i

EXECUTIVE SUMMARY

Introduction

The Provincial Government of Oriental Mindoro, a first class Province, was

created by virtue of Republic Act (RA) No. 505 that was signed by President Elpidio

Quirino on June 13, 1950. It is composed of two congressional districts: one

component city, Calapan City, serving as the provincial capital; 14 municipalities;

and 426 barangays.

Provincial Governor Alfonso V. Umali, Jr. heads the Provincial Government of

Oriental Mindoro. Vice-Governor Humerlito A. Dolor and the 13 active Sangguniang

Panlalawigan Members ably assist him in the administration of the Province.

Highlights of Financial Operations

The Province’s enhanced vision is geared towards making “A province with

healthy, upright and empowered citizenry, living in a safe and green environment,

prepared and resilient to climate change and disaster risk, and governed by dynamic

and responsive leadership. By CY 2020, Oriental Mindoro is Luzon and Visayas’

FOOD BASE, PREMIER TOURISM DESTINATION and CENTER FOR

INVESTMENTS.” Along this line, the appropriations of the Provincial Government

of Oriental Mindoro for the General and Special Education Funds for CY 2016

totaled P1,655,250,006. Obligations charged against these appropriations amounted to

P1,182,818,647 as shown below:

Appropriations Obligations

Current Appropriations

General Fund P 1,386,191,635 P 1,088,322,204

Special Education Fund 35,313,453 17,347,583

Total 1,421,505,088 1,105,669,787

Continuing Appropriations

General Fund 229,672,526 75,361,628

Special Education Fund 4,072,392 1,787,232

Total 233,744,918 77,148,860

Grand Total P 1,655,250,006 P 1,182,818,647

ii

The total assets, liabilities and equity of the Provincial Government for the year

amounted to P3,781,512,351.71, P904,122,317.89 and P2,877,390,033.82,

respectively. Compared with the preceding year, the total assets, liabilities and equity

amounted to P3,112,368,174.37, P806,439,364.59 and P2,305,928,809.78,

respectively.

iii

On the other hand, the total income for the year amounted to

P1,373,310.564.00, showing an increase of P122,395,679.93 compared to last year’s

income of P1,250,914,884.07. The total expenses amounted to P903,198,558.85,

showing an increase of P129,012,345.24 compared to last year’s figure of

P774,186,213.61. The assets, liabilities equity, income and expenses as shown below.

2016 2015 Increase

(Decrease)

Assets P 3,781,512,352 P 3,112,368,174 P 669,144,178

Liabilities 904,122,318 806,439,364 97,682,954

Equity 2,877,390,034 2,305,928,810 571,461,224

Income 1,373,310,564 1,250,914,884 122,395,680

Expenses 903,198,559 774,186,214 129,012,345

Scope of Audit

Scope of Audit

The audit conducted on test basis on the accounts and operations of the

Provincial Government for calendar year ended December 31, 2016 focused on the

CY 2016 audit thrusts provided under Unnumbered Memorandum dated July 28,

2016 of the Assistant Commissioner, Local Government Sector. It was aimed to

(a) verify the level of assurance that may be placed in management assertions in

financial statements; (b) recommend agency improvement opportunities; and (c)

determine the extent of implementation of prior years’ audit recommendations.

iv

Audit Opinion on the Financial Statements

We rendered a qualified opinion on the fairness of the presentation of the

financial statements for CY 2016 of the Provincial Government of Oriental Mindoro

for reasons cited in the next page:

1. Cash account balance of P1,181,014,812.37 could not be ascertained due to

(a) identified reconciling items totaling P8,919,213.29 in the bank

reconciliation statements (BRS) which remained unadjusted in the books of

account as of year-end and additional reconciling items (exclusive of

outstanding checks) of P1,759,415.00 that requires further analysis and

clarification with the depository bank; (b) stale checks totaling P113,766.00

which remained unadjusted as at year end; and (c) unreconciled difference

of P810,766.07 between the accounting and treasury records (cashbooks).

2. Property, Plant and Equipment (PPE) account balance of

P2,211,954,982.43, excluding Infrastructure Assets and Construction-in-

Progress accounts under the General and Special Education Funds, could

not be ascertained due to (a) incomplete physical inventory and non-

reconciliation of the results thereof with the accounting and property

records; (b) non-maintenance of Provincial General Services Office (PGSO)

of property cards; (c) inclusion of unserviceable properties costing

P5,806,010.33 in the annual physical inventory of PPE; (d) non-conduct of

inventory for the Work/Zoo Animals amounting to P574,746.00;

(e) inclusion of real property (land) totaling P1,906,298.00, which are

occupied by the Bucayao River; (f) non-recognition of the 25% target

implementation of Local Road Network and other Public Infrastructures

Assets; and (g) misclassified Other Infrastructure Assets account totaling

P204,683,041.04.

With the exceptions cited above, we recommended that the:

1. Cash Account

(a) The OIC-Provincial Accountant and the OIC-Provincial Treasurer

review and verify the reconciling items identified in the BRS and effect the

necessary adjustments in the books to reflect the correct balances of the

account Cash-in-Bank-Local Currency, Current Account; and the OIC-

Provincial Treasurer make representation with LBP-Calapan Branch on the

net reconciling item of P1,759,415.00 in the BRS; (b) OIC-Provincial

Accountant (i) determine the stale checks recorded as outstanding checks in

the BRS, and prepare the necessary adjusting entries to revert to the proper

cash and payable accounts the amount corresponding to the stale checks;

and (ii) provide supporting documents to explain the difference of

P15,000.00 that was neither included in the list of outstanding checks as of

December 31, 2016 nor in the adjustments made by the Accounting Office;

v

and (c) The OIC-Provincial Treasurer ensure reconciliation, which is a two-

way process, of the treasury and accounting records of the Cash-Local

Treasury account and determine the cause/s of the P810,766.07 discrepancy

between their records and make the necessary adjustments.

2. For PPE accounts

(a) The Provincial Inventory Team conduct complete inventory of all its

property, plant and equipment. In the conduct thereof, the Inventory Team

consider (i) proper planning such as preparation of a plan specifying the

date and timeframe of physical inventory; and (ii) previous inventory

reports and the list of PPEs per type/category from the accounting office be

made available for ready reference; (b) Provincial Accountant and the

Provincial Inventory Committee reconcile the balances of the PPE per

books with the inventory reports, verify and analyze the discrepancies, and

prepare adjustments to the affected records; (c) Provincial General Services

Officer ensure that the property cards are prepared and maintained;

(d) Provincial Governor direct all offices and accountable personnel

concerned to report all unserviceable properties for purposes of (i) dropping

same from the inventory report of PPE, and (ii) record those properties to

the IIRUP; (e) Provincial Veterinarian together with the PGSO (i) make an

inventory of the wok/zoo animals of the Province; (ii) prepare a report on

the result thereof, and (iii) submit the report thereon to the Provincial

Accountant, copy furnished the Audit Team; (f) Provincial General Service

Office conduct relocation survey of the subject properties to determine only

such portion of the properties purchased in the rechanneling of the Bucayao

River so that proper adjustment can be made on Land account;

(g) Provincial Governor enjoin the department heads to assist the Provincial

Accountant in the implementation of COA Circular No. 2015-008 for Local

Road Network and COA Circular No. 2016-004 in the implementation of

the accounting system and the new chart of accounts relative to other Public

Infrastructure accounts; and (h) OIC-Provincial Accountant analyze the

Other Infrastructures Assets account and reclassify the public infrastructure

projects in accordance with COA Circular No. 2015-009.

Significant Observations and Recommendations

The following are the significant audit observations and recommendations in

the audit of the Provincial Government of Oriental Mindoro for Calendar Year 2016,

details of which are presented in Part of this report. Management's views and

reactions including those offered during the exit conference on June 20, 2017 were

considered in the Report, where appropriate.

1. The Provincial Government failed to obtain property insurance for all its motor

vehicles and heavy equipment totaling P66,013,522.64 with the General

Insurance Fund of the Government Service Insurance Fund contrary to Republic

vi

Act No. 656, as amended by Presidential Decree No. 245, or the Property

Insurance Law, COA Circular No. 92-390 dated November 17, 1992 and DILG

Circular No. 2016-63 dated May 11, 2016. (Observation No. 8)

We recommended that the Provincial Government Service Officer (PGSO)

(a) conduct an inventory of all its motor vehicles and heavy equipment;

(b) prepare and submit to the Audit Team the inventory report with complete

information and condition of the same; and (c) ensure that all such properties are

adequately covered and insured with the General Insurance Fund of the GSIS.

2. Outstanding cash advances accumulated to P3,848,837.59 due to the failure of the

accountable officers to liquidate their cash advances within the prescribed

periods in violation of Section 89 of Presidential Decree (PD) No. 1445 and COA

Circular No. 97-002 dated February 10, 1997. As a result, the corresponding

expenses at the time of their incurrence were not recognized in the books of

accounts. (Observation No. 4)

We recommended that the:

a. Provincial Accountant (i) conduct regular monitoring and analysis of cash

advances to ensure its liquidation within the prescribed period depending

upon their nature and purpose; (ii) prepare aging of dormant unliquidated

cash advances and the necessary documents, and indicate in the remarks

column the existence of the applicable conditions enumerated in Item 7.4 of

COA Circular No. 2016-005 dated December 19, 2016; (iii) require all AOs

to immediately settle/liquidate their outstanding cash advances to avoid the

withholding of their salaries; and (iv) demand the settlement of unliquidated

cash advance of Ms. Paz and ensure that all outstanding cash advance of

AOs are fully liquidated at the end of the year; and

b. Provincial Accountant and Treasurer exert extra effort to enforce full

settlement/liquidation of cash advances granted to those employees who

have long outstanding cash advances.

3. The accuracy of the reported balance of Local Disaster Risk Reduction and

Management Fund (LDRRMF) as of year-end totaling P125,322,217.11 could

not be ascertained due to (i) difference of P2,740,023.91 between the balance of

Continuing Appropriation in the LDRRMF Utilization Report and Schedule of

Continuing Appropriations per budget; and (ii) unreconciled unexpended balance

of LDRRM Fund recorded in Trust Fund books and Fund Utilization Report

amounting to ₱238,477.53. Further, 31 projects/programs under Strengthening of

DRRM Partners/Stakeholders, DRRM Shelter Services, and Preparedness,

Prevention and Mitigation charged against the current and continuing

appropriation and Trust Fund–LDRRM totaling ₱45,854,885.00 remained

unimplemented as of CY 2016 which can affect the readiness and capabilities of

vii

the Province to respond to the devastations to lives and properties brought about

by calamities. (Observation No. 9)

We recommended that the:

a. Provincial Accountant (i) review and analyze the difference of P2,740,023.91

between the balance of Continuing Appropriation in the LDRRMF Utilization

Report and the Schedule of Continuing Appropriations of the Budget Office;

and (ii) determine the existence of long outstanding Construction-in-Progress

account in the Trust Fund; and

b. Provincial Engineer facilitate the implementation of projects identified in the

PPMP, APP, and Budget under the 5% LDRRMF to ensure the resiliency of

the Provincial Government and its capacity to respond to and recover from

the impacts of disaster and emergencies caused by typhoons, floods, and

other natural disasters.

4. The dates and other information on the bidding documents on the implementation

of flood control projects totaling P13,392,124.63 charged against the LDRRMF

in the Trust Fund were inconsistent with RA No. 9184, otherwise known as the

Government Procurement Act, thus, casting doubt on the validity of the bidding

process conducted. (Observation No. 11)

We recommended that the BAC Secretariat and the BAC Chairman:

a. render a satisfactory explanation on the lapses noted for the two projects;

b. submit the copy of Official Receipt evidencing the purchase of the bid

documents;

c. ensure compliance with the (i) posting of the NOA, NTP and Contract in the

PhilGEPS; and (ii) conduct of pre-procurement conference for infrastructure

projects with ABC of more than P5,000,000.00; and

d. ensure that the date of acceptance of the project is indicated in the

Certificate of Acceptance and include in the signboard the target completion

date and other detail/information to inform the public of the essential

features/elements of the project.

5. The implementation of the two Farm-to-Market Road (FMR) projects funded

under Philippine Rural Development Program (PRDP) I-Build of the Department

of Agriculture (DA) with a total contract cost of P75,629,006.49 were not

supported with complete documentation with procurement procedural lapses

contrary to Section 4.6 of PD No. 1445 and pertinent provisions of the Revised

Implementing Rules and Regulation of Republic Act No. 9184. (Observation

No.12)

viii

We recommended that the BAC (a) render a satisfactory explanation on the gaps

noted from the time the BAC declared the lowest calculated bid until the issuance

of the NOA; (b) submit to the Audit Team the lacking documents for the two

contracts for audit purposes; and (c) henceforth, ensure that the Provincial

Government abides with the provisions Revised IRR of RA No. 9184 that all

contracts are duly documented to support the propriety of payments to the

contractor/s.

6. The implementation of the four approved Special Local Road Fund (SLRF)

projects totaling P15,904,804.00 had procedural and procurement lapses contrary

to the provisions of the MOA entered into among the DPWH, DILG and the

Provincial Government, pertinent provisions of the Revised IRR of Republic Act

No. 9184, and No. 4.7 of GPPB Circular No. 01-2009 and Item 5.7.2. of the

DBM Circular Letter No. 2010-9 thus, casting doubt on the propriety of bidding

process conducted and veracity of the awarding of the contract. (Observation

No.13)

We recommended that the:

a. BAC and the OIC Provincial Accountant (i) submit to the Audit Team the

lacking documents for audit purposes; and (ii) render satisfactory explanation for the non-deduction of the retention money of ten percent (10%) on the

progress payments based on the total amount due to the contractor prior to any

deduction;

b. BAC render a satisfactory explanation on the following:

i. the gaps from the time the BAC declared the four bidders as LCRBs up to

the time when the NOA was issued;

ii. inconsistencies as to the date of completion of the project Construction of

Slope Protection and Railings at Banilad, Pinamalayan, Oriental Mindoro

indicated in the Inspection Report No. COI-135-0716, SWA and Statement

of Time Elapsed of the contractor, and Certificate of Acceptance;

iii. inconsistencies of information indicated in the report of the Provincial

Inspectorate Team, the submitted SWA and Statement of Time Elapsed of

the contractor for the project Construction of Gabion at Sta. Maria-Balugo,

Mansalay, Oriental Mindoro;

iv. issuance of the NOA for the Construction of Slope Protection and Railings

at Banilad, Pinamalayan and Construction of Gabion at Sta. Maria-Balugo

Mansalay despite lack of cash for the purpose; and

ix

v. inconsistencies of the ABC reflected in the POW for OCM, Profit, and Tax

and the detailed breakdown of ABC attached to the paid DVs; and the use of

2% of the EDC for the computation of OCM, 12% and 20% of EDC for the

contractor’s profit, and 10% of sum of EDC, OCM and profit for the VAT

in the computation of ABC.

c. BAC, Provincial Engineer, OIC-Provincial Treasurer, and OIC-Provincial

Accountant (i) abide by the provisions of the MOA, RA No. 9184 and its Revised IRR, No. 4.7 of GPPB Circular No. 01-2009 and Item 5.7.2. of the

DBM Circular Letter No. 2010-9, Item 2.2.3 COA Circular No. 2013-004,

Item 4.2 of DPWH Department Order No. 062, and Item B of DPWH

Department Order No. 22 relative to the aforecited observations; and (ii)

ensure that all contracts are duly documented to support the propriety of

payments to the contractor/s.

7. Due to delayed bidding and implementation of projects out of fund transfer

from national government agencies, the proposed developmental projects

totaling P116,406,900.00 out of 20% Development Fund was not implemented

during the period contrary to DILG and DBM Joint Memorandum Circular No.

2011-1 dated April 13, 2011 thus, depriving the intended beneficiaries of the

Provincial Government of the immediate use of the facilities and benefits that

could be derived therefrom. Moreover, the unexpended/remaining balance of

completed projects totaling P207,783.32 was not appropriated for other

developmental projects. (Observation No. 14)

We reiterated our previous recommendations that the:

a. Members of the Local Development Council evaluate the (i) present socio

and economic situations in the locality and appraise the socio-economic

and other development programs and projects to be prioritized and

included in the Development Plan and those to be implemented during the

year; and (ii) viability of the projects to be implemented to immediately

address the necessity of the constituents;

b. Provincial Engineer (i) coordinate, monitor and evaluate the

implementation of those projects to maximize the utilization of the 20

percent Local Development Fund; (ii) periodically provide the status of

projects undertaken by the Province as basis of the Provincial Budget

Officer and Provincial Accountant in their periodic review and monitoring

of balances of continuing appropriations, and submit a list of all completed

projects to support the reversion of such unexpended balance to the

unappropriated surplus; and (iii) furnish the Office of the Provincial

Accountant with a copy of Certificate of Completion and Acceptance and

its supporting documents upon completion of the project for recording in

the appropriate general and subsidiary ledgers of assets and liability

accounts to maintain updated, relevant and useful accounting records;

x

c. Provincial Budget Officer and the Provincial Accountant review and

analyze the unexpended balances of appropriations of completed projects

for reversion to the unappropriated surplus of the GF; and

d. Provincial Accountant (i) analyze the SLs of the CIP account and

determine all completed projects; and (ii) draw the corresponding JEV to

transfer the completed projects from CIP account to the appropriate Public

Infrastructure accounts.

8. The amount of P11,430,648.77 out of P18,238,365.00 loans granted to various

proponents from CYs 2001 to 2016 remained uncollected due to failure of the

Provincial Government to strictly enforce the conditions in the MOA and

Promissory Notes to individuals and various associations, cooperatives and

non-government organizations/peoples organizations (NGOs/POs) thus, there

is a risk that the loan may no longer be collected and the account may become

dormant. (Observation No. 15)

We reiterated our previous recommendations that the:

a. Project implementers concerned strictly monitor and validate the

implementation of the projects for which the financial assistance/loans

were granted, and maintain SLs of loans availed by each individual/

proponents;

b. Provincial Accountant (i) update the individual accounts of debtors-

individuals, cooperatives, associations, NGOs/POs taking into

consideration the terms and conditions provided for in the promissory

note and MOA, as the case may be; (ii) adjust the error made in

recording the loan payment; and (iii) determine the payees whose

identity was not recognized in the schedule of Other Receivables-

Others for purposes of updating the payment in the ledger; and

c. Provincial Treasurer (i) intensify the sending of formal demand letters

to such debtors-entities requiring them to settle their obligations; and

(ii) coordinate with the Provincial Accountant and Heads of the

implementing office to device means and ways to collect the said

financial assistance/loans.

d.

9. The utilization of the allotted budget for the Special Education Fund (SEF)

intended for the installation of water and sanitation system and repair and

maintenance of different schools totaling P778,100.00 and P10,683,343.81,

respectively, was not fully maximized due to the failure of the Provincial

Government to implement the identified priority programs and projects.

Further, the appropriations for SEF totaling P16,161,052.86 were not

supported with Project Procurement Management Plan (PPMP) identifying

the projects to be implemented out of the fund contrary to Section 7 of the

xi

IRR of RA No. 9184. Moreover, the liquidation report to support the financial

assistance granted to recipients was not submitted to the Audit Team.

Moreover, procured items were directly recorded under the Donation account

instead of recording them first to appropriate inventory account contrary to

COA Circular No. 2015-009 dated December 1, 2015. (Observation No. 16)

We recommended that the (a) Provincial Engineer facilitate the

implementation of projects identified in the PPMP, APP, and Budget to

ensure that priority programs and projects of SEF will be fully implemented;

and (b) Provincial School Board ensure that the budgeted amount for each

year on SEF projects is utilized for the efficient and timely delivery of

targeted services and benefits to the educational sector.

10. Due to the (a) delay of Botika ng Lalawigan ng Oriental Mindoro (BLOM) to

submit promptly every 15th and 30th of the month the Summary of Sales and

Sales Invoices and other related documents arising from the sale of drugs and

medicines, medical supplies and other goods and Accounting Office to record

the Accounts Receivable, Other Payables, Cost of Sales, Merchandise

Inventory, and Sales Revenue accounts in the sale of drugs and medicines,

medical, dental and laboratory supplies, and other goods from consignment

arrangement or Revolving Fund; and (b) unrecorded accounts receivables

totaling P2,252,104.70, the Botikang Lalawigan ng Oriental Mindoro

(BLOM) could have increased its reported revenues by as much as

P3,666,669.06. Moreover, the revenues of ₱7,904,036.01 from the

consignment arrangement were treated as Sales Revenue instead of Other

Business Income and subsidiary ledgers were not maintained for Accounts

Payable – Consignor to substantiate its balance of P86,603,837.04 as of year-

end. (Observation No. 17)

We recommended that the:

a. General Manager of BLOM submit promptly every 15th and 30th of the

month the Summary of Sales and Sales Invoices and other related

documents arising from the sale of drugs and medicines, medical

supplies and other goods to the Accounting Office for the proper and

timely recording of the sale transactions;

b. OIC-Provincial Accountant (i) review the present accounting and

recording of sale on account of goods under consignment arrangement

and revolving fund and the collection of accounts to facilitate the

accuracy and timeliness of recording of the transactions in accordance

with the PPSAS and prepare adjustments, if any, to the affected

accounts; (ii) reclassify the profit from the sale of consigned goods to

Other Business Income pursuant to COA Circular No. 2015-009; and

(iii) update the Accounts Receivable account to recognize the

unrecorded accounts receivables totaling P2,252,104.70.

xii

11. Other Payable-Consignor balances amounting to P86,603,837.04 could not be

substantiated due to the failure of the Accounting Office to maintain SL per

consignor and prepare the detailed schedule of the account contrary to Section

114 of PD No. 1445.

We recommended that the OIC-Provincial Accountant (i) maintain SLs for all

consignors for Accounts Payables-Consignor for proper accounting and

monitoring of the payable account; and (ii) prepare the schedule for Accounts

Payable-Consignors to support the balance of the account at year-end.

(Observation No. 18)

Summary of Audit Disallowances, Suspensions and Charges.

As of December 31, 2016, the Provincial Government has unsettled suspensions

and disallowances amounting to P66,429,391.14 and P3,439,652.00, respectively.

Status of Implementation of Prior Years’ Unimplemented Audit Recommendations

Monitoring of the 52 prior years’ audit recommendations disclosed that six were

fully implemented, 36 were partially implemented while the remaining ten remained

unimplemented.