PART II - DETAILED FINDINGS AND RECOMMENDATIONS

A. Financial and Compliance Audit

1. The Province of Negros Occidental failed to properly set up and maintain special accounts in the General Fund, as required under Section 313 of Republic Act No. 7160 (Local Government Code of 1991) and as prescribed pursuant to accounting policies set forth in Chapter 6, Volume I of The Manual on the New Government Accounting System (NGAS) for Local Government Units.

Section 313 of the Local Government Code contains the following provisions on Special Accounts that are to be maintained in the General Fund:

“Local government units shall maintain special accounts in the general fund for the following:

(a) Public utilities and other economic enterprises;(b) Loans, interests, bond issues, and other contributions for specific purposes; and(c) Development projects funded from the share of the local government unit

concerned in the internal revenue allotment and such other special accounts which may be created by law or ordinance.

Receipts, transfers and expenditures involving the foregoing special accounts shall be properly taken up thereunder.

Profits or income derived from the operation of public utilities and other economic enterprises, after deduction of the cost of improvement, repair and other related expenses of the public utility or economic enterprise concerned, shall first be applied for the return of the advances or loans made therefor. Any excess shall form part of the general fund of the local government unit concerned.”

Said provisions are reiterated in the Implementing Rules and Regulations (IRR) of R.A. 7160 (Rule XXXVI thereof) as well as in Sec. 105 and 109 of Chapter 6, Volume I of The Manual on NGAS. Moreover, Sec. 106 of the Manual provides the following objectives for the maintenance of Special Accounts:

“Accounting procedures for the operation of the special accounts are adopted in order to:

a. Determine whether the income generated by the public utilities or economic enterprises are sufficient to meet their respective operating costs.

b. Provide adequate information as to the assets, liabilities and equity of each special account.”

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An examination of reports and records maintained in the e-NGAS showed that the transactions of the hospitals and other economic enterprises are lumped in a sub-account as GF – EEDD, instead of several special accounts with a corresponding set of subsidiary ledgers for each enterprise. No special accounts in the General Fund are maintained for the other purposes cited in Sec. 313 (b) and (c) of the Local Government Code. (Refer to Annex C-1)

This is clearly contrary to Sec. 107 of the Manual which required that “special accounts shall be maintained through the use of complete subsidiary ledger. In case the local government unit maintains a number of the same enterprise, each shall have its own set of subsidiary ledger (e.g. 8 markets- 8 subsidiary ledgers for the market).”

Furthermore, Sec. 110 likewise prescribed the following reporting requirements:

“At the end of the year, post-closing trial balance shall be prepared for each special account. Also, the following financial statements shall be prepared:

a. Balance Sheetb. Statement of Income and Expensesc. Statement of Cash Flows

These reports shall form part of the schedules of the General Fund trial balance.”

The absence of separate sets of ledgers thus precludes the preparation of separate sets of financial statements pursuant to the aforementioned accounting policy. The separate financial reports of each of the enterprise are likewise required in the audit of the same, particularly since these are being handled by separate audit teams that had been created by the Commission on Audit to review and examine the financial condition and results of operations of these enterprises.

Although the query facility in the e-NGAS may provide a monitoring tool for the performance of responsibility centers, including each of these enterprises, the same is not an adequate substitute for the separate sets of subsidiary ledger and financial statements required under these regulations. The query facility is heavily dependent on accuracy of tagging and offers little audit trail for the verification of the figures reflected in the resulting print-out. At best, the facility churns out in summary form certain data from which the result of operations can be gleaned, but not the financial condition and cash flows of each of the enterprises.

An AOM was issued covering the herein finding. In response, the Provincial Accountant points out that the set-up of the e-NGAS was undertaken by COA in 2005 and that the maintenance of sub-accounts for each of the enterprise of the Province, including the generation of the respective trial balances and financial statements, will require a thorough study, preparation of preliminary needs and a series of consultation with COA-GAFMIS. The COA Technical Group had likewise informed the Province that the current program of the e-NGAS will be upgraded to a newer version. In view of the foregoing considerations, the Office of the Provincial Accountant undertakes to implement the recommended changes effective CY 2013.

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We recommend that the Accounting Office maintain sub-accounts consisting of separate sets of ledgers for each of the enterprise in the e-NGAS and consequently prepare separate trial balances and financial statements reflecting the financial condition and results of their respective operations, in accordance with existing regulations.

2. The Office of the Provincial Accountant failed to maintain subsidiary ledgers in the e-NGAS for balances of performance bonds/bidders bonds/bail bonds account, thereby weakening accounting controls over monitoring and disposition of said trust receipts with a net balance of P13,962,914.90 as of December 31, 2011.

Section 111 (1) of P.D. 1445 sets a basic guideline for the keeping of accounts by government agencies: “The accounts of an agency shall be kept in such detail as is necessary to meet the needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government.”

The Subsidiary Ledger is a book of final entry containing the details or breakdown of the balances of the controlling account appearing in the General ledger (Sec. 10, Vol. II, Manual on NGAS). Section 114 of P.D. 1445 provides that “subsidiary ledgers shall be kept where necessary.” The annotations cited in the State Audit Code assert that subsidiary ledgers “provide substantial audit support for the general ledger and also provide the further breakdowns of the financial statement totals where desired.” COA Circular 77-48 lists as one of the basic principle of internal control the tenet that “control accounts and subsidiary ledgers should be used as much as possible”.

Performance bonds and bidder’s bonds are securities required by law, rules or regulations to be posted to ensure the faithful performance of an activity or undertaking. Once the undertaking is completed or fulfilled, it is incumbent on the Province to release the bonds to the respective complying contractors. Thus, proper monitoring is crucial to ensure compliance with terms and conditions and the proper implementation of projects and procurement activities, as well as to assure the validity and correctness of the consequent claims.

Our review of the accounts in the eNGAS showed that the “subsidiary ledgers” maintained in the eNGAS consist only of two accounts: one recording the unreconciled beginning balances in 2006 and another lumping all subsequent receipts of performance bonds and refunds made. No subsidiary ledgers have been maintained for each supplier/contractor who had posted performance bonds in cash or certified checks. Moreover, no individual JEV is drawn for each receipt issued for the performance bonds, only a single JEV recording only the totals for the batch of transactions involving several suppliers and worse, often failing to provide sufficient details for future reference and verification of the transactions. Sec. 28 of the Manual on NGAs prescribed the following procedure for handling and recording of performance bonds:

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“Performance bond in cash or certified check shall be acknowledged by the issuance of official receipt and recorded in the books by the Accountant drawing a JEV for the purpose.”

The absence of subsidiary ledgers thus weakens accounting controls over transactions involving performance bonds. A schedule of individual accounts still outstanding (much less the aging of the same), which could have served as a useful tool for monitoring of projects and procurement activities, is not readily available. We also noted that a substantial volume of such transactions have been recorded in the accounts, with receipts since 2006 amounting to P47,180,280.06 and releases totalling P37,326,983.73, which resulted in the increase of the account balance from P4,127,016.73 in 2005 to P13,962,914.90 in 2011. (Refer to Annex D-1)

We likewise noted that the unreconciled balance of P3,108,552.53 showed no movement at all since 2006, casting doubts on the validity of the balances.

An AOM was issued covering the herein finding. In response, the Provincial Accountant had agreed to implement our recommendations effective January 2012.

We recommend that detailed subsidiary ledgers be maintained for the performance bonds, with an aging schedule of accounts prepared periodically and utilized as a monitoring tool for the settlement of consequent claims and the implementation of projects and procurement activities as well.

3. The trust receipts for income generated by the Bids and Awards Committee (BAC) from sale of bid documents, accreditation and other fees collected since 2007 amounting to P9,539,545.16 had not been properly accounted for in the books of accounts of the Province and had been utilized for purposes other than payment of honoraria and overtime pay as mandated under Budget Circular No. 2004-5A1, dated 7 October 2005 (as amended by Budget Circular No. 2007-3, dated 29 November 2007), resulting in unrecorded assets, understatement of income and overstatement of recorded liabilities.

Item 6.1 of Budget Circular No. 2004-5A1, dated 7 October 2005 (as amended by Budget Circular No. 2007-3, dated 29 November 2007) provides that:

“The amount necessary for the payment of the honoraria and overtime pay authorized herein shall be sourced only from the following:

i. Collections from successfully completed procurement projects limited, however, to activities prior to awarding of contracts to winning bidders:i.1. proceeds from sale of bid documents;i.2. fees from contractor/supplier registry;

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i.3. fees charged for copies of minutes of bid openings, BAC resolutions and other BAC documents;i.4. protest fees; andi.5. proceeds from bid security forfeiture; andii. Savings from local budgets approved by their respective Sanggunian subject to the pertinent provisions of RA 7160, otherwise known as the “Local Government Code of 1991.”

Item 6.2 thereof prescribes how it should be utilized:

“Pursuant to the DOF-DBM-COA Permanent Committee Resolution No. 2005-2, datedJune 2005, all agencies are authorized to treat the collections from the sources identified above as trust receipts to be used exclusively for the payment of honoraria and overtime pay duly authorized. Agencies may utilize up to one hundred percent (100%) of the said collections for the payment of honoraria and overtime pay subject to the guidelines in the Budget Circular. Any excess in the amount collected…shall form part of the… local government funds.”

The above procedures not only classified said collections as trust receipts but likewise set the limitation that the same shall be used exclusively for the payment of honoraria and overtime pay. The same likewise strongly point to a periodic annual reckoning of the excess amount collected, which shall form part of the local government funds.

The limitations on the utilization of the trust receipts was affirmed by the Government Procurement Policy Board (GPPB) when it posted in its website the following clarification, in response to the queries on whether the trust receipts may be used to procure supplies/equipment and other related facilities needed by the BAC:

“…The provision of item 6.2 of Budget Circular 2004-5A that collections authorized under item 6.1 thereof are "to be used as exclusively for the payment of honoraria and overtime pay" authorized in the said Circular, still applies. Congress attempted to allow, in the 2010 General Appropriations Act (GAA), R.A. 9970, the use of excess collections of the proceeds from the sale of bid documents "to procure supplies/equipment and other related facilities which are necessary to enhance the functions of the BAC", but said provision (Sec. 12, General Provisions of the GAA) was directly vetoed by then Pres. GMA. In the President's Veto Message, the use of such proceeds other than for honoraria is "improper". In the same message it was clearly stated that: "The foregoing proceeds are to be used exclusively for the payment of honoraria and overtime services pursuant to pertinent issuances. Any excess thereof should be remitted to the National Treasury in accordance with budgeting rules and regulations."

Our examination of the books of accounts revealed that the collections from sale of bid documents and accreditation fees of contractors/suppliers amounted to P9,539,545.16. These were recorded as other liabilities in four subsidiary ledger accounts maintained in the eNGAS. Out of these collections, payments of honoraria for BAC

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members amounted to P1,237,446.59, while adjustments and refunds amounted to P31,210.00, leaving excess collections P8,270,888.57 that should have been accounted as income of the General Fund. We noted, however, that a total of P1,451,210.00 had been utilized for purposes other than the payment of honoraria, such as payments for various items of equipment amounting to P765,220.00, cost of preparation of plans and drawings for various infrastructure projects (expenditures that are supposed to be part of the budget for the respective projects) amounting to P24,390.00, and transfers to income account in the General Fund amounting to P661,600.00. (Refer to Annexes E-1 to E3)

Under the procedures adopted by the Accounting Office, only P1,206,580.00 of the items utilized are recognized as excess collections thru corollary entries, and recorded as a debit to asset accounts and a credit to income or prior period adjustments in the General Fund. Other transactions amounting to P244,630.00 ended up as unrecorded assets (P220,240.00) and unrecorded capitalized costs (P24,390.00). (Refer to Annex E-2) The remaining balance of P6,819,678.57 is still retained as trust receipts and recorded as part of other liabilities, instead of being recognized as excess collection and thus income of the General Fund pursuant to Item 6.2 of Budget Circular No. 2004-5A1, dated 7 October 2005 (as amended by Budget Circular No. 2007-3, dated 29 November 2007).

An AOM was issued covering the herein finding. In response, the Provincial accountant has agreed to make the necessary adjustment in CY 2012 for the unrecorded assets and capitalized costs, as well as to set up in the General Fund a separate Income Account subsidiary ledger for this purpose.

We recommend that an annual reckoning of excess collections over payments made for the honoraria and overtime pay of the members of the BAC should be undertaken to determine the amount that should be recorded as income in the General Fund, starting with the excess collections as of December 31, 2011.

Adjustments should be recorded in the accounts for the unrecorded assets and capitalized costs resulting from the flawed accounting procedures.

4. There is no disclosure in the Notes to the Financial Statements pertaining to obligations that are not yet recorded as liabilities but nonetheless constitute valid commitments of the Province as at year-end, contrary to the provisions of Accounting Circular Letter No. 2007-002 dated January 19, 2007, despite the materiality and significance of such information as can be gleaned from the numerous approved contracts/purchase orders as well as purchase requisitions already charged against previous years’ appropriations covering projects that are not yet implemented and/or goods that are not yet delivered as of December 31, 2010 which were subsequently recorded as payables and/or paid only in CY 2011, amounting to not less than P311,566,682.74.

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Notes to the financial statements are intended to provide additional information which is not presented on the face of the financial statements but necessary for a fair presentation. Sec. 80 of the Volume 1 of the Manual on NGAS provides that “the Notes to the Financial Statements … are the accountant’s means of amplifying or explaining the items presented in the main body of the statements. These are explanatory notes on the accounts and/or accounting policies which will give additional information value to the financial statements. In the Notes, the accountant is expected to report the economic substance rather than the legal form of the transactions and to make adequate disclosure.”

Sec. 3.5 of Accounting Circular Letter No. 2007-002 dated January 19, 2007 provides that “The Budget Officer/Head of Budget Unit shall also submit a List of Not Yet Due and Demandable Obligations. Such obligations which are not yet recorded as liabilities are agencies’ valid commitments based on approved contracts/purchase orders where projects are not yet implemented and/or goods are not yet delivered. The same shall be disclosed in the Notes to Financial Statements.”

Our examination of the accounts in 2011 shows that the recorded transactions in the General Fund and Special Education Fund pertaining to purchase requisitions already charged against prior year’s appropriations (as per approved obligation requests pertaining to previous years attached to the disbursement vouchers) amounted to P303,596,185.19. We likewise noted charges against the Trust Funds amounting to P7,970,497.55 pertaining to payments made on purchase orders/contracts issued in previous years (based on vouchers thus far submitted by the Accounting Office covering the period January 1 to September 30, 2011 only). Thus, the total amount of at least P311,566,682.74 represents valid commitments of LGU funds covering purchase orders and purchase requisitions already charged against appropriations or Trust Funds but not yet recorded as liabilities. (Refer to Annexes F-1 to F-3)

No “List of Not Yet Due and Demandable Obligations” as likewise required under the aforementioned Accounting Circular had been submitted by the Budget Office to date.

An AOM was issued covering the herein finding. In response, the Provincial Accountant has agreed to implement our recommendation on required disclosures, in coordination with the Provincial Budget Office and General Services Office.

We recommend that the appropriate disclosures should be made in the Notes to Financial Statements, duly supported by the “List of Not Yet Due and Demandable Obligations”, along with all valid commitments of the Province including obligated amounts charged against appropriations for purchase requisitions on projects/activities already bidded out.

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5. The Province paid several claims for transportation expenses involving taxi fares from temporary residence to temporary station while on official travel amounting to P37,467.00, as well as claims for per diems in excess of amounts allowed under E.O. 248, as amended, totaling P9,840.00, contrary to the provisions of COA Circular 96-004 dated April 19, 1996 and Sec. 340 of the Government Accounting and Auditing Manual, which define and set limits to claims for transportation and other travelling expenses of government personnel.

COA Circular No. 96-004 dated April 19, 1996 contains the following provisions on payment of transportation expenses:

“Sec. 3.1.1.2 The amount of transportation expenses allowable shall be the actual rates of the authorized means of transportation (land, sea, and air) from the permanent official station to the destination or place of work or assignment in the field and back, plus other incidental expenses:a. From the office or residence to the point of embarkation;b. From the point of embarkation to the point of debarkation in the place of destination;c. From the point of debarkation to the office of destination or temporary residence in the place of assignment in the field and return.3.1.1.3 The transportation expenses shall be in addition to the travel expenses which as defined under Section 6 of EO 248, as amended, is divided into two components: i.e., travel allowance of two hundred pesos which will cover the cost of meal inland transportation and other incidental expenses; and hotel room/lodging rate of one hundred pesos.3.1.1.4 The allowable transportation expenses shall not include local or inland transportation and other expenses after arrival in the office or temporary residence in the place of assignment in the field which are contemplated to be covered by the travel allowance specified in Section 6(a) of EO 248.”

Payment of transportation expenses for commuting from temporary residence to office of destination or assignment in the field is not provided for under said regulations and therefore not allowed, in the same manner that government employees are not entitled to transportation expenses from commuting from permanent residence to office. Only transportation from the permanent official station to the destination or place of work or assignment in the field and back is allowed under Sec. 3.1.1.2 of the aforenoted regulations.

We likewise noted that claims for per diems are still paid although the claim is for reimbursement of actual expenses, which is contrary to Sec. 6 of E.O. No. 248, as amended by E.O. No. 248-A and E.O. No. 298, which provides that “claims for reimbursement of actual travel expenses in excess of the travel expenses authorized herein may be allowed upon certification by the head of the agency as absolutely necessary in the performance of an assignment and presentation of bills and receipts.” Thus, a claim for actual travelling expenses precludes further claims of the P800.00 travel

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expenses since the regulations is based on the premise that actual expenses is allowable only when it exceeded the P800.00 travel expenses granted to government employees/officers without need of further presentation of receipts and expenses.

Our examination of disbursement vouchers for travelling expenses for the period January – September 2011 revealed that these included claims for taxi fares from temporary residence to office or assignment and back had been allowed by the Province amounting to P 37,467.00 as well as excess per diems amounting to P 9,840.00. (Refer to Annex G-1)

An AOM was issued covering the herein finding. In response, the Office of the Provincial Accountant explained that the transportation expenses in question pertain to equivalent fare for commuting from temporary residence to seminar site and vice versa while attending seminars or conferences outside of Negros Occidental, citing provisions of E.O. 298 dated March 23, 2004, particularly Section 1 thereof, defining “travel expenses” granted therein as “the amount authorized to cover hotel/lodging rate, meals and incidental expenses excluding transportation expenses going to and from the destinations.” The following apportionment of the allowable travel expenses amounting to P800.00 under Section 6 was likewise cited: 50% for hotel/lodging, 30% for meals and 20% for incidental expenses. They also allowed claims for per diems of P800.00 for those claiming actual expenses, but claimed they require refunds depending on the amount of expenses incurred as against their cash advance. Consultants are allowed to claim actual expenses based on their contract duly approved by the Sanggunian Panlalawigan.

We noted that no amendment of the provisions of COA Circular No. 96-004 had thus far been made, nor do the aforementioned provisions of E.O. 298 can be construed as tacit authority to grant payment of travel expenses incurred while commuting from temporary residence to office of destination on a daily basis while on official travel. We likewise audited only vouchers charges against travelling expenses account, and noted that claims for P800.00 per diems were allowed the claimants although they have already been granted reimbursement for actual expenses. Claimants should be allowed to choose either to claim actual expenses, or the P800.00 per day travel expenses, but not both. Moreover, Sec. 4 of E.O. 298 only allows claims for reimbursement of actual expenses when duly certified by the head of agency concerned as absolutely necessary in the performance of an assignment and duly supported by bills and receipts. Hence, reimbursement of actual travel expenses for consultants should be only allowed if certified as such by the Governor. We will be issuing the corresponding Notices of Disallowance in 2012 in case the employees concerned failed to make the necessary refunds as we had recommended.

We recommend that the payment of transportation expenses for commuting from temporary residence to office of destination or assignment in the field should be discontinued, as well as the payment of per diems when actual expenses in excess thereof is claimed. The amount of excess claims should be refunded by the LGU officials and personnel concerned.

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6. Flawed policies and procedures of the Province pertaining to receipts and collections resulted in delayed remittances and deposits and delayed recording of receipts and collections, thereby weakening accounting controls over the cash transactions and ultimately resulting in the understatement of the balances of cash, income and related accounts in the periodic and year-end financial statements amounting to P9,375,194.62 in 2011 and P12,431,327.57 in 2012, contrary to the accounting policies set forth in the Manual on the New Government Accounting System.

The Manual on the New Government Accounting System (NGAS) for LGU’s, Volume I set forth the accounting plan and policies on collections and deposits.

We conducted a review of the Reports of Collections and Deposits (RCD’s) for a test period from January to February 2011 and similar period from January to February 2012 to determine compliance with said policies and procedures. We noted that delays in recording and deposit of collections are primarily due to the following main factors:

a. Delayed remittance and reporting of collections by the collectors;b. Verification procedures that virtually imposes pre-audit prior to reporting and

turn-over of receipts;c. Bottlenecks created by a single liquidating officer for all collectors/cashiers

for all funds;d. A flawed system of reporting and recording of collections and deposits made

by field collectors and cashiers, particularly those involving EEDD transactions.

e. Flawed procedures in handling of direct deposits and remittances to the bankf. Failure to utilize validating machines and other mechanical or automated

facilities

6.1 Failure to effect regulations on reporting and remittance of collections

Sec. 29 of the Manual on NGAS provides for the following:Reporting for Collections and Deposits…At the close of each business day, these collectors/tellers shall accomplish the Report of Collections and Deposits (RCD) in four copies. The original and two copies, together with the duplicates of the official receipts issued, shall be submitted to the treasurer/cashier to whom the cash collected shall be turned over…In case of collectors assigned to the field, where travel time from their places of assignment to the Treasurer’s Office is more than one day, turnover of collections shall be made at least once a week or as soon as the collections reach P5,000.00 .

Sec. 32. Deposit of Collections. – The Treasurer/Cashier shall deposit intact all his collections as well as all collections turned over to him by the collectors/tellers with the authorized depository bank daily or not later than the next banking day. He shall record all deposits made in the cashbook and prepare the RCD…

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Contrary to said procedures, the Provincial Treasurer’s Office failed to establish proper cut-off in the reporting of collections, particularly the preparation of the Report of Collections and Deposit. We noted that many collectors do not regularly prepare RCD’s at the close of each business day since several of these RCD’s cover collections spanning a period of several days.

Since RCD’s are not prepared by all collectors at the close of each business day, the corresponding regular daily turn-over of collections have likewise not been effected by collectors, even when the amount held by office collectors exceed the threshold for field collectors of P5,000.00. As a result, the amounts turned-over to the liquidating officer, and eventually to the cashier, consist of a mixture of partial collections spanning over several days instead of the collections for a particular business day, as originally laid out in the accounting plan per NGAS.

6.2 Flawed procedures and policies on verification of reports of collections

The Manual on NGAS provides for the following:

Sec. 30. Verification of Collections and Accountable Forms. – The Treasurer/Cashier shall verify the Report of Collections and Deposits; check the statement of accountable forms as to initial balances on hand, receipts, issues and the ending balances on hand; make a physical count of the accountable forms remaining in the custody of the collector/teller and check the same against new balances on hand column. He shall indicate his verification by affixing his signature at the back of the triplicate copy of the last official receipt issued. He shall count the money turned over to him and sign the certification and receipt portion of all copies of RCD.

The foregoing provisions set forth the policy of effecting deposit of all collections intact daily (on the same day or at the very least not later than the next banking day) and vesting the responsibility for the verification of the RCD’s prepared by the collectors on the Treasurer, Cashier and/or the liquidating officer/s. Moreover, in order to ensure that correct balances are reflected in the financial statements, the daily verification should be implemented concurrently with the policy of preparing daily reports of all collections for a particular day at the close of said business day.

We noted that the Provincial Treasurer delegated the verification functions on a separate unit rather than on the liquidating officer as outlined in the NGAS. While not discounting the value of creating such a unit, our review of RCD’s reveal that this had resulted in further delaying the remittance and recording of collections in the books of accounts, instead of facilitating these functions as was originally intended.

We likewise observed that the validation do not assure correctness of the abstract of collections. In some of the abstracts of collections reviewed during the period, cross-footings of the columns do not tally with the total collections per RCD. We also noted

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errors in RCD’s of the liquidating officer consolidating and reporting the collections remitted by the collecting officers.

6.3 Single Liquidating Officer for both office and field collections create bottlenecks

The Manual on NGAS likewise provides for the following:

Sec. 31. Designation of Liquidating Officers. – The Treasurer may designate liquidating officers from among the collectors/tellers whenever necessary.

a. Collectors/tellers shall turn over their collections to their designated liquidating officer. The RCD shall however be prepared in five copies…

b. The liquidating officer shall perform the procedures for the receipt and verification of collections turned over to him. He shall also accomplish the RCD in four copies to summarize the collections turned over to him by the collectors/tellers as well as his own collections.

The liquidating officer shall turn over intact the cash collections to the Treasurer/Cashier together with the originals and two copies of the RCDs of collectors/tellers and the duplicates of the official receipts issued…

We also noted that only a single liquidating officer is made to handle remittances of all collections (General Fund, GF-EEDD, Trust Funds and Special Education Fund) although the regulation allows designation of more than one to facilitate the prompt remittance of collections. Moreover, although liquidating officers may facilitate remittances of field collectors, a liquidating officer may not even be necessary in the case of collections made by collectors in the Office of the Provincial Treasurer, considering that direct remittances may be made directly to the cashier by these collecting officers.

6.4 Flawed procedures in reporting and deposit of field collections

The Manual on NGAS further provides:

Sec. 33. Deposit of Field Collections. – Collections by field collectors shall be remitted to the Cashier or designated liquidating officer of the field office of the LGU. When travel distance of the field office to the local treasury may expose government funds to the risk of loss while in transit, the Cashier or designated liquidating officer, upon authorization by the Treasurer, may deposit the collections in the authorized depository bank near the field office of the LGU. The procedures in reporting collections and deposits prescribed in this Chapter shall be observed.

EEDD – Hospital Cashiers

For hospitals operated by the Province, collections and deposits are handled by duly appointed cashiers holding plantilla positions, except for two hospitals with personnel detailed by the Provincial Treasurer’s Office and two with designated cashiers/collecting officers. In most hospitals, RCD’s are not prepared on a daily basis. The aforenoted threshold of P5,000.00 is also not observed.

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Delayed Reporting of Collections Already Deposited by EEDD Cashiers

Some hospitals directly deposit collections in authorized depository banks either in Bacolod City or near their locality. Others effect deposits to the Land Bank Bacolod account of the Province through inter-bank transfers, while others still remitted their collections to the liquidating officer and Cashier based here in Bacolod City.

Regardless of the manner of remittance or deposit, all cashiers nonetheless still submit the RCD to the liquidating officer, validating office and the Cashier for eventual consolidation and inclusion in the RCD’s prepared by the liquidating Officer and Cashier. The RCD’s are thus recorded in the books of account as of the date of such consolidation (regardless of when the collection or deposit is actually made). The procedure invariably resulted in very much delayed recording of collections - we noted instances when collections are only recognized in the books three weeks after the same had been deposited.

EEDD – Mambukal and other field collectors

No regular cashier is assigned to Mambukal. Field collectors are instead sent to Mambukal to effect collections of fees and revenues earned by the resort which easily top the total annual collections of even the Provincial Hospital in Silay City (which has a regular cashier in its plantilla).

RCD’s are also not prepared by the collectors on a daily basis, but only to support remittances when they report back to Bacolod Office. We noted that the thresholds of P5,000.00 as well as that on the collector’s travel time are not implemented. Except for Mambukal, the assignments do not exceed 15 kilometers from the Bacolod Office. None of the assigned areas targeted for collection involve travel time of more than one day (thresholds set under the GAAM and the Manual on NGAS). Remittances by collectors thus vary from one day to one month after the collection is made and acknowledged by issuance of an official receipt.

Partial Deposit of Reported Collections – Mambukal

We observed that collectors deployed to Mambukal are presently allowed to deposit collections directly to the bank. We noted however that partial deposits of collections were being made without establishing proper cut-off of transactions, particularly since a single RCD and abstract is prepared covering collections spanning several days and the partial deposits/remittances.

Preparation of OR’s

We noted that OR’s are not issued in strict numerical sequence particularly in the case of Mambukal collectors, contrary to Sec. 73 of the Government Accounting and

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Auditing Manual which provides that “Pre-numbered official receipts shall be issued in strict numerical sequence…”

The failure to adhere to the above policy with respect to OR’s strongly indicates that the collection and issuance of the OR are not being handled by the collecting officer himself but by unrecognized and unofficial deputies.

Direct remittances by clients

We also noted instances when clients are allowed to deposit money directly to the account of the Province. Said collections are receipted only at a much later date and included in RCD’s subsequently prepared, resulting in delayed recording of income and collections although the transactions are already reflected in the bank statements.

6.5 Gaps between policies and procedures and actual operations

The GAAM does not contain provisions on handling of direct remittances by clients to the depository bank. Thus, issuance of what appears to be official receipts made to belatedly acknowledge collections already deposited in Bank create distortions in the reported balances of daily collections when the same are treated as if these are regular collections.

Moreover, the provisions on direct deposit of field collections as outlined in the Manual on NGAS are premised on a set-up religiously implementing daily reporting of collections at the close of each business day, and not at a much later time in the future. Reporting these collections subsequently as remittances to the liquidating officer and cashier is not only distortion of the nature of the transactions but likewise renders the reporting process unreliable and inaccurate. COA Circular No. 77-48 dated January 31, 1977 emphasized that “to be an effective tool for management control, reports must be prompt, accurate, complete, impartial and useful. A report loses its value if it is submitted long after the period it is required to be submitted.”

Under Sec. 19 of the Manual on NGAS, the prescribed method of accounting for taxes, fees, charges and revenues, other than real property taxes and Share from Internal Revenue Collections, is cash basis; that is, when cash or its equivalent is received. Current practices of the Province in contrast excludes income earned for which cash is already in the hands of collectors, and worse, in the case of EEDD, is in fact already deposited to the account of the Province.

The delay in remittance of collections and deficiencies in the reporting practices and procedures ultimately results in material distortions in the cash balances and related accounts as reflected in the Treasurer’s Office reports and in the financial statements prepared by the Accounting Office. Cash balances as of December 31, 2010 were understated by P9,375,194.62 while the balances as of December 31, 2011 were understated by P12,431,327.57. (Refer to Annexes H-1 to H-2).

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Implications on Internal Control

Delays in reporting as well as inappropriate cut-off of transactions and reporting likewise weaken internal control. One of the oft-repeated common rules on internal control over cash receipts states that “control over cash, including remittances through the mails, should be established immediately after it has been received; collections should be acknowledged with pre-numbered official receipts and recorded promptly and properly.” (COA Circular No. 77-48).

Our examination of the monthly bank reconciliation statements for the period January to September 2011 reveals the constant presence in the bank statements of yet to be accounted receipts and collections either due to delayed reporting of direct deposits made by hospitals as well a delayed acknowledgement of direct deposits by clients likewise rendered difficult the reconciliation of bank accounts. The unadjusted reconciling items at month-end constitute misstatements in cash balances in monthly financial statements of the Province. (Refer to Annexes H-3 to H-4)

6.6 Failure to utilize mechanical or automated facilities

One of the elements of internal control outlined in COA Circular No. 77-48 dated January 31, 1977 is the use of physical and mechanical facilities not only to safeguard assets but also to minimize or eliminate errors and opportunities for fraud and expedite completion of the work, particularly when the volume of transactions justifies the same. The circular likewise listed as one of the basic principles of internal control that “mechanical equipment providing automatic proofs should be used whenever possible”. Hence, the use of validating machines could have been utilized as added controls to ensure correctness of amounts and proper cut-off of transactions.

An AOM was issued covering the herein finding. In response, the Provincial Accountant and the Provincial Treasurer agreed to have a joint meeting with the Economic Enterprise Department particularly Mambukal and the various hospitals to discuss the present work flows and procedures regarding collections. The output of these meetings will be used in the conduct of review of the accounting and reporting policies of the Province with regard to collection, deposit and recording of revenues, as well as the handling of deposits and collections.

We recommend that management should implement measures to ensure prompt reporting, remittances and deposit of collections in order to reflect the correct cash balances in the financial statements:

a. Collecting officers should be required to prepare RCD’s at the close of each business day and effect remittance of their collections daily, particularly when collections exceed P5,000.00;

b. The Province should consider the designation of additional liquidating officers and merging their functions with the verification unit, in order to facilitate the

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verification and remittance process. Procedures for verification of receipts should be streamlined to ensure prompt recording and remittance of collections;

c. The Province should likewise consider the designation of a regular cashier and/or collecting officers for Mambukal resort, considering the substantial volume of cash handled by said enterprise;

d. Enterprises with assigned cashiers (regular or designated) should be required to deposit collections in authorized depository banks (directly or through inter-bank transfers) to reduce risk of loss in transit as well as to ensure prompt deposit of collections. The verified RCD’s should be submitted to accounting for recording, and the transactions of the cashiers as accountable officers of said enterprises should be recorded in their respective cashbooks.

e. Validating machines should be utilized as added controls to ensure correctness of amounts and proper cut-off of transactions.

f. The Provincial Accountant and the Provincial Treasurer should conduct jointly a review of the accounting and reporting policies of the Province with regard to collection, deposit and recording of revenues, as well as the handling of direct deposits or collections made by banks for the account of the Province, in order to ensure correctness and accuracy of cash balances in Treasury reports and in the financial statements and to preclude any duplication of procedures and functions.

7. Despite several adjustments made on the accounts during the year, the Province of Negros Occidental is still unable to fully reconcile, identify, and properly classify balances of asset accounts totalling P1,510,662,300.49, which renders doubtful the validity of 28.3% of the total assets recorded in the books of accounts of the LGU as at year-end.

The Philippine Government Accounting Standards as promulgated by the Commission on Audit under COA Resolution No. 2006-006 dated January 31, 2006 provides, among others, that:

a. The books of accounts shall consist of :(a) National Government (NG) books…(b) Regular Agency (RA) books for recording funds pertaining to agency’s regular

operations; and(c) Subsidiary ledgers, which reconcile with general ledger control accounts such as

cash, receivables, inventories, property plant and equipment and payables.

It likewise included reliability among the qualitative characteristics of financial reporting which shall be used as guides in the recording of transactions and preparation of financial statements, and provided that “financial information is reliable when the quality of information assures users that such is free from bias and error and faithfully represents what it purports to represent.

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A cursory analysis of the subsidiary ledger balances comprising the asset accounts of the various funds maintained by the Province of Negros Occidental shows unreconciled balances of assets that have remained unidentified and not properly classified, amounting to P1,510,662,300.49 (Refer to Annexes I-1 to I-5). These balances have been tentatively recorded at the inception of the implementation of N-GAS and constitute 28.3% of total assets recorded in the books of accounts of the Province. The same renders difficult the verification of accounts considering that records of transactions in the past years and administrations are not readily available, and the material amounts involved cast doubts on the validity of the balances of recorded transactions. The balances represent deficiencies in record-keeping and accumulated discrepancies in the balances maintained in the accounts over the years, spanning over several administrations since the creation of the Province.

An AOM was issued covering the herein finding. In response, the Provincial Accountant cited that the continuing clean-up of asset and other Balance Sheet accounts is being undertaken by the Office of the Provincial Accountant while an ongoing physical inventory is being undertaken by the Provincial Inventory Team to be used as a basis for determining the actual existence and proper valuation of all LGU assets.

We recommend that the Provincial Accountant should continue to effect reconciliation of the balances of the asset accounts against relevant records, and to record the appropriate adjustments to reflect the correct balances.

A comprehensive inventory of all LGU assets should also be conducted and completed as soon as possible to determine the actual existence and proper valuation of the same. Such inventory could ascertain and validate discrepancies between the recorded amounts and the actual existing assets, which in turn could form the basis for requesting from the Commission Proper authority to write-off dormant accounts, the existence of which can no longer be confirmed or verified. A list of available records and extent of validation made on the accounts proposed for write-off and/or adjustment should be made, consistent with provisions of COA Circular 97-001, and in case reconciliation against relevant records is no longer possible since the same can no longer be located, an investigation report narrating the cause(s) of loss of the documents or records and pinpointing the official/s and employee/s liable therefor should be submitted for evaluation, pursuant to COA Circular No. 93-404.

8. The Province failed to fully implement existing rules and regulations pertaining to the granting, utilization and liquidation of cash advances of officials and employees of the LGU, resulting in a substantial balance of unliquidated cash advances amounting to P44,342,295.52 as at year-end, despite significant reduction of outstanding prior year balances.

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COA Circular No. 97-002 dated February 10, 1997 contains the following provisions concerning cash advances:

4.0 Granting and Utilization of Cash Advances

4.1 General Guidelines

4.1.2 No additional cash advances shall be allowed to any official or employee unless the previous cash advance given to him is first settled or a proper accounting thereof is made .

4.1.3 A cash advance shall be reported on as soon as the purpose for which it was given has been served.

4.1.8 The Accountant shall obligate all cash advances granted. He shall see that cash advances for a particular year are not used to pay expenses of other years.

5.0 Liquidation of Cash Advances

5.1 The AO shall liquidate his cash advance as follows:

5.1.1 Salaries, Wages, etc. – within 5 days after each fifteen (15) day/end of the month period.

5.1.2 Petty Operating Expenses and Field Operating Expenses – within twenty (20) days after the end of the year; subject to replenishment as necessary during the year.

5.1.3 Official Travel – within sixty (60) days after return to the Philippines in case of foreign travel or within thirty (30) days after return to his permanent official station in the case of local travel…Failure of the AO to liquidate his cash advance within the prescribed period shall constitute valid cause for the withholding of his salary and the instruction of other sanctions as provided for under paragraphs 902.and 90.3 hereof.

5.7 When a cash advance is no longer needed or has not been used for a period of two months, it must be returned to or refunded immediately to the collecting officer.

5.8 All cash advances shall be fully liquidated at the end of each year. Except for petty cash fund, the AO shall refund any unexpended balance to the Cashier/Collecting Officer who will issue the necessary official receipt.

5.9 At the start of the ensuing year, a new cash advance may be granted, provided that a list of expenses against the previous cash advance is submitted. However, when no liquidation of the previous cash advance is received on or before January 20, the Accountant shall cause the withholding of the AO’s salary.

COA Circular No. 2009-002 dated May 18, 2009 likewise provided for the following:

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4.1.3(ix) Cash advance for special time-bound undertaking shall be liquidated by the accountable officer concerned within one month from the date the purpose of the cash advance was accomplished.

A review of existing balances of cash advances to officers and employees as of December 31, 2011 reveal that 31.2% of the outstanding balances at year-end pertain to advances granted in 2009 and earlier years, a notable improvement from the 49.8% registered in the previous year (Refer to Annexes J-1 to J5).

We noted, however, that rules and regulations governing liquidation still have not been properly implemented, resulting in the increase in the balance of unliquidated cash advances as at year-end, from P43,235,285.20 last year to P44,342,295.52 as of December 31, 2011. There were additional cash advances that were granted despite failure on the part of the official and/or employee concerned to fully liquidate previous advances. Several disbursing officers still have unliquidated balances of petty cash funds and payroll funds.

We also noted indicators of errors in recording of transactions, such as liquidations which do not pertain to any previously recorded cash advances in the subsidiary ledgers, resulting in negative or unusual balances. Inaccurate records weaken accounting controls over these transactions. We observed that 27.2% of the outstanding balances pertain to transactions recorded in 2007 and earlier years, the bulk of which pertain to reclassified balances on January 2007.

The failure to fully liquidate cash advances in accordance with the prescribed rules and regulations results in the misstatement of expenses in the period they were actually incurred, as well as in the overstatement of assets and retained earnings accounts.

An AOM was issued covering the herein finding. In response, the Provincial Accountant undertook to rectify errors and prioritize clean-up of unusual or negative balances in 2012. They likewise pointed out that expenses paid thru cash advances were already recognized as at year-end, although admittedly not immediately credited to the respective special disbursing officers’ account until their liquidation papers are duly audited and approved. Annual joint year-end memo always include reminders on liquidations of cash advances and another memorandum will be issued reiterating to all offices the prescribed COA rules and regulations on liquidation of cash advances, including the withholding of salaries of employees who fail to comply.

We recommend that the Province should comply with the provisions of COA Circular 97-002 and ensure proper granting, utilization and liquidation of cash advances.

The Provincial Accountant should rectify errors in the recording of accounts to ensure proper monitoring of liquidation of cash advances and implementation of existing rules and regulations on cash advances, including the withholding of salaries of accountable officers who fail to effect prompt liquidation in accordance with existing rules and regulations.

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9. Submissions by management of purchase orders and contracts for review along with related documents are partial and incomplete, which in effect precludes proper review of procurement transactions, contrary to the provisions of COA Circular No. 2009-001 dated February 12, 2009.

COA Circular No. 2009-001 dated February 12, 2009 contains the following provisions:

“2.1 This circular shall cover all contracts, purchase orders and the like, entered into by any government agency irrespective of amount involved.

3.1 Contracts3.1.1 Within five (5) working days from the execution of a contract by the government or any of its subdivisions, agencies or instrumentalities, including government-owned and controlled corporations and their subsidiaries, a copy of said contract and each of all the documents forming part thereof by reference or incorporation shall be furnished to the Auditor of the agency concerned. In case of agencies audited on an engagement basis, submission of a copy of the contract and its supporting documents shall be to the Auditor of the mother agency or parent company, as the case may be.

3.1.3 For technical review purposes, submission of contracts and their supporting documents shall furthermore be guided by the specific documentary requirements outlined in the attached checklist marked as Annexes “A” to “T” of this circular.

3.2 Purchase Orders3.2.1 A copy of any purchase order irrespective of amount, and each and every supporting document, shall, within five (5) working days from issuance thereof, be submitted to the Auditor concerned. Within the same period, the Auditor shall review and point out to management defects and/or deficiencies, if any….”

Section 3.1.2 thereof provides that the copies of documents required to be submitted shall include but not limited to eligibility and bidding documents, contract agreement, performance security, notice of award, notice to proceed, program of work and detailed estimates, obligation request, BAC resolutions and minutes of proceedings, among others, as well as “such other documents peculiar to the contract and/or to the mode of procurement and considered necessary in the auditorial review and in the technical evaluation thereof.”

While submissions as far as contracts are concerned have been generally adequate and compliant with said Circular, we observed a significant drop in number of contracts submitted for review as soon as COA lifted pre-audit in August this year.

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Moreover, we noted that purchase orders are not submitted within five days from issuance thereof since these are furnished to the audit team only as part of attachments to the notice of deliveries submitted by the General Services Office (GSO), which in turn, is not supported by required documents pertaining to the conduct of the public bidding or any alternative forms of procurement as conducted by the BAC. The Purchase Requisitions and Obligation Requests are attached to copies of invitation to bidders posted, which are separately submitted by the BAC.

The piece-meal submissions do not afford the audit team the opportunity for prior review of these procurement transactions in its entirety as intended by the regulations, and further hinder the conduct of the review of propriety and compliance of the transactions to provisions of R.A. 9184 until the disbursement vouchers covering these transactions are finally submitted for post-audit several months later. The completeness of the submission of all purchase orders issued cannot even be readily verified, since only “served” purchase orders are attached to notices of deliveries (and thus not arranged in any particular numerical sequence, with numerous gaps presumably due to purchase orders with pending deliveries).

An AOM was issued covering the herein finding. In response, the General Services Office had committed to submit copies of the contracts as well as to include copies of Abstract of Bids/Quotations and related procurement documents as part of the attachments to the notice of deliveries pertaining to 2012 transactions.

We recommend that the procuring entity should submit a copy of the contracts and purchase orders within five days from issuance as required under COA Circular 2009-001, together with the bidding documents, BAC resolution, minutes of the proceedings, abstracts, and such other documents peculiar to the contract and/or to the mode of procurement which are deemed necessary in the conduct of auditorial review and in the technical evaluation thereof.

10. The Office of the Provincial Accountant failed to effect prompt submission to the Office of the Provincial Auditor of all vouchers issued by the Province, contrary to the provisions of Section 107 of PD 1445 and the Rules and Regulations on the Settlement of Accounts.

Section 107 of P. D. 1445 provides that “… all accountable officers shall render their accounts, submit their vouchers, and make deposits of money collected or held by them at such times and in such manner as shall be prescribed in the regulations of the Commission.”

Section 7.2.1 of the Rules and Regulations on the Settlement of Accounts (RRSA) as prescribed for use under COA Circular 2009-006 dated September 15, 2009 placed the following responsibility, among others, on the Agency Accountant:

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The Chief Accountant, bookkeeper and/or other authorized official performing accounting and/or bookkeeping functions of the audited agency shall ensure that:

a. The reports and supporting documents by the accountable officers are immediately recorded in the books of accounts and submitted to the Auditor within the first ten (10) days of the ensuing month; ….

Section 40 of the Manual on the New Government Accounting System (NGAS) for LGU’s, Volume I provides that “checks shall be drawn only on duly approved disbursement voucher”, while Section 42 provides that “the Treasurer shall release the check only to the payee or his duly authorized representative.” Moreover, Section 44 prescribed the following procedures for the recording of check disbursements and submission of vouchers for audit:

PROCESS PERSON/UNIT RESPONSIBLE

i. Record check in the Check Register and release check to claimant. Record disbursement in Cashbook- Cash in Bank. Prepare Report of Checks Issued. Forward RCI with DV and supporting documents to Accounting Unit.

Treasurer

j. Prepare the JEV based on individual checks/voucher; sign “Prepared By” portion (approved by Chief Accountant) and record JEV in the Check Disbursements Journal. Post monthly to the General Ledger/Subsidiary Ledgers.

Accounting Unit

k. Forward RCI, DV, supporting documents and JEV to the Office of the Auditor.

Accountant

The process as described in the Manual thus places the responsibility on the Treasurer for the release of checks to claimants and the submission of vouchers and supporting documents to the Accountant, who is in turn required to record the individual checks in the books of accounts and ultimately forward all the documents to the Auditor for audit.

Our review of vouchers submitted by the Province covering the period from January to September 2011 disclosed that the Office of the Provincial Accountant still consistently failed to effect the submission of all vouchers issued and recorded in the books of accounts of the Province along with the supporting documents. (Refer to Annex K-1)

An AOM was issued covering the herein finding. The Provincial Accountant gave assurances that submission of all vouchers for 2011 will be completed by May 2012.

We recommend that the Accounting Office should submit all the unaccounted original vouchers and supporting documents to the Office of the Auditor. We likewise recommend that the Provincial Treasurer forward the vouchers and supporting documents to the Office of the Provincial Accountant as soon as the corresponding checks are released to claimants, in accordance with procedures laid out in the Manual on NGAS.

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11. The Province of Negros Occidental had effected only partial settlement of all disallowances and suspensions issued upon the effectivity of the COA Rules and Regulations on the Settlement of Accounts, reducing unsettled balances to P428,974.00 and P61,487,163.84, respectively, as at December 31, 2011.

During the year, additional disallowances amounted to P421,100.00 resulting from the audit of liquidation of cash advances. The bulk of settlements, amounting to only P7,819,820.73, pertains to suspensions and disallowances arising from the audit of 2009 transactions. (Refer to Annex L-1)

An AOM was issued covering the herein finding. Management had committed to

comply with the requirements for settlement.

We recommend that management effect full settlement of suspensions by submitting the required documentation and explanations/justifications listed in the notices of suspension, in order to avoid unnecessary complications arising from suspensions lapsing into disallowances.

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