 666,562,841.67
accounts/ Due
to NGAs
g. Unreconciled discrepancy Due to NGAs 4,014,329.23
between balances per books
and confirmation from Source
Agencies
h. Unreconciled balance Cash 28,777.24
between book and BRS
(Region I)
i. Variance between CBReg Cash 401,766.90
balance per BRS and
Subsidiary Ledger (Region V)
*PO Albay, PO Sorsogon
j. Unaccounted difference Cash 28,322,102.87
between the GL and schedule
due to non-maintenance of SL
(Region VIII)
k. • Unaccounted variance Receivables 157,927,097.32
between the GL and aging
schedule
• SL for receivable accounts

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 Accounting Deficiencies Accounts Amount
were not maintained (Region
VIII)
l. Unreconciled difference Inventories 211,144.99
between the GL and RPCI
(Region VIII)
m.Variance between the GL and PPE 120,675,419.26
SL (Region VIII)
n. Variance between CBReg by Cash 124,357.00
Disbursing Officer and SL
(Region IX)
Total Accounting Deficiencies ₱1,914,762,357.48

a. Unreconciled differences between bank and book balances - ₱17.743

Million

1.43 Section 5, Chapter 21 of GAM Volume I requires the Chief Accountant/

Designated Staff to reconcile the Bank Statement (BS) with the General
Ledger(GL) and prepare Bank Reconciliation Statement (BRS) within 10
days after the receipt of monthly bank statement. Moreover, the Chief
Accountant shall prepare a JEV to recognize all reconciling items that
require adjustment and correction in the books of accounts. BRS must be
submitted to COA within 20 days after receipt of the monthly BS along
with all the supporting documents and JEVs.

1.44 We noted that five Regional Offices did not prepare regularly the Monthly
Bank Reconciliation Statements (BRS) due to late submission of bank
statements by the Authorized Government Depository Bank (AGDB).
Confirmation letters were sent to the depository banks to determine the
correctness of the reported balances of the accounts.

1.45 The results of confirmation disclosed a total difference of ₱17,742,509.52

between the book and bank balances for account Cash in Bank-LCCA;
rendering the reported balance of ₱124,023,954.11 unreliable. Details are
as follows:

Bank account Balances

Office
Nos. Per books Per banks Difference
NCR 0712-1040-23 ₱22,847,909.55 ₱25,129,717.39 ₱2,281,807.84
0712-1040-15 5,631,232.97 6,893,908.76 1,262,675.79
0711-0780-45 2,439.50 2,286,041.53 2,283,602.03
1722-1024-16 1,714,104.10 - 1,714,104.10
Region I 0202-0242-70 3,851,179.55 3,879,956.79 28,777.24
Region II 3702-1001-00 3,991,009.54
0122-1011-42 622,093.80
-Cagayan 3702-1005-84 10,670,507.02

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 Bank account Balances
Office
Nos. Per books Per banks Difference
-Isabela 1072-1011-18 9,441,804.63
-Nueva 0432-1001-20
34,698,525.75 6,310,556.51 567,723.78
Vizcaya
-Quirino 0732-1024-69 1,865,787.49
-Batanes 1082-1004-11 2,364,490.54
Region V not stated 7,652,674.81 8,054,441.711 401,766.90
Region VIII not stated 47,625,887.88 56,827,939.72 9,202,051.84
Total ₱124,023,954.11 ₱138,338,255.43 ₱17,742,509.52

b. Unreconciled discrepancies between the balances per books and

confirmation with Implementing Agencies - ₱373.817 Million

1.46 Comparison of balances between the books and results of confirmation

with IAs disclosed a total discrepancy of ₱373.817 million, as follows:

Office Due from Per Books Per Confirmation Difference

CO NGAs ₱659,607,844.17 ₱496,410,390.40 ₱169,757,259.33
GOCCs 377,269,330.05 373,556,314.86 3,713,015.19
ROs 1,343,804.25 539,820.61 804,583.64
NGOs/POs 889,646.13 139,646.13 750,000.00
NCR LGUs 183,889,329.41 165,320,996.76 18,568,332.65
I LGUs 22,873,870.39 2,880,775.69 19,993,094.70
II LGU - 1,977,679.70 1,113.35 1,976,566.35
Cabarroguis,
Quirino
LGU - Bambang, 100,679.68 32,338.68 68,341.00
Nueva Vizcaya
IV-A NGAs 552,767.75 756,901.73 204,133.98
LGUs 40,417,666.04 37,756,442.64 2,661,223.40
V LGUs 38,417,860.01 10,364,970.78 28,052,889.23
VI LGUs 112,896,390.99 31,903,705.99 80,992,685.00
VII LGUs 164,637,145.09 137,177,258.87 27,459,886.22
XI LGUs 131,914,075.98 113,099,240.95 18,814,835.03
Total ₱1,736,788,089.64 ₱1,369,939,917.44 ₱373,816,845.72

1.47 Review and analysis of the documents relative thereto disclosed that the
following conditions contributed in the discrepancies of the reported book
balances and the confirmed balances of the aforementioned accounts, to
wit:

a) disbursements incurred are already reflected in the books of the IAs

but liquidation reports thereof were not yet submitted to the DILG;

b) fund transfers already recorded in the books of the DILG but not in the
books of the IAs; and

73
 c) inclusion of dormant balances in the books of the DILG, as discussed
in paragraph no. 1.54.

c. Unreconciled difference between accounting and property records -

₱299.628 Million

1.48 The balances per Accounting records and Report of Physical Count of PPE
(RPCPPE) were not reconciled showing a total variance of ₱299.628
million, as shown below:

Per Accounting
Office Records Per RPCPPE Difference
CO ₱404,829,325.79 ₱236,130,313.44 ₱171,128,652.93
NCR 26,243,479.21 20,823,672.93 5,419,806.28
CAR 77,045,794.74 75,127,845.25 1,917,949.49
II 21,561,749.43 26,287,807.16 4,726,057.43
IV-A 30,739,788.30 31,230,370.42 490,582.12
IV-B 106,170,800.19 27,755,485.61 78,415,314.58
VI 40,667,251.74 42,404,677.44 1,737,425.70
VIII 120,845,289.26 87,622,451.86 33,222,837.40
XII 28,997,010.54 26,427,364.93 2,569,645.61
Total ₱857,100,489.20 ₱573,809,989.04 ₱299,628,271.54

1.49 Audit and analysis of the PPE accounts and related reports disclosed that
the discrepancy could be attributed to the following:

 items below the capitalization threshold of ₱15,000.00 still recorded as

PPE in the books;
 PPE already transferred/donated/disposed still recorded in the books;
 procurement of PPE recorded as expense;
 capitalization of minor repairs;
 erroneous classification of PPE in the books and/or the RPCPPE; and
 erroneous recording in the books as discussed in paragraph nos. 1.25
to 1.35.

d. Untitled land and building - ₱34.490 Million

1.50 Despite Management’s efforts to resolve the issue on the ownership of

land and building valued at ₱34,490,044.00 in the DILG books of account
which are being occupied by the League of Municipalities (LMP) and its
ownership is being claimed by the same, said property remained untitled
as at year-end. This observation has been reported in the audit report on
the DILG since 2007.

e. Non-disposal of unserviceable properties - ₱210.817 Million

74
1.51 Section 79 of PD 1445 states, “When government property has become
unserviceable for any cause, or is no longer needed, it shall, upon
application of the officer accountable therefore, be inspected by the head
of the agency or his duly authorized representative in the presence of the
auditor concerned and, if found to be valueless or unsalable, it may be
destroyed in their presence.”

1.52 Section 40, Chapter 10 of the GAM Vol. I provides the policies on idle,
unserviceable and fully depreciated PPE.

1.53 The following unserviceable properties located in the Regional Offices

were not disposed resulting in further deterioration which deprived the
agency of better chances of recovery and income:

Office Amount Remarks

I ₱62,837,387.66 PATROL 117 Communication Equipment,
air-conditioner units, monitors, printers,
motorcycle
III 79,057,319.03
IV-B 378,640.00 Furniture and Fixture, Motor Vehicle, ICT
Equipment
VI 68,543,503.53 PATROL 117 Emergency Network
Philippines Equipment, motor vehicles
Total ₱210,816,850.22

1.54 The unserviceable properties in Region III were not properly reported in
the IIRUP; thus, the management was not able to act on their early
disposal. In Regions IV-B and VI, the non-disposal was attributed to the
late/non-preparation of the IIRUP; while Regions I and VI are awaiting for
the advice of the Central Office on the mode of disposal of the PATROL
117 properties since these were acquired by the Central Office under a
loan agreement.

f. Existence of Dormant account balances - ₱666.563 Million

1.55 COA Circular No. 2016-005 dated December 19, 2016 provides the
guidelines and procedures in the write-off of dormant receivable accounts,
unliquidated cash advances and fund transfers of NGAs, LGUs and
GOCCs. It defines dormant unliquidated fund transfers as advances
granted by the source entity to implementing entity for the implementation
of programs/ projects which remained non-moving for 10 years or more
and where settlement could no longer be ascertained.

1.56 The balances of the following accounts in the books of the Central Office
totaling ₱662,571,008.10 were non-moving for more than 10 years; hence,
considered dormant receivable/payable accounts.

75
 Implementing
Agency Purpose Amount
National Government Agencies (NGAs)
Department of Fund transfer for consultancy services ₱100,000.00
Education, Culture per Memorandum of Agreement granted
and Sports (DECS) on December 9, 1988 and January 16, 100,000.00
1989.
Local Government Fund transfer for LOGOTRI seminar 100,000.00
Academy and general meeting on May 23, 2000
Presidential Fund transfer for the cost of visual 400,000.00
Commission to presentation on the SRA-MBN approach
Fight Poverty Sambayanihan Aides on April 2, 1988
Procurement Fund transfer for the procurement of ICT 49,693,017.17
Service-DBM hardware and equipment under the Local
Government Unit Information Portal and
the Public Safety Information System
Local Government Units
Various LGUs Equipment Development Loan Program 526,063,459.43
(EDLP) :
Amount loaned to LGUs under Second
and Third Rural Roads Improvement
Program
Unliquidated balances of funds 35,365,313.81
transferred to cities and municipalities
for completed projects
Peace and Order Council (POC)
Fund transferred to POCs of various 20,888,035.99
LGUs for the implementation of the
project
Regional Offices
ARMM Various programs 159,158.40
Region XII MDG-Tracking, October 1, 2007 24,000.00
NGOs/POs
Liga ng mga Intended for barangay election, 750,000.00
Barangay December 2012
League of Cities of Payment of the last tranche of 144,277.71
the Philippines deliverables under Component 3 of
LEPM, August 14, 2006
Naga City People's Financial Assistance, January 1, 2000 139,646.13
Council
Young Men's Financial Assistance, January 1, 2000 1,542.38
Christian
Association of
Negros Oriental Inc.
La Liga Policy Financial Assistance, January 1, 2000 458.61
Institute
Central Office Accounts
Advances to Unrecouped balances of advance 4,023,670.24

76
 Implementing
Agency Purpose Amount
Contractors payment of completed projects
Other Receivables Unliquidated cash advances which 24,134,249.08
remained unsettled due to retirement,
resignation and separation from the
service
Due to NGAs Unliquidated fund transfers from 484,179.15
PRMDP, SRA, Presidential Management
Staff-Department of Agriculture
Grand Total ₱662,571,008.10

1.57 In the Central Office, the fund transfers to various LGUs includes:
(a) ₱35,365,313.81 intended for infrastructure projects granted from 1993
to 2002; (b) ₱526,063,459.43 for equipment loan and civil works under
Equipment Development Loan Projects; and (c) ₱20,888,035.99 for
implementation of the Peace and Order Council.
Advances to Contractors

1.58 The Advances to Contractors in the Central Office represent unrecouped

balances of completed foreign assisted projects which include the Fifth
Road Improvement Project and Second Rural Road Improvement Project
implemented by the DILG. Confirmation letters were sent to the
contractors; however, only the Philippine Union Realty Development
Corporation replied stating that they had no outstanding liability to the
DILG. Details are as follows:

Name of Contractors Amount

E. M. Cosalan Realty & Construction ₱997,367.30
Philnor Consultants, Inc. 143,054.53
Phil. Union Realty Dev’t. Corp. 428,760.00
107,190.00
PMC Construction Corp. 442,598.71
First Optima Realty Corp. 193,200.00
Cebu Luzon Motors & Dev’t Corp. 115,297.79
12,295.60
Unicorn Construction Co., Inc. 274,739.57
NHG Construction & Builders/D & D Const. 249,286.26
High Peak Construction Corp. 1,055,839.38
Phil. Long Distance Telephone Corp. 1,246.96
680.55
623.23
1,490.36
Total ₱4,023,670.24

Other Receivables

77
1.59 The Other Receivables in the Central Office totaling ₱24,134,249.08
pertain to unsettled cash advances for travel and operating expenses
granted to personnel of the Department. Despite management efforts to
determine the whereabouts of these personnel, they could no longer be
traced due to resignation, retirement and separation from the service.

1.60 In Regions IV-A and XI, the following dormant accounts totaling
₱3,991,833.57 were noted:

Office Accounts Amount

IV-A Accounts Receivable ₱7,225.00
Due from NGAs 2,576,631.79
Due from GOCCs 816,174.20
Due from LGUs 566,251.90
XI Other Receivables 25,550.68
Total
₱3,991
,833.57

g. Unreconciled discrepancy between balances per books and

confirmation from Source Agencies

1.61 In the CO, the Due to NGAs account represents various fund transfers
from other national government agencies and offices for the
implementation of specific projects/activities of the Department.

1.62 The unreconciled discrepancy in the CO pertains to the difference of

₱4,014,329.23 between the balance per books and confirmation from
Source Agencies (SAs) caused by disbursements already recognized in the
books of the DILG but not in the books of the SAs.

1.63 The discrepancy could be attributed to the following:

a. The payment made to the Development Academy of the Philippines

recorded under JEV-2017-02-001408 was debited to Accumulated
Surplus/Deficit account instead of Due to NGAs account resulting in
the understatement of the Accumulated Surplus/Deficit and the
overstatement of the Due to NGAs both by ₱9,000.00.

b. Per confirmation reply of the Climate Change Commission (CCC),

there was no outstanding receivable from the DILG. The balance was
due to a UNDP Project, where the CCC is the implementing partner.
Inquiry with the focal person of the project revealed that the funds
which were directly deposited to the DILG bank account no. 0572-
1050-59 on June 27, 2018 and October 25, 2018 were from UNDP as
supported by a UNDP payment voucher.

78
 c. The discrepancies in the balances of the Local Government Academy
and the Road Board in the amount of ₱1,176,048.75 and ₱28,647.62,
respectively, represent expenses/payments already recorded in the
books of the DILG but not yet reflected in the books of the source
agencies.

d. Inclusion of dormant unliquidated fund transfers from PRMDP, SRA,

Presidential Management Staff-Department of Agriculture in the
amount of P484,179.15

Unaccounted difference between the GL and schedule

1.64 In Region VIII, comparison of the Cash in Bank-Local Currency Current

Account of ₱112,354,690.62 showed a difference of ₱28,322,102.87 with
that of the schedule amounting to ₱84,032,587.75 due to non-maintenance
of Subsidiary Ledger.

1.65 We recommended and Management agreed to:

a) require the Accountant concerned to: (i) determine the cause/s of

the inconsistencies between the records of the DILG and
confirmation with the bank and IAs; and (ii) review and analyze
the dormant accounts and request authority from COA for the
write-off and/or adjustment of dormant accounts;

b) require IAs to refund the unexpended balance for all completed

undertakings;

c) require the concerned Accounting and Property Offices to conduct

periodic reconciliation of their records and prepare necessary
adjustments, if any;

d) facilitate the disposal of unserviceable properties to avoid further

deterioration; and

e) require the Accountant to coordinate with the source agencies to

establish the correct balance of the unliquidated fund transfers
and make the necessary adjustments in the books of accounts.

B. Compliance Audit

Unliquidated fund transfers

79
 2. Various fund transfers to Implementing Agencies (IAs) totaling
₱9,475,391,686.09 remained unliquidated at year-end due to non-
submission of liquidation reports contrary to COA Circular Nos. 94-013
and 2007-001.

2.1 COA Circular No. 94-013 dated December 13, 1994 prescribes the rules
and regulations on the grant, utilization and liquidation of funds
transferred to implementing agencies. It states that within ten (10) days
after the end of each month/end of the agreed period for the Project, the
Implementing Agency (IA) shall submit the Report of Checks Issued
(RCI) and the Report of Disbursements (RD) to report the utilization of
the funds to the Source Agency (SA). The IA shall return to the SA any
unused balance upon completion of the project.

2.2 As of December 31, 2018, the balances of accounts Due from NGAs,
LGUs, GOCCs, and NGOs/POs totaled ₱9,475,391,686.09 aged as
follows:

AGE
Account Name Total
Current Over 1 year Over 2 years Over 3 years
₱350,809,455.6 ₱290,135,837.2
Due from NGAs ₱291,732,075.29 ₱23,596,784.95 ₱956,274,153.17
5 8
3,495,541,769.3 1,225,156,477.8 2,005,238,990.8
Due from LGUs 1,171,081,904.87 7,897,019,142.85
3 5 0
Due from GOCCs 27,289,330.05 25,000,000.00 564,916,828.58 839,403.42 618,045,562.05
Due from
1,714,815.50 1,292,792.50 9,295.19 1,035,924.83 4,052,828.02
NGOs/POs
3,872,644,017.4 1,813,679,386.5 2,297,250,156.3
Total 1,491,818,125.71 9,475,391,686.09
8 7 3
₱7,983,573,560.38

 Due from National Government Agencies - ₱956,274,153.17

2.3 The Due from NGAs account includes fund transfers by the Central Office
totaling ₱721,895,003.90 broken down as follows:

Liquidation
Implementing Balance 2018 Fund Balance
For PY fund For CY fund
Agencies 12/31/17 Transfers 12/31/18
transfers transfers
For the implementation of 2017 ASEAN activities
AFP ₱124,467,481.58 ₱123,142,324.03 ₱1,325,157.55
MMDA 49,604,097.51 49,061,667.71 542,429.80
BI 25,000,000.00 24,646,647.07 353,352.93
OCD 107,415,543.99 107,081,470.68 334,073.31
PNP 80,357,312.00 80,357,312.00 0.00
NTC 2,225,602.21 2,225,602.21 0.00
DICT 2,165,660.42 2,165,660.42 0.00
OP 112,270,000.00 112,270,000.00 0.00
DND 4,430,142.06 4,430,142.06 0.00
DOH 49,765,442.65 49,765,442.65 0.00

80
 Liquidation
Implementing Balance 2018 Fund Balance
For PY fund For CY fund
Agencies 12/31/17 Transfers 12/31/18
transfers transfers
DFA 5,060,000.00 5,060,000.00 0.00
DSWD 3,000,000.00 3,000,000.00 0.00
PCG 47,112,187.72 47,112,187.72 0.00
PNRI 492,436.52 492,436.52 0.00
BFP 72,708,427.46 72,708,427.46 0.00
CAAP 1,500,000.00 1,500,000.00 0.00
PSG 297,935,391.44 5,803,387.83* 303,738,779.27 0.00
NICA 60,869,400.00 60,869,400.00 0.00
Sub-Total 1,046,379,125,.56 5,803,387.83 1,049,627,499.80 2,555,013.59
*The amount of ₱5,803,387.83 was recorded twice as liquidation in CY2017; thus adjusted in CY 2018.
For various purposes
DPWH 552,994,186.19 333,354,193.63 219,639,992.56
PCUP 95,000,000.00 119,606,000.00 14,647,966.45 199,958,033.55
LGA 188,391,726.45 102,402,078.15 85,989,648.30
DND 2,000,000.00 66,145,250.00 6,984,613.57 61,160,636.43
PS-DBM 62,406,755.10 27,708,434.08 7,458,228.53 25,964,365.08 56,692,595.57
BFP 50,000,000.00 10,376,157.25 39,623,842.75
NAPOLCOM 22,820,000.00 (1,590,000.00)* 21,230,000.00
PCOO 10,500,000.00 10,000,000.00 8,010,116.54 12,489,883.46
PPPC 6,200,000.00 6,200,000.00
PPSC 63,238,578.22 57,107,902.62 6,130,675.60
UP-NCPAG 0.00 4,002,905.00 4,002,905.00
NAPC 3,537,654.55 37,654.55 3,500,000.00
CESB 585,000.00 659,444.43 585,000.00 123,636.11 535,808.32
PCFP 400,000.00 400,000.00
DepEd 200,000.00 200,000.00
COBSAT 0.00 85,000.00 85,000.00
DOH 56,314.87 56,314.87
DOT 3,945.80 3,945.80
RAPID 0.00 708.10 708.10
DSWD 41,714.31 41,714.31 0.00
BJMP 75,000.00 75,000.00 0.00
PNP 1,410,000.00 1,410,000.00 0.00
CWC 100,000.00 3,700,000.00 100,000.00 3,700,000.00 0.00
Sub-Total 1,059,960,875.49 230,317,741.61 525,229,854.78 47,148,772.01 717,899,990.31
Technical Assistance under the Citizen Satisfaction Index System (CSIS) Program
BSU 180,000.00 180,000.00 0.00
CLSU 180,000.00 0.00 180,000.00
DEBESMSCAT 180,000.00 0.00 180,000.00
ESSU 180,000.00 0.00 180,000.00
ISU 180,000.00 143,991.00 36,009.00
MMSU 180,000.00 180,000.00 0.00
MSU 180,000.00 0.00 180,000.00
MSU-IIT 143,991.00 0.00 143,991.00
NVSU 180,000.00 180,000.00 0.00
PUP 180,000.00 0.00 180,000.00
SSU 180,000.00 180,000.00 0.00
TSU 180,000.00 180,000.00 0.00

81
 Liquidation
Implementing Balance 2018 Fund Balance
For PY fund For CY fund
Agencies 12/31/17 Transfers 12/31/18
transfers transfers
UNP 180,000.00 0.00 180,000.00
WPU 180,000.00 0.00 180,000.00
Sub-Total 2,483,991.00 1,043,991.00 1,440,000.00
₱1,575,901,345.5 ₱721,895,003.9
Grand Total ₱2,108,823,992.05 ₱236,121,129.44 ₱47,148,772.01
8 0
₱2,344,945,121.49 ₱1,623,050,117.59
Percentage of liquidation 69%

2.4 The ASEAN Fund has unliquidated fund transfer of ₱1,046,379,125.56 as

at December 31, 2017. Verification of related documents disclosed that the
amount of ₱5,803,387.83 was recorded twice as liquidation of PSG in CY
2017; thus, adjusted in CY 2018. A total of ₱1,049,627,499.80 liquidation
report had been submitted to date; thus, leaving unliquidated balance of
₱2,555,013.59 at year-end.

2.5 The balance of Presidential Commission for the Urban Poor (PCUP)
includes the unliquidated balance of ₱80,352,033.55 transferred on March
30, 2017 intended for the 11,367 qualified Informal Settler Families (ISF)
living in danger areas and high risk areas to safe and decent housing sites
in the NCR. On December 27, 2018, additional funds of ₱119,606,000.00
was again transferred to PCUP for the same purpose.

2.6 The balance with Procurement Service-DBM was intended for the
procurement of ICT Hardware and equipment under the Public Safety
Information System (PSIS) and Local Government Unit Information
Portal (LGUIP). The management had already sent a follow up letter to
PS-DBM requesting for the refund, however to date, the matter remained
unresolved.

2.7 The unliquidated balance of Local Government Academy (LGA) totaling

₱85,989,648.30 is composed of fund transfers for the following programs:

Programs Balance
LOGOTRI seminar and general meeting ₱ 100,000.00
Establishment of a Local Governance Innovative Solutions 12,467,205.71
Bank
Implementation of Listong Pamilyang Pilipino 2,330,511.90
Transition to Federalism 6,919,493.51
Implementation of Assistance to Municipalities Program 64,172,437.18
Total ₱ 85,989,648.30

2.8 The outstanding balance of the Bureau of Fire Protection (BFP) amounting
to ₱39,623,842.75 was intended for the conduct of Emergency Medical
Technician (EMT) training for BFP personnel.

82
2.9 The balance of the Presidential Communications Operations Office
(PCOO) amounting to ₱12,489,883.46 pertained to: (a) unliquidated funds
of ₱2,489,883.46 transferred in October 2017 intended for the
implementation of the MASA MASID Communication Action Plan; and
(b) additional funds of ₱10,000,000.00 transferred in September 2018 for
the development and production of multi-media materials under the
Transition to Federalism Program.

2.10 On the other hand, the balance under the CSIS program pertained to funds
transferred to various state universities and colleges as Local Resource
Institutes (LRIs). Under the program, the DILG trains and commissions
LRIs to do fieldwork, data analysis and report preparation in order to
generate Citizen Satisfaction Reports (CS Reports). In order to maximize
these reports, the DILG Technical Assistance Program for LRIs was
initiated to provide technical and financial assistance to LRIs in support of
programs/projects that promote responsive local governance through
partnerships with LGUs and CSOs.

 Due from GOCCs

2.11 The Due from GOCCs account in the Central Office is composed of the
following fund transfers:

Implementing Agencies Balance 12/31/2018

NHA ₱213,585,844.64
PIDS 27,269,330.05
SHFC 350,000,000.00
NRDC 23,229.22
Misamis University 20,000.00
Total ₱590,898,403.91

2.12 The fund transfers to National Housing Authority (NHA) in September

2016 totaling ₱278,000,000.00 were allocated for relocation assistance to
15,000 ISF beneficiaries and for administrative costs.

2.13 The unliquidated balance of SHFC pertained to the fund transfer in

September 2016 for the construction of Micro Medium-Rise Building
(MMRBs) for Informal Settler Families (ISFs) from esteros. The issue on
the purchase of land where the Micro Medium-Rise Building (MMRBs)
will be constructed was cited as the cause of delay in the implementation
of the project.

2.14 The balance of unliquidated fund transfer to Natural Resources

Development Corporation (NRDC) granted on November 17, 2009 in the
83
 amount of ₱23,229.22 also includes support fund for the Environment
Impact Assessment Review Committee. The erroneous liquidation of
₱2,445.69 was adjusted on January 7, 2019 per JEV 2019-01-000080.

2.15 The unliquidated balance of Philippines Institute for Development Studies

was intended for studies/research of the Baseline Study for Assistance to
Municipalities Program.

 Due from LGUs – Regional Offices

2.16 The balance of Due from Local Government Units remained unliquidated
despite completion of projects in the following ROs:

Offic Projects Amount

e
I Provision of water supply, flood control, ₱17,505,797.61
others
V BuB, PAMANA, RAY, SALINTUBIG 275,841,312.92
VI BuB, RAY, SALINTUBIG 33,165,100.82
VII RAY 21,103,596.47
X BUB, PAMANA, SALINTUBIG 35,548,396.25
Total ₱383,164,204.07

 Due from NGOs/POs

2.17 The balance of Due from NGOs/POs amounting to ₱2,035,924.83 consists

of the following fund transfers:

NGO Purpose Amount Liquidations Balance

Liga ng Mga Financial no data - ₱750,000.00
Barangay assistance
granted in CY
2000
League of Last tranche for no data - 144,277.17
Cities of the the
Philippines on implementation
09/01/09 and final
completion of
deliverables under
component 3 of
LEPM
La Liga Policy Implementation of 225,000.00 224,541.39 458.61
Institute on the project
10/31/12 entitled "Making
the Local Disaster
Risk Reduction
and Management
Fund Work
Through the

84
 NGO Purpose Amount Liquidations Balance
Alliance of 7
LGUs"
Naga City Implementation of 225,000.00 85,353.87 139,646.13
People's the project
Council on entitled
10/31/12 Monitoring Good
Governance
Indicators in the
Housing Sector of
Naga City
Young Men's Implementation of 225,000.00 223,457.62 1,542.38
Christian the project
Assoc. Of entitled Subay
Negros Kahinsog Round
Oriental Inc. 2 with the theme,
on 10/31/12 Innovative
Participatory
Local Governance
League of Support for their 1,000,000.00 - 1,000,000.00
Municipalities Annual General
of the Assembly, March
Philippines on 13 to 15, 2017
03/14/17
Total ₱2,035,924.29

2.18 The unliquidated balance of Naga City People’s Council, Young Men’s
Christian Association of Negros Oriental Inc., La Liga Policy Institute and
League of Cities of the Philippines were non-moving. Demand letters
were last sent by Management on September 12, 2012. There were no
updates regarding the status of the projects.

 Due from ROs

2.19 The reported Due from ROs balance of ₱1,525,693.54 was composed of
unliquidated fund transfers to the following Regional Offices for the
implementation of various projects as follows:

Region Balance 12/31/18

CAR ₱2,800.05
III 307,077.00
188,100.00
IV-A 30.00
V 127,476.20
86,218.00
3,500.00
VIII 618,133.00
XI 10,500.00
XII 8,480.85

85
 Region Balance 12/31/18
1,205.04
1,015.00
ARMM 151,821.00
19,337.40
Total ₱1,525,693.54

2.20 We recommended and Management agreed to:

a) strictly monitor and enforce the liquidation of fund transfers in

accordance with COA Circular No. 94-013 and 2007-001 and
relevant provisions of the MOA; and

b) require the IAs to refund the unexpended balance for completed

undertakings and for cancelled projects.

Lease purchase of Equipment

3. Various capital assets valued at ₱17,596,905.55 which should have

been charged against the allotment for capital outlay were
procured/acquired using the allotment for Maintenance and Other
Operating Expenses (MOOE) which is not in keeping with existing laws on
the proper utilization of funds.

3.1 Section 155 of the Government Accounting and Auditing Manual provides
that government expenditures are classified as follows:

a) Current operating expenditures - refer to appropriations for the

purchase of goods and services for current consumption or for
benefits expected to terminate within the fiscal year. Current
operating expenditures are classified into:

1. Personal Services
2. Maintenance and Operating Expenses

b) Capital outlays - refer to appropriations for the purchase of goods

and services, the benefits of which extend beyond the fiscal year
and which add to the assets of the government.

3.2 R.A. No. 10964 (GAA for CY 2018) appropriated ₱48.100 million for
capital outlay for the procurement of ICT equipment and computer
software and ₱1.900 million for MOOE for the rental/financial lease of
equipment. Details are as follows:

86
 Particulars Appropriation
Regular Fund Capital Outlay MOOE
ICT Equipment ₱26,400,000.00
Computer Software 21,700,000.00
Rent-Equipment ₱1,500,000.00
Rent-Financial Lease 400,000.00
Total ₱48,100,000.00 ₱1,900,000.00

3.3 The appropriations for capital outlay were utilized for the procurement of
various ICT equipment and computer software for Medium-term
Information and Communications Harmonization Initiative.

3.4 Despite prior year’s recommendation to stop the practice of using the
appropriation for MOOE for the acquisition of equipment under a lease
purchase agreement, the DILG again entered into agreement with various
suppliers for the acquisition of various capital assets. For calendar year
2018, the management procured ICT, communication and other capital
assets totaling ₱17,905,364.99 and noted that out of the said amount,
₱17,596,905.55 was acquired under a Lease Purchase Agreement.

3.5 Review of the Lease Purchase Agreements revealed the following

provisions, among others:

a) the term of the lease is two or three months only;

b) upon expiration of the agreement and/or upon full payment to the

lessor, ownership of the leased item shall be vested to the DILG
through the issuance of Transfer of Property/Certificate of
Ownership; and

c) the DILG may opt to pay fully even before the end of the rental
period. Meantime, the supplier retains legal ownership of the leased
item while full payment for the same is not yet made.

3.6 The agreement denotes that the purpose of management is to procure or

acquire the asset through lease rather than merely paying for its use in
operations. The DILG charged the payment of monthly rentals/lease of
various ICT and other equipment against MOOE. Using MOOE allotment
for the purchase of capital assets under lease purchase agreement is a clear
circumvention of the existing laws on the utilization of government funds.

3.7 The same observation was noted in DILG RO XIII, where, the RO entered
into agreement with suppliers with the intention of procuring seven units
of laptop computer through lease purchase amounting to ₱212,000.00. The
term of the lease was good for one year; but six units were paid in six
months and one unit was paid in two months. Verification of related

87
 documents disclosed that the cost of leasing the computers was charged
against SARO#2017-08-1263 - CY 2017 Regular Current Appropriation -
MOOE - Rent Expense.

3.8 We reiterated our previous recommendation that Management stop

the practice of using the appropriations for MOOE for the acquisition
of equipment under the lease purchase agreement.

3.9 In the Central Office, Management commented that they consistently

included capital outlay in their budget proposal to the DBM but were only
granted appropriations for the Medium Term Information and
Communications Harmonization Initiative and not for needed office
equipment; thus, Management utilized the MOOE appropriations for the
lease purchase of necessary equipment. Both the CO and Region XIII
committed to stop utilizing MOOE allocation for the procurement of
equipment through lease purchase.

Non-compliance with R.A. No. 9184 (Procurement Law)

4. The Central Office and five Regional Offices did not comply with the
requirements of the procurement process and procedures provided in the
2016 Implementing Rules and Regulations of R.A. No. 9184, otherwise
known as “The Government Procurement Reform Act”.

4.1 R.A. 9184, known as the Government Procurement Reform Act, laid out
the necessary guidelines for the modernization, standardization and
regulation of procurement activities of the government.

4.2 Audit of various procurement amounting to ₱66,028,986.19 disclosed

non-compliance with the CY 2016 Implementing Rules and Regulations of
RA No. 9184, as follows:

O Observations Amount
f
f
i
c
e
C Payment for fuel, oil and lubricants ₱2,933,4
O made through reimbursement and 53.02
replenishment from PCF.
Payment of airfares for local and 43,081,4
foreign travel were made through 73.96
direct booking of flights from
airlines or travel agency.
Failure to deduct advances made 4,023,67

88
 O Observations Amount
f
f
i
c
e
from the periodic progress 0.24
payments of the contractors
C Non-preparation of PPMP for 4,600,054.02
A training requirements
R
Inappropriate mode of procurement 1,751,234.45
I Procedures for Small Value 109,670.
V Procurement (SVP) for 00
- procurement of repairs and
B maintenance were not followed.
V Contracts were awarded to a 2,661,17
supplier with expired Certificate of 6.50
PhilGEPS Registration.
The contract was signed beyond the 4,600,00
bid validity period. 0.00
The performance security was
posted beyond the prescribed time.
The procurement process took
longer than the maximum period.
Subcontracting arrangements 1,065,75
0.00
Various purchases made through 303,694.
reimbursements 00
I Undetermined mode of procurement 400,000.
X Eligibility documents were not submitted. 00
No conduct of post-qualification of bids
The procurement process from bid opening
to awarding of contract was done in one
day.
X Inexpensive suppliers/hotels were 498,810.
not sent RFQs. 00
T ₱66,028
o ,986.19
t
a
l

4.3 Payment of airfares for local and foreign travels amounting to

₱43,081,473.96 was made through direct booking of flights from airlines,

89
 or through a travel agency; thus, airfare discount of eight to nine percent
of the regular price amounting to ₱3,395,682.34 was not availed of.

4.4 We recommended and Management agreed to follow the procurement

process and procedures prescribed under RA No. 9184.

4.5 In the Central Office, Management commented that only 23 out of the 83
motor vehicles owned are handled by the Motorpool Section and that for
CY 2018, only ₱283,793.42 was paid for FOL out of petty cash fund.
Moreover, Management cited that it will be impossible to implement the
recommendation this 2019 considering that the bidding process may take
136 days maximum; hence, they recommended to implement the same in
2020 subject to Early Procurement Activity on the last quarter of 2019.

Delayed/Non-submission of Mandatory reports and other documents

5. Financial reports and supporting

documents/schedules/contracts/purchase order were not submitted within
the prescribed period which is not in keeping with existing rules and
regulations causing delay in the verification of accounts and transactions of
the agency.

5.1 The Government Accounting Manual (GAM) contains the accounting

policies in accordance with the Philippine Public Sector Accounting
Standards (PPSAS) as well as the guidelines and procedures to be adopted
by the accountants, budget officers, cashiers, property officers,
accountable officers and other finance personnel in recording and
reporting government financial transactions.

5.2 The submission of financial reports is required by the laws, rules and
regulations listed below:

Documents/Reports Period of Submission Regulation

1 Report of Checks Issued Daily or as often as Government
(RCI) Report of Advice necessary Accounting
to Debit Account issued Manual (GAM)
(RADAI) with all paid Volume II
vouchers and documents
evidencing the
transactions
2 Report of Collections Daily or as often as GAM, Volume II
and Deposits (RCD) with necessary
all official receipts
(ORs), deposit slips
(DSs) and documents
evidencing the
transactions

90
 Documents/Reports Period of Submission Regulation
3 Bank Reconciliation Within 20 days after Section 7, Chapter
Statements (BRS) receipt of the monthly 21, GAM, Volume
Bank Statements I
4 Monthly/Quarterly Trial Within 10 days after the Section 60,
Balance (TB), Financial end of the month/quarter Chapter 19, GAM
Statements (FSs), Volume I
Supporting Schedules
5 Report on the Physical Not later than July 31 GAM, Volume II
Count of Inventories and January 31 of each
(RPCI) year for the first and
second semesters
respectively
6 Copies of perfected Within five days from COA Circular No.
contracts and purchase issuance of the contract 2009-001
order and documents and POs
forming part thereof
7 Report on the Physical Not later than January GAM, Volume II
Count of Property, Plant 31, of each year.
and Equipment
(RPCPPE)
8 Report of Accountability Monthly GAM, Volume II
for Accountable Forms
(RAAF)

5.3 The non-submission of the required financial reports and supporting

schedules within the prescribed period caused undue delay in the
examination of the financial transactions and communications of noted
deficiencies to management, details as follows:

Office Unsubmitted Financial Reports

CO, NCR, Inventory Reports
CAR, IV-A, Report on the Physical Count of Inventories (RPCI)
XII Report of Supplies and Materials Issued (RSMI)
NCR, CAR, PPE Reports
I, II, XI Report on the Physical Count of PPE (RPCPPE)
III, IV-A, V, Financial Statements, Trial Balance, Bank Reconciliation
VIII, IX, X Statements (BRS), Disbursement Vouchers, Subsidiary
Ledgers
5.4 II, III, VI, Contracts, Purchase Orders, MOA and supporting documents
IX, XI
IV-A Quarterly Report on Government Programs, Activities and
Projects
XII Monthly Report of Fuel Consumption and Monthly Report of
Official Travels
X Report of Accountability for Accountable Forms
There are also documents and reports not yet submitted to the audit teams as of
December 31, 2018:

91
 Period Covered of
Office/
Document/Report Documents not submitted
Region
as of December 31, 2018
CO DVs and supporting documents-
LDDAP-ADA
DVs and supporting documents-
MDS
Bank Reconciliation Statement-MDS October to December 2018
Account Current
BRS-Trust Fund
BRS-Special Account
BRBLGS (LGPMS)
III Bank Reconciliation Statement September - December
2018
IV-A Bank Reconciliation Statement November - December
2018
Disbursement Vouchers and May -December 2018
supporting documents
Quarterly Report of Publicized PPA 3rd and 4th quarters of
2018
V DVs and supporting documents- September - December
LDDAP-ADA 2018
DVs and supporting documents-MDS April, Nov., December
2018
IX DVs and supporting documents- August-December 2018
LDDAP-ADA

5.5 We recommended and Management agreed to comply with the

reglementary period on the submission of the required reports,
supporting documents and contracts in compliance with the
aforementioned regulations.

Transition to Federalism

6. The non-submission of monthly progress reports for work or projects

undertaken was contrary to COA Circular No. 94-013 dated December 13,
1994 and Memorandum of Agreement (MOA) dated August 23, 2018.

6.1 The DILG was tasked as the lead agency to undertake a nationwide
information campaign on federalism. On September 10, 2018, a total of
₱10,000,000.00 was transferred to the PCOO to be used for the
development and production of multi-media materials covered by a MOA
dated August 23, 2018 which provided the following, among others:

a. The First Party (DILG) shall:

92
  Oversee the information campaign activities of the “One
Nation, One Government: Transition to Federalism” Project;
and
 Provide the necessary budget amounting to Ten Million Pesos
(Php10,000,000) in support to the execution of undertakings
under this MOA.

b. The Second Party (PCOO) shall:

 Liquidate to the First Party, on a monthly basis, all expenses

made in relation to the execution of activities under this
MOA;
 Submit to the First Party, on a monthly basis, progress reports
for work or projects undertaken relative to the execution of
the activities under this MOA; and
 Submit to the First Party a comprehensive report on all the
accomplishments of the Second Party at the end of the
effectivity of this MOA.

6.2 Verification of the Subsidiary Ledger showed that no monthly reports were
submitted by the PCOO to show the progress of work or projects
undertaken and to liquidate all related expenses incurred as required under
the MOA. A demand letter was sent to the PCOO by DILG on April 30,
2019.

6.3 The bulk of the activities should have been completed as early as first
quarter-end of 2019 considering that the effectivity of the MOA will be
until May 31, 2019. Nevertheless, all the required liquidation and progress
reports have yet to be submitted as of this writing.

6.4 We recommended that Management demand submission of monthly

work progress reports on activities undertaken by the PCOO in
compliance with the MOA and ensure that the same are aligned with
the key messages and content parameters of the DILG, as
contemplated in DILG Memorandum Circular No. 2018-79.

6.5 The Management commented that a letter was already sent to PCOO on
January 16, 2019 requesting the submission of their monthly progress
reports and on March 13, 2019, the PCOO and the CFCR PMO have
agreed to propose amendments to the MOA considering that the PCOO
already lapsed in its obligations to implement the project. On April 30,
2019, a demand letter was again sent to PCOO for the same purpose with
instruction to refund any unexpended/unused amount to settle the fund
transfer.

93
Performance-Based Challenge Fund (PCF) and Support to Local Governance
Program (SLGP)

7. The DILG failed to submit the quarterly reports on financial and

physical accomplishments for the Performance-Based Challenge Fund
(PCF) and Support to Local Governance Program (SLGP), contrary to the
Special Provision Nos. 1 and 2 of CY 2018 General Appropriations Act
(GAA). Moreover, the Municipality of Nagcarlan, Laguna has started
implementing its 2017 PCF project despite non-completion of its 2013 PCF
project. Further, several PCF projects in CYs 2016 and 2017 may not be
identified as PCF-funded due to inclusion of LGU’s counterpart fund in the
project proposals contrary to DILG Memorandum Circular No. 2017-160
dated November 29, 2017.

7.1 The 2018 GAA has appropriated amounts for the following locally-funded
projects of the DILG intended for the implementation of projects as
follows:

Project Amount Purpose

PCF ₱1,003,700, To cover financial subsidy to qualified
000 LGUs under the Local
Governance Performance
Management Program for the
implementation of priority
projects to ensure compliance by
the LGUs with the Ecological
Solid Waste Management Act of
2000 and Philippine Disaster
Risk Reduction Management Act
of 2010, enhance transparency
and accountability in all local
government transactions, and
maintain core road network to
boost tourism and local
economic development.
SLGP 250,000,00 To ensure, among others, that the Local
0 Development Council in LGUs
at all levels are fully functional
and shall comply with the
requirements provided in Title VI
of R.A. No. 7160 and ensure that
all local development investment
programs are aligned with the
results matrix of the Philippine
Development Plan.

94
7.2 The Performance Challenge Fund (PCF) is a performance-based reform
program of the DILG that seeks to rationalize inter-governmental transfers
of the national government to LGUs and encourage the convergence to
local development initiatives with national development agenda and
priorities under the Philippine Development Plan (PDP) 2017-2022. It is a
grant or cash award given to eligible LGUs that passed the Seal of Good
Local Governance (SGLG), an award program encouraging and
challenging all provinces, cities and municipalities to improve on their
performance and service delivery.

7.3 On the other hand, Support to Local Governance Program (SLGP) serves
as a facility within the Department that aims to further advance good
governance particularly in promoting participatory governance, improving
local development planning and enhancing local service delivery.

Non-posting of quarterly reports on the DILG website

7.4 Special provision nos. 1 (PCF) and 2 (SLGP) of the CY 2018 GAA states
that the DILG shall submit its quarterly reports on financial and physical
accomplishments with electronic signature to DBM, through the unified
reporting system, and to the Speaker of the House Representatives, the
President of the Senate of the Philippines, the House Committee on
Appropriations and the Senate Committee on Finance, by posting said
reports on DILG website for a period of three (3) years. The Secretary of
the Interior and Local Government shall send written notice to the said
offices when said reports have been posted on its website, which shall be
considered the date of submission.

7.5 As of this writing, the required quarterly reports of PCF and SLGP on
financial and physical accomplishments for the 3rd and 4th quarters of CY
2018 were not yet posted at the DILG website.

7.6 In addition, the previous years’ PCF quarterly reportorial requirements

were likewise not complied with by the Management for the following:

a. 2017 - 2nd Quarter

b. 2016 - 1st Quarter
c. 2016 - 2nd Quarter

Implemented 2017 PCF Project despite Non-Completion of Prior Year’s

Project

7.7 DILG Memorandum Circular 2017-160 dated November 29, 2017 known
as the Operational Guidelines on the Implementation of 2017 PCF quoted
the following:

95
 Within five (5) working days from the submission of all project
documents, the Regional Office shall issue a Notice to Implement
(NTI) authorizing the start of the project implementation and fund
utilization. However LGUs with previous PCF grants will not be given
the NTI unless the following have been conformed by the LGUs with
previous PCF (2011 - 2015) that have complied with all of the
following requirements:

 Those that have completed the project and submitted all

administrative documentary requirements and pertinent
Annexes to DILG Regional Office;
 Certification, with pictures of corrected built items that were
recommended during the final inspection of monitoring by the
joint DILG and LGU Team of the previous PCF project/s;
 Those that have submitted to DILG Regional Office the
following:

 Project completion report;

 Certificate of Completion;
 Physical Accomplishment Report with High resolution pictures;
and
 Copy of the Final Report of Disbursement duly received by COA
assigned in the LGU at the time of application if the ‘verified
correct’ Report of Disbursements is not yet available.

7.8 Evaluation of project status as of January 2019 disclosed that the

Municipality of Nagcarlan, Laguna in Region IV-A has two on-going
projects. The first PCF project was awarded in 2013 and the other project
was awarded in 2017. We noted that NTI was issued by the Regional
Office despite non-completion of its 2013 PCF project contrary to the
aforesaid guidelines set by the DILG. The two projects were reported as
completed as of April 30, 2019.

PCF Projects not considered as a “whole single project”

7.9 Operational Guidelines on the implementation of 2016 and 2017 PCF

under Memorandum Circular (MC) No. 2016-167 dated November 23,
2016 and MC No. 2017-160 dated November 29, 2017, respectively,
indicated under Section 5.1.2.4 that proposed project must be a whole
single project and not a component of other projects.

7.10 While LGUs are allowed to propose a project with counterpart funds, it is
a must that the PCF portion should be evidently identifiable to prevent
claims on the source of project funds especially if the counterpart fund is
higher than the PCF fund.

96
 7.11 A number of LGUs were awarded with PCF in CYs 2016 and 2017 for the
implementation of various projects. However, it was noted that most of the
projects (procurement of vehicles) cannot be identified as PCF-funded due
to additional counterpart and support funds from LGUs contrary to the
above-cited guidelines. (Annex B)

7.12 We recommended that Management:

a) publish in the DILG website the quarterly reports and notify the
Offices concerned regarding its posting;

b) require the Regional Office to refrain from issuing NTI to LGUs

with incomplete PCF projects from previous years unless the
required documents stated under DILG Memorandum Circular
No. 2017-10 had been complied with and strictly monitor
compliance with the set operational guidelines;

c) require the LGUs to identify PCF projects particularly those with

LGUs counterpart funds in compliance with the aforementioned
guidelines; and

d) revisit Section 5.1.2.4 of the Memorandum Circular and further

discuss its parameters.

7.13 On the non-posting of quarterly reports, the Management admitted that

they failed to provide a copy of the SLGP reports to the ISTMS for
publication and it was only on May 7, 2019 when it was submitted for
publication. The PCF reports, on the other hand, have been uploaded in
the official PCF website within the DILG website. In the case of the
Municipality of Nagcarlan, Laguna, the Management commented that the
2013 PCF project was already completed, however, the Regional Office
concerned is yet to update encoding of the completed project. On the issue
of projects not considered as a whole single project, the Management
made emphasis on the term “one whole single project” as something to be
interpreted on its holistic implementation, i.e. the PCF amount should not
be broken down into smaller projects. A project proposed in a specific
location through a single proposal and a single Program of Works (POW),
and not as two separate projects in two proposals or two POW. Thus,
LGUs may provide additional counterpart fund for their proposed projects.

Auditor’s Rejoinder

7.14 We commend the efforts of the Management to comply with the posting of
the PCF reports in the PCF website. However, the requirement under the

97
 2018 GAA to post the reports on the DILG website was not complied
with.

7.15 Based on the reports submitted, both projects were started and completed
on the same dates in 2019. This is a clear violation of DILG Memorandum
Circular 2017-160 requiring completion of previous year’s projects prior
to the start of 2017 PCF project implementation.

Yolanda Funds

Presidential Social Funds

8. On November 8, 2013, super typhoon Yolanda struck the Philippines

devastating most of the Visayan regions. A Deed of Donation was entered into
by and between the Office of the President (OP) (Donor) and Department of the
Interior and Local Government (DILG) (Donee) on April 20, 2015 for the
financial assistance to 4,176 employees of the Department of the Interior and
Local Government affected by Typhoon “Yolanda” and the 7.2 Magnitude
earthquake. The DILG received funds amounting to ₱196,760,000.00.
Distribution of funds transferred are as follows:

Amount Funds Transferred Amount

Received from
Tranche OP Recipients Amount Liquidation Refunds Balance
1st ₱109,190,000.00 Region VI ₱1,340,000.00 ₱1,295,000.00 ₱45,000.00 ₱–
Region VII 525,000.00 495,000.00 30,000.00 –
Region –
VIII 4,760,000.00 4,530,000.00 230,000.00
BFP 7,510,000.00 7,415,000.00 95,000.00 –
PNP 86,770,000.00 77,135,000.00 9,635,000.00 –
PPSC 410,000.00 410,000.00 - –
BJM 6,205,000.00 6,130,000.00 75,000.00 –
Napolcom 1,670,000.00 1,655,000.00 15,000.00 –
2nd 1,590,000.00 Napolcom 1,605,000.00 1,605,000.00 –
85,980,000.00 Region VI 1,295,000.00 1,295,000.00 –
Region VII 495,000.00 495,000.00 –
Region
VIII 4,530,000.00 4,530,000.00 –
BFP 7,415,000.00 7,415,000.00 –
PNP 75,710,000.00 75,710,000.00 –
PPSC 410,000.00 410,000.00 –
BJM 6,130,000.00 6,130,000.00 –
Total ₱196,760,000.00 ₱206,780,000.00 ₱206,780,000.00 ₱10,125,000.00 ₱–

8.1 As can be seen from the above table, refunds from the first tranche
amounting to ₱10,125,000.00 were part of the 2nd tranche released to the
IAs. Total funds transferred for the two tranches has been fully liquidated
as of December 31, 2018.

98
 8.2 A cash balance of ₱105,000.00 (₱196,760,000.00 + ₱10,125,000.00 -
₱206,780,000.00) remained at year end intended for disbursement to seven
beneficiaries once documents were completed.

Recovery Assistance on Yolanda (RAY)

8. The leniency of the DILG in monitoring the submission of liquidation

report of Yolanda Funds by the DPWH and the LGUs resulted in
unliquidated balance of ₱219,639,992.56 and ₱839,877,773.75, respectively.
Moreover, a discrepancy of ₱164,576,998.79 for Batches 1 and 2 was noted
in the recorded liquidation of the DPWH in the General Ledger (GL)
versus the submitted Year-End Report as of December 31, 2018.

8.3 The Recovery Assistance on Yolanda (RAY) was formulated as a strategic

plan to guide the recovery and reconstruction initiatives in the affected
areas. As the DILG’s commitment to support these efforts, the RAY-DILG
Fund was established with National Government funding support for the
reconstruction of the totally-damaged and rehabilitation/repair of the
partially-damaged provincial/city/municipal buildings, public markets,
civic centers and barangay facilities with due consideration on Build Back
Better (BBB) to make them become disaster-resilient public
infrastructures.

8.4 The Fund aims to facilitate the recovery and return to normalcy of
government services and economic activities in the areas affected by the
Typhoon Yolanda by providing funds for technical and financial assistance
to the affected LGUs for the reconstruction and rehabilitation/repair of
LGU-managed and operated facilities.

8.5 The Fund has two components:

a. DILG Component - to support the rehabilitation/repair of partially-

damaged LGU-owned facilities/structures. The concerned LGUs shall
implement the subproject/s under this Component

b. DPWH Component - to support the reconstruction of totally-damaged

LGU-owned facilities/structures. The DPWH shall implement the
subproject/s under this Component.

8.6 The DILG entered a Memorandum of Agreement (MOA) with the

Department of Public Works and Highways (DPWH) on July 14, 2014 as
amended, for the reconstruction, rehabilitation and repair of LGUs total
damaged facilities.

8.7 The Department of Budget and Management issued the following Special
Allotment and Release Orders (SAROs) in Batches as follows:

99
 Particulars SARO No. Date Amount
RAY Batch 1 D-13-01357 December 27, 2013 ₱1,791,400,000.00
RAY Batch 2 BMD-D-14-0006256 June 2, 2014 2,000,000,000.00
RAY Batch 3 BMB-D-15-0028797 December 29, 2015 737,938,480.00
RAY Batch BMB-D-17-0020076 November 16, 2017 451,629,647.00
3A
Total ₱4,980,968,127.00

Projects implemented by the DPWH

8.8 A total amount of ₱853,815,536.33 was transferred to the DPWH for RAY
Batch 1 and 2. The amount transferred was allocated to the following
regions and for the construction of facilities:

RAY 1 RAY 2
Facilities Total
VI VII VIII VIII
Municipal 0 0 4 4 2
Ha
ll
Public 1 0 4 5 3
M
ar
ket
s
Civic 0 2 2 4 7
Ce
nte
rs
Total 1 2 10 13 12
Allocation ₱14,000,00 ₱46,000,00 ₱434,447,44 ₱494,447,44 ₱359,368,08
0.00 0.00 8.79 8.79 7.54
Total ₱853,815,536.33
Project
St
atu
s
On going 1 1 1
Completed 1 2 9 12 11
Percentag 100% 100% 90% 92% 92%
e
of
Ac
co
m
pli
sh
me
nt

8.9 Out of the total funds transferred of ₱853,815,536.33, only

₱634,175,543.77 or 74 percent was liquidated as of year-end; thereby
leaving a balance of ₱219,639,992.56. Details are as follows:

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 Check Amount
Date No. Amount Batch Liquidated Unliquidated
30-Jun- 98391 ₱494,447,448.79 1 ₱359,474,126.88 ₱134,973,321.91
14 7
14- 99527 359,368,087.54 2 274,701,416.89 84,666,670.65
May-15 5
Total ₱853,815,536.33 ₱634,175,543.7 ₱219,639,992.56
7

8.10 Further, after the lapse of four years of implementation, only 92 percent
was completed with reported liquidation amounting to ₱634,175,543.77.

8.11 Verification also revealed that the reported liquidation by the DPWH per
General Ledger amounting to ₱634,175,543.77 versus the Year-End
Report of ₱469,598,544.98 prepared by the PMO showed a discrepancy of
₱164,576,998.79 since the liquidation reports of the Regional Office was
submitted directly to the Accounting Division for recording and no copy
was furnished the PMO to be included in the report.

Projects implemented in the LGUs

8.12 Review of the physical and financial status report of the projects on RAY
showed the following information:

Office Batch 1 Batch 2 Batch 3 Batch 3A Total

IV-B 7 29 20
V 1 27 2
VI 127 1,539 - 472
VII 28 317 100
VIII 145 1,563 438
No. of 308 3,475 560 472 4815
Projects
Project Status:
POWs for 38 4 42
Revision
Procurement 2 5 42 49
Construction 64 49 280 393
Completed 308 3,409 468 146 4331
Projects
Percentage of 100% 98% 84% 31%
completion
Allocation 1,278,548,524.70 1,591,923,964.0 733,438,479.78 451,629,646.74 4,055,540,615.2
0 2
Disbursed 1,278,542,725.80 1,575,559,339.8 697,223,783.82 430,421,286.84 3,981,747,136.2
1 7
Liquidation 1,204,683,589.57 1,419,681,727.3 393,911,267.17 197,386,257.34 3,215,662,841.4
9 7
Unliquidated 73,864,935.13 172,242,236.61 339,527,212.61 254,243,389.40 839,877,773.75

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8.13 Batch 1 which is 100 percent completed still has an unliquidated balance
of ₱73,864,935.13 while Batch 2 with almost complete or 98 percent
completion also has a significant unliquidated balance.

8.14 The non-submission of liquidation reports both by the LGUs and the
DPWH can be attributed to the leniency of the management to monitor the
status of projects/program implementation at the Regional level which is
contrary to the pertinent provisions in the MOA and COA Circular No.
94-013 dated December 13, 1994.

Regional Implementation

8.15 Fund transfers to different LGUs, intended to support the

rehabilitation/reconstruction of the partially-damaged LGU-owned
facilities/ structures, posted a balance of ₱219,580,965.15 as of December
31, 2018. Details are as follows:

Funds Transferred Balance as of

Region to LGUs December 31, 2018
IV-B 10,129,300.00 6,661,995.64
V 11,355,115.02 1,547,781.82
VI 1,086,679,953.89 186,790,187.30
VII No data 24,581,000.39
Total 219,580,965.15

8.16 In Region IV-B, the balance pertained to the fund transfer to the
Municipalities of Linapacan, Busuanga, and Culion.

8.17 In Region V, the RAY projects were already reported as completed per
Status Report of DILG RO-V PDMU as of December 31, 2017. However,
audit of Due from LGU account disclosed an unliquidated balance of
₱1,547,871.82.

8.18 In Region VI, the accumulation of unliquidated account was due to the
delays in the implementation of the projects.

8.19 In Region VII, records disclosed that 98 sub-projects amounting to

₱21,103,596.47 were already completed but not yet liquidated. The
rehabilitation project in Tabuelan, Cebu with an unliquidated balance of
₱1.4 million was not completed because the project was abandoned by the
contractor.

8.20 We recommended that Management:

a) require the Regional Accountant to issue demand letter to the

recipient LGUs to liquidate their due and demandable fund

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 transfers pursuant to COA Memorandum No. 2017-010 dated
May 15, 2017 and COA Circular No. 94-013 to avoid accumulation
of huge and long-outstanding balances; and

b) account for the discrepancy noted per General Ledger and per
year-end report submitted by the PMO.

8.21 Management commented that the DILG is requiring LGUs to submit

monthly report both for the physical and financial status of the projects. It
has already issued several demand letter for the LGUs to return the
unutilized balances.

8.22 The noted discrepancy of ₱164,576,998.79 under Batches 1 and 2 in the

recorded liquidation in the General Ledger (GL) versus the Year-End
Report as of December 31, 2018 is due to the unreflected data of the latest
liquidation report from DPWH which was directly submitted to the
Financial Management Service, copy of which was not furnished the
Office of Project Development Services (OPDS) before the finalization of
the year-end report.

2018 Seal of Good Local Governance

9. The Seal of Good Local Governance (SGLG) was awarded to five

cities by the DILG-National Capital Region which met the minimum
requirements/criteria set under the DILG Memorandum Circular No.
2018-49 dated April 6, 2018.

9.1 In line with the DILG’s commitment to formulate sound policies on

strengthening local government capacities, performing oversight functions
over LGUs and providing rewards and incentives, the Seal of Good Local
Governance was established. The SGLG is a progressive assessment
system that gives distinction to remarkable governance performance
established in 2014. To qualify for the SGLG, LGUs have to meet the set
criteria as assessed by various committees created.

9.2 In 2017, local government units only need to pass four core areas plus one
essential area. Through the issuance of DILG Memorandum Circular No.
2018-49 dated April 6, 2018, it was upgraded to seven areas, namely:
Financial Administration (FA); Disaster Preparedness (DP); Social
Protection (SP); Peace and Order (PO); Business Friendliness and
Competitiveness (BFC); Environmental Management (EM); and Tourism,
Culture and Arts (TCA).

9.3 The circular sets the guidelines and criteria on how the awardee will be
assessed using the tools, mechanisms, the structures and composition of
the committee involved in the assessment and participation of and support

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 to NGO/CSO/LRI partners to ensure a cohesive and balanced perspective
in the overall implementation, as well as maintain the integrity of
assessment results.

9.4 The awardees are eligible to the Performance Challenge Fund (PCF) to
finance local development initiatives in furtherance of national goals and
strategic thrust.

9.5 The audit covered only the five SGLG awardees for CY 2018 in the
National Capital Region, namely: Caloocan, Malabon, Mandaluyong,
Pasay and Quezon City. It was aimed to determine whether the awardees
met the criteria set under the DILG Memorandum Circular No. 2018-49
dated April 6, 2018.

9.6 Verification of documents assessed, inquiry/interview and inspection were

conducted to validate management’s assessments using the same criteria
for cities as provided under the subject circular.

9.7 Comparison of the result of this Office validation with the results of
assessments made by management disclosed that the five cities awardees
have met the criteria set under the DILG Memorandum Circular No. 2018-
49 dated April 6, 2018.

Status of Audit Suspensions and Disallowances

10. Audit suspensions and disallowances totaling ₱53,085,551.27 and

₱116,426,224.67 respectively, remained unsettled as at year-end due to the
failure of management to strictly enforce settlement thereof, contrary to
Sections 7.1.1, and 10.4 of COA Circular No. 2009-006 dated September
15, 2009.

10.1 Section 7.1.1 of COA Circular No. 2009-006 dated September 15, 2009
provides that the Head of Agency, who is primarily responsible for all
government funds and property pertaining to his agency, shall ensure that:
a) xxx; b) the settlement of disallowances and charges is made within the
prescribed period; c) the requirements of the transactions suspended in
audit are complied with; xxx.

10.2 Section 7.1.4 of the same circular also provides that he shall ensure that all
employees who are retiring or transferring to other agencies shall first
settle the disallowances and charges for which they are liable.

10.3 Section 10.4 further provides that the disallowance shall be settled within
six (6) months from receipt of the ND by the persons liable.

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 10.4 The total unsettled suspensions and disallowances as of December 31,
2018 amounted to ₱53.086 million and ₱116.426 million, respectively.
Details are as follows:

Office Suspensions Disallowances

Central Office ₱– ₱9,506,908.49
NCR 35,000.00 272,441.96
CAR 1,233,290.08 446,637.10
Region I – –
Region II – –
Region III – 586,557.59
Region IV-A – 1,817,804.71
Region IV-B – 3,873,269.06
Region V 46,565,885.31 94,567.50
Region VI – 55,493.51
Region VII – 1,148,173.96
Region VIII 2,623,439.16 92,604,148.96
Region IX – 315,807.28
Region X – 3,371,937.25
Region XI No data 2,264,749.30
Region XII 1,536,297.50 67,728.00
Region III 1,091,639.22 –
Total ₱53,085,551.27 ₱116,426,224.67

10.5 We recommended that Management ensure the requirements of the

transactions suspended in audit are complied with and enforce the
settlement of all audit disallowances pursuant to the above-cited
regulations.

Gender and Development (GAD) Plan and Implementation

11. Fifteen out of 16 Regional Offices of DILG including Central Office

integrated and mainstreamed in their regular programs, the gender
responsive programs, projects and activities in compliance with Section 30
of the GAA for CY 2018. Several GAD related activities were implemented
with disbursements amounting to ₱184,964,546.98 which is 21
percent of the total required budget allocation for the year.

11.1 Section 30 of the GAA for CY 2018 requires all agencies of the
government to formulate a Gender and Development (GAD) Plan
designed to address gender issues within their concerned sectors or
mandate and implement the applicable provisions under R.A. 9710 or the
Magna Carta of Women, Convention on the Elimination of all Forms of
Discrimination against Women, the Beijing Platform for Action , the

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 Philippine Plan for Gender-Responsive Development (1995-2025), and the
Philippine Development Plan (2017-2022).

11.2 The GAD Plan shall be integrated in the regular activities of the agencies,
which shall be at least five percent (5%) of their budgets. For this purpose,
activities currently undertaken by agencies which is related to GAD or
those that contribute to poverty alleviation, economic empowerment
especially of marginalized women, protection, promotion, and fulfilment
of women’s human rights and practice of gender-responsive governance
are considered sufficient compliance with said requirement. Utilization of
the GAD budget shall be evaluated based on the GAD performance
indicators identified by said agencies.

11.3 The extent of compliance by the DILG Offices on the said provisions are
shown below:

Offic Actual
e Particulars Budget Expenditures
CO The GAD Accomplishment Report was not ₱644,613,250.0 No data
provided by Management awaiting 0
endorsement of the report by the PCW.
NCR Out of the 28 planned activities, only one 7,660,001.69 7,791,365.78
was not conducted which was rescheduled
in the 1st quarter of 2019.
CAR GAD plans and accomplishments were 13,997,000.00 13,589,174.56
integrated/mainstreamed with its regular
programs and activities. Out of the 18
activities and programs, only one was not
implemented due to various reasons.
I Implemented its own GAD plans and 337,500.00 337,500.00
programs.
II GAD activities of the agency were No data 17,269,084.00
integrated or mainstreamed with the
programs, activities and projects (PAPs) of
the agency in addressing gender issues.
III All target activities identified in the GPB 11,944,800.00 16,832,904.00
were 100% accomplished.
IV-A Region IV-A formulated a plan and No data 21,227,342.87
implemented programs for gender and
development.
IV-B GAD activities and program were integrated 12,200,658.00 6,036,596.79
in their regular activities
V The Programs/ Projects/ Activities identified 13,694,968.00 No data
in the GPB were not subjected to the
Harmonized Gender and Development
Guidelines test contrary to PCW-NEDA-
DBM Joint Circular No. 2012-01, casting
doubt on the compliance to the mandatory
5% allocation for GAD activities.
The office failed to submit the GAD Plan
and Budget and Accomplishment Report.
VI The gender responsive programs, projects 1,054,000.00 2,944,789.71

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 Offic Actual
e Particulars Budget Expenditures
and activities were included and
mainstreamed in the regular programs.
VII Various GAD related activities and 78,740,000.00 37,058,251.86
programs were implemented by the agency.
VIII GAD related programs/projects were 38,370,000.00 16,580,536.00
integrated in the regular activities
IX The agency commits to support gender 48,475,200 6,268,181.70
responsive governance, gender equality and
improving awareness of gender issues
through programs and activities spear-
headed by the agency as well as capacity
development programs, seminars and
trainings for Local Government Units
X Did not formulate GAD related programs
and activities
XI GAD activities and program were integrated No data 27,187,014.71
in their regular operations
XII Various GAD related activities and No data No data
programs were implemented by the agency.
XIII Various GAD related activities and No data 11,841,805.00
programs were implemented by the agency,
among of which are provision of technical
assistance to LGUs on the compliance of
GAD, conduct of Refresher Training to
LGUs on the provisions of JMC 2013-01,
conduct of Training on VAWC laws,
conduct of GST for newly-hired employees,
updating of GAD Database, conduct of
Quarterly Meeting of GAD Focal Point
System (GFPS).
Total ₱871,087,377.6 ₱184,964,546.9
9 8

Senior Citizens and Differently-Abled Persons

12. Regional Office Nos. III, IV-A, V, and XI did not formulate activities,
programs and projects for senior citizens and differently-abled persons
contrary to Section 31 of the General Provisions of the General
Appropriations Act of 2018.

12.1 Section 31 of the General Provisions of CY 2018 GAA provides that all
agencies of the government shall formulate plans, programs and projects
intended to address the concerns of senior citizens and persons with
disability, insofar as it relates to their mandated functions, and integrate
the same in their regular activities.

12.2 Moreover, all government infrastructures and facilities shall provide

architectural or structural design or facilities that will reasonably enhance

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 the mobility, safety and welfare of persons with disability pursuant to
Batas Pambansa Blg. 344 and R.A. No. 7277, as amended.

12.3 The DILG, thru its Administrative Division implemented various activities
related to Senior Citizens and Persons with Disability for CY 2018 with
actual expenditures totaling to ₱468,417.62. However, DILG Regional
Offices Nos. III, IV-A, V, and XI did not formulate activities, programs
and projects for senior citizens and differently-abled persons contrary to
Section 31 of the General Provisions of the General Appropriations Act of
2018.

12.4 The details of the extent of compliance by the DILG Offices on the said
provisions are shown in Annex C of this report.

12.5 We recommended that Management comply with the provision of

Section 31 of the GAA and ensure the provision of architectural and
structural facilities, features and designs that shall reasonably
enhance the mobility, safety and welfare of the senior citizen and the
differently-abled persons in the different DILG regional, provincial
and field offices.

Compliance with Tax Laws

13. The agency withheld the applicable taxes on income payments in

compliance with Revenue Memorandum Circular No. 23-2012 dated
February 14, 2012.

13.1 Revenue Memorandum Circular No. 23-2012 dated February 14, 2012
reiterates the responsibilities of the officials and employees of government
offices for the withholding of applicable taxes on certain income payments
and the imposition of penalties for non-compliance thereof.

13.2 As at year-end, the Due to BIR has a balance of ₱20,014,284.10, details of

which are shown below:

Office Amount Remarks

CO ₱6,843,924.09 The balance includes dormant and negative
balances as observed in FY 2017 CAAR.
A total amount of ₱6,688,359.31 was remitted in
January 2019.
NCR 618,129.49 Previous balances which are not yet remitted due
to on-going reconciliation
CAR 25,758.17 Requires an adjustment of the Due to BIR account
amounting to ₱3,502,878.71, the correct
unremitted balance for CY 2018 is ₱3,528,636.88.
Remitted February 7, 2019.
I 117,983.40 Remitted January 8, 2019

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 Office Amount Remarks
II 136,210.53 Remitted January 9, 2019
III 1,352,855.38 The balance represents the tax refund of field
offices. Remitted January 10, 2019
IV-A 897.64 A refund, remitted on March 27, 2019
IV-B 150,558.90 No data
V 1,620,722.34 The agency complied with tax laws and remitted
taxes totaling ₱23,520,827.24 for CY 2018
through cash payment and TRAs.
VI 2,059,022.18 The balance was remitted on January 9, 2019.
VII 6,200.21 Remitted on January 9, 2019
VIII 4,545,646.98 The amount of ₱573,454.62 and ₱46,191.84 were
remitted on January 10, 2019 and April 1, 2019,
respectively while ₱284,880.99 was for refund to
employees.
IX 214,766.03 Remitted January 9, 2019
X 111,208.44 The balance was remitted on January 10, 2019.
XI 1,126,614.14 The balance was remitted on January 8, 2019
XII 1,083,786.18 The balance was remitted in January 2019.
XIII 0.00 The agency has complied with existing tax laws
and revenue regulations issued by the BIR.
Total ₱20,014,284.1
0

Compliance with R.A. No. 8291 (Due to GSIS)

14. The agency substantially complied with Republic Act No.8291 requiring
the deduction of GSIS premiums from the salaries of all government employees
and remittance thereof to the Government Service Insurance System.

14.1 As of December 31, 2018, the Due to GSIS account has a balance of
₱8,363,041.34 consisting of the following:

Office Amount Remarks

CO ₱933,945.74 The balance includes dormant and negative
balances as observed in prior years for
reconciliation. Current deductions were remitted
within the same month.
NCR 49,647.57 Previous balance which is under reconciliation
CAR 779.68 For remittance
I – Timely remittance was observed and noted by the
audit team.
II 832,889.51 Remitted January 15, 2019
III – The agency was generally compliant with the
requirements on the remittance of the GSIS
premiums for the salaries of its officials and
employees. The GSIS contributions were likewise
remitted within the month when it was deducted.

109
 Office Amount Remarks
IV-A 24,625.17 No data
IV-B 38,526.46 The amount withheld during the year was
religiously remitted. The reported year-end
balance of ₱38,526.46 is still for reconciliation.
V 2,162,738.70 The agency complied with GSIS laws and remitted
totaling ₱50,588,519.22 for CY 2018. The balance
was remitted in January 2019
VI 280,759.54 The balance was remitted in January 2019.
VII 258,246.92 Remitted on January 4, 2019
VIII 2,558,684.89 Partially remitted with a balance of ₱1,738,062.46
as of May 2019
IX 302,412.19 Remitted on January 28, 2019
X 60,622.01 Adjusted due to double obligation. Adjusted
balance remitted
XI 858,393.44 The balance as of December 31, 2018 was already
remitted on the following month.
XII 769.52 The balance was remitted in January 2019.
XIII – A total of ₱31,562,608.46 was remitted to GSIS in
CY 2018 within the month when it was deducted.
Total ₱8,363,041.34

Compliance with R.A. No. 9679 (HDMF)

15. The agency substantially complied with RA 9679 on the remittance of

HDMF Contributions during CY 2018.

15.1 Section 3a, Rule VI of the Implementing Rules and Regulations of

Republic Act No. 9679 or Home Development Mutual Fund Law of 2009,
otherwise known as the PAG-IBIG Fund Law states that “all employers
shall remit to the Fund their contributions and the contributions of their
covered employees as well as the latter’s loan amortizations or payments
to the Fund within fifteen (15) days from the date the same were collected
unless another period is previously agreed upon between the employer and
the Fund, or within such periods as the Fund may prescribe otherwise.”

15.2 The Due to PAG-IBIG account has a balance of ₱1,537,652.67 as of

December 31, 2018 consisting of the following:

Office Amount Remarks

CO ₱27,094.12 The balance includes dormant and negative balances
as observed in prior years for reconciliation. Current
deductions were remitted within the same month.
NCR 1,748.51 Withheld pending result of reconciliation
CAR No data
I No data
II 318,103.00 Remitted January 15, 2019

110
 Office Amount Remarks
III 9,700.00 The agency had complied with the requirements of
Republic Act No. 9679 on the withholding and
remittance of contributions and loan amortization of
its officials and employees to the HDMF. The
unremitted balance of the Regional Office and field
offices was remitted on January 2019.
IV-A 400.00 March and April 2019
IV-B 71,368.57 The amount withheld during the year was
religiously remitted. The reported year-end balance
of ₱71,368.57 is still for reconciliation.
V 556,952.03 Remitted January 10, 2019
VI 115,533.34 Remitted January 31, 2019
VII No data The agency substantially complied with RA 9679 on
the remittance of HDMF Contributions during CY
2018.
VIII 201,423.06 Partially remitted with a balance of ₱179,277.51 as
of May 2019
IX 3,442.47 Remitted January 21, 2019
X 6,799.46 Withheld due to criminal case filed against the
employee
XI 224,487.71 The balance was already remitted on the following
month.
XII 600.40 The balance was remitted in January 2019.
XIII No data The agency has complied with RA No. 9679.
Total ₱1,537,652.67

Compliance with R.A. No. 656 (Property Insurance Law)

16. Republic Act No. 656, otherwise known as the Property Insurance Law, as
amended by the Presidential Decree (PD) No. 245, requires all the government
agencies (except municipal governments below first class category) to insure
against any insurable risk their properties, assets, and interests with the General
Insurance Fund (GIF), as administered by the GSIS.

16.1 In NCR, only the motor vehicles owned by the agency were insured with
the Insurance Fund of the GSIS while other insurable properties were not.

16.2 In Region VIII, properties amounting to ₱48,381,690.90 were likewise not

insured with the GSIS Insurance Fund.

16.3 We recommended that Management hasten the compliance with the

Property Insurance Law to ensure that all insurable assets and
properties of the Department are adequately covered/insured with the
GIF of the GSIS.

111