PART II DETAILED FINDINGS AND RECOMMENDATIONS

Financial and Compliance Audit 1. Property, Plant and Equipment of P820,848,827.34 is disclosed in subsidiary ledgers as unreconciled due to the absence of supporting PPE records, thus 35% of the total PPE of P2,339,113,086.34 is of doubtful accuracy and existence. This is a reiteration of our audit finding embodied in the Annual Audit Reports for CYs 2008, 2009 and 2010. The financial records for Property, Plant and Equipment (PPE) as of December 31, 2011 totaled P2,339,113,086.34, broken down by funds as presented below (Please see Annex III.a for the detailed breakdown) :
Fund General Spec. Educ Trust Fund Total Total PPE P1,797,722,380.88 338,316,451.94 203,074,253.52 P 2,339,113,086.34 Unreconciled PPE 649,616,106.94 90,177,819.78 81,054,900.62 820,848,827.34 % Unreconciled to: Total Per Fund 27.78 36.13 3.85 26.65 3.46 39.91 35.09 or 35%

Our review of the PPE subsidiary ledgers disclosed the following: a. Of the total General Ledger balance of PPE of P2,339,113,086.34, 35.09% is disclosed in their subsidiary ledgers as unreconciled with 27.77% from the General Fund, 3.85% from the Special Education Fund and 3.40% from the Trust Fund. b. Of this total General Ledger balance, the percentage of unreconciled per fund is 36.13%, 26.65%, and 39.91% of the general, special education and trust fund, respectively. As to PPE classification 31.96% pertains to Land, 85.08% to Land Improvements, 76.62% to Office Buildings, 39.70% to School Buildings, 74.69% to Furniture & Fixtures, 49.20% to Other Machineries and Equipment and 48.79% to Technical and Scientific Equipment.

c. Construction in Progress Flood Controls under the General Fund indicated an abnormal balance (P667,761.54). PPE, being an asset account, normally should have a positive debit balance. The unreconciled PPE, represented account balances without identified supporting records, was determined after the City computerized its accounting system using the electronic New Government Accounting System (e NGAS) in July 2006. This years unreconciled balance of PPE of P820,848,827.34 decreased by P126,516.49 compared to last years balance of P820,975,343.83. The problem of unreconciled balances was brought about by inadequacy of property records and the non-reconciliation with accounting records. We appreciate the efforts of the GSO in the conduct of physical inventory. While we consider this as an initial step to address the problem, documentation and maintenance of complete property records should be equally given importance to lessen the unreconciled difference. Recommendation We recommend that the General Services Office complete and enhance their property records and coordinate with the Accounting Office in reducing if not totally eliminating the unreconciled difference between their records. 2. The contract for the Supplemental Works on the Construction of the Updated Plans of the New Iloilo City Hall Building amounting to P224,171,752.59 is wanting of essential information necessary for its proper review and evaluation, thus resulting in the delay of auditorial review of the contract. We have reviewed Supplemental Agreement No. 1 Re: Construction of the Updated Plans of the New Iloilo City Hall in the amount of P224,171,752.59, as itemized below and observed the following: Items proposed in the Supplemental Contract Ground Floor: Relocate City Health, Library and Office of Amount 6,544,698.87 Remarks

(1)

Senior Citizen to Second Floor Reserve the area as bank space Second Floor: Space for ramp area will be Converted to City Health, Library and OSCA Offices Additional billeting room and shower room at Crisis Management Division Electrical works Sanitary Works Mechanical Works (2) Third Floor: Provide toilet and future areas to the occupants Provide space for connecting pedestrian bridge way from parking building Architectural Works Sanitary Works Provide additional fire exit stairs from the ground floor to third floor Use modular system furniture with seating system instead of plywood low partition Low partition and worktop Install power cables, distribution transformers and generator set to accommodate additional load -power cables -distribution transformers -generator set Provide pump, motors and pressure tanks for water distribution system Provide additional passenger elevator, 2 new units and upgrade 2 units Install inverter type air conditioning system (11,400sqm.) - Inverter units of air conditioning - Centralized air con monitoring system Provide space for cafeteria with counter 4,087,613.17

(3) (4)

1,398,911.49 38,184,003.72

(5)

20,979,607.55

(6) (7) (8)

9,664,347.00 13,814,077.33 55,945,324.54

(9)

15,597,376.01

(10) (11)

(12)

(13) (14) (15)

(16) (17) (18) (19)

and seating system - Provide additional areas for executive use. - Complete with folding wall partition at the roof deck Provide roll-up curtain blinds for all windows Use of homogenous ceramic tiles for all executive offices instead of vinyl tiles. Use of carpet tiles for Mayors Office. Sanitary/Plumbing works -(2) waterline system- potable and nonpotable -separate water system for potable and nonpotable Use T5 lighting fixtures instead of ordinary fluorescent tube lights Provide vault for Legal and Mayors Office Install solar assisted air conditioning units on the 7th floor Mayors Office and Cafeteria area Provide drainage outfall from STP to river Provide insulation on all gypsum dry wall Other electrical works Additional partitions at the 7th floor Total Amount

11,156,861.62 19,427,113.05

5,935,536.37

1,988,494.74 197,656.25 9,446,640.50

2,891,940.29 618,017.40 5,867,500.54 426,032.16 224,171,752.60

1. The Contract - Supplemental Agreement No. 1 covering the construction of the Updated Plans of the New Iloilo City Hall Building did not mention the mode of procurement that was opted to by the Iloilo City Government. 2. No document was submitted to show that a public bidding was conducted on the supplemental works, considering the materiality of the project cost, neither was there a BAC Resolution had any of the alternative modes of procurement was resorted to by the City Government. 3. There was no proof that the Notice of Award for the Supplemental Works was posted in the PHILGEPS website.

4. The provision on the payment to the same contractor of the 15% mobilization expenses for the supplemental works was contrary to COA Cir. 82-177 dated March 04, 1982, since mobilization had already been paid to the same contractor. The stated Circular provides that the advance payment covers the cost of mobilizing equipment to the job site. Considering that this is a supplemental agreement and the scope of works do not require heavy equipment, the payment of the additional 15% for mobilization is no longer necessary. 5. The submission of the subject Contract to this Office was not compliant to COA Cir. 2009-001 dated February 12, 2009. Audited agencies should furnish the auditor with copies of perfected contracts within 5 working days upon approval together with the supporting documents for review. While the contract was perfected on July 22,2011, the same was submitted to COA only on August 22,2011. The noted observations were brought to the attention of LGU management on October 05, 2011 thru a Memorandum dated October 03, 2011. However , no reply or management comment was received. We have issued Audit Observation Memorandum (AOM) No. 11-010 dated December 12, 2011 on this audit finding, however no management comment was advanced in this regard. Recommendation We recommend that the LGU management cause the submission of the necessary information/ documents to facilitate the auditorial review and evaluation of the contract covering the Supplemental Works on the Construction of the Updated Plans of the New Iloilo City Hall Building so that the necessary audit action can be rendered on time. 3. Completed infrastructure projects totaling to P204,546,952.04 had no warranty security against Structural Defects and Failures after the one (1) year defects liability period as stipulated in the conditions of the contract contrary to Sec. 62.2.3.3 of the Revised Implementing Rules and Regulations of Republic Act No. 9184. We have observed that the LGU did not impose warranty security against Structural Defects and Failures to contractors of completed infrastructure projects totaling P204,546,952.04, after the one (1) year defects liability period as stipulated in the conditions of the contract contrary to Sec. 62.2.3.3 of the Revised

Implementing Rules and Regulations of Republic Act No. 9184, thus responsibilities of the contractors during the applicable warranty periods are not guaranteed. Sec. 62.2.3.3 of the Revised IRR of R.A. No. 9184 provides: To guarantee that the contractor shall perform his responsibilities as prescribed in Sec. 62.2.3.1 (a) of this IRR, it shall be required to post a warranty security in accordance with the following schedule: Amount of Warranty Security (Equal to Percentage of the Total Contract Price)

Form of Warranty Security a) Cash or Letter of Credit issued by a Universal or Commercial Bank: Provided, however, that the LC shall be confirmed or authenticated by a Universal or Commercial Bank, if issued by a foreign bank. b) Bank guarantee confirmed by a Universal or Commercial Bank c) Surety bond callable upon demand issued by GSIS or a surety or insurance company duly certified by the Insurance commission as authorized to issue such security

Five percent (5%)

Ten percent (10%)

Thirty percent (30%)

For biddings conducted by LGUs, the contractor may also submit warranty securities in the form of bank guarantee or letter of credit from other banks certified by the BSP as authorized to issue such financial instrument. Sec. 62.2.3.1(a) reads as follows: The following shall be held responsible for Structural Defects, i.e., major faults/flaws/deficiencies in one or more key structural elements of the project which may lead to structural failure of the completed elements or structure, or Structural Failures, i.e.,

where one or more key structural elements in an infrastructure facility fails or collapses, thereby rendering the facility or part thereof incapable of withstanding the design loads, and/or endangering the safety of the users or the general public: a) Contractor Where Structural Defects/Failures arise due to faults attributable to improper construction, use of inferior quality/substandard materials, an any violation of the contract plans and specifications, the contractor shall be held liable; Infrastructure projects under the General Fund, Special Education Fund and Trust Fund totaling P204,546,952.04 were reported by the LGU as completed and paid as of December 31, 2010 (Annex III.b). However, the LGU had not finally accepted the projects in 2011 after the defects liability period of one (1) year from project completion in 2010. The projects should have been finally accepted already provided there were no repair works to be undertaken thereon so that the stipulated warranty in the conditions of the contract against structural defects and failures as provided under Sec. 62.2.3.3 of the Revised IRR of R.A. No. 9184 could be imposed to the contractors starting from the date of final acceptance. The contractors should post warranty securities for two (2), five (5) or fifteen (15) years from final acceptance depending on the type of the projects, except those occasioned by force majeure and those caused by other parties. Had the projects been finally accepted, the following warranty securities should have been required to be posted by the contractors in 2011: Form of Warranty Security a) In case of cash or Letter of Credit issued by a Universal or Commercial Bank: Provided, however, that the LC shall be confirmed or authenticated by a Universal or Commercial Bank, if issued by a foreign bank. b) In case of bank guarantee confirmed by a Universal or Commercial Bank c) In case of Surety bond callable upon demand issued by GSIS or a surety or insurance company duly certified by the Insurance commission as authorized to issue such security Amount

P10,227,347.62

P20,454,695.20

P61,364,085.61

Since above mentioned warranty securities were not posted by the contractors, their responsibilities during the applicable warranty periods are not guaranteed. They should be held liable for structural defects and failures which may arise due to faults attributable to improper construction, use of inferior quality/substandard materials, and any violation of the contract plans and specifications. An Audit Observation Memorandum No. 12-002 dated March 7, 2012 was issued in order to bring the matter to the attention of the City of Iloilo. In response, the OIC City Engineer agreed with the COA finding and showed willingness to adhere with the imposition of such in notable projects such as the New Iloilo City Hall Building and the like. However, projects costing Two Million and below were somehow given consideration regarding the imposition of warranty security so that the City Government would be able to eliminate any deterrent factors in the expeditious delivery of public services and benefits to the people. The OIC City Engineer also assured the COA that they are closely monitoring the implementation of the programs of the City Government to be able to give quality and excellent projects to its constituents. Recommendation We recommend that the applicable warranty security against structural defects and failures be imposed from the contractors after final acceptance of the infrastructure projects. The types of the projects should be classified by the Office of the City Engineer as permanent structures, semi-permanent structures or other structures in order to determine the applicable warranty period of fifteen (15) years, five (5) years or two (2) years, respectively. The Office of the City Accountant should ensure that the contractors post the warranty security covering the full amount in the first year and renew the same every year thereafter, subject to reduction every year by the amount of depreciation on a straight line basis. The warranty security should be returned only after the lapse of the applicable warranty period. The City Mayor should create a committee to conduct inspection of the infrastructure projects after the 1 year defects liability period. In the event that any of the infrastructure projects will be damaged due to faults attributable to the contractors, they should be obliged to undertake the necessary repair works at their own expense before they are issued Certificates of Acceptance by the LGU.

The Bids and Awards Committee should require contractors to support the Statement of Completed Government and Private Contracts with Certificates of Acceptance, if applicable. 4. As of December 31, 2011, audit disallowances summed up to P60,715,912.27 of which P495,497.75 have already been refunded while P258,134.57 of the total audit suspensions of P939,054.77, have been settled. The Auditors responsibility in the issuance of the Notices of Suspensions, Disallowances & Charges is in line with the Commissions constitutional mandate under the Philippine Constitution which is to examine, audit and settle all accounts pertaining to the revenues and receipts of and the expenditures and uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies or instrumentalities, including government-owned and controlled corporations. Total disallowances and suspensions issued as a result of post audit on the accounts of the City Government totaled P60,715,912.27 and P939,054.77, respectively.(Annex III.c) Of the total disallowances, P59,541,716.35 pertain to CY 2010 transactions; P384,041.50 for CY 2009; P38,885.46 for CY 2008; P26,968.96 for CY 2007, and the rest date back prior to CY 2005. The disallowances issued for CY 2010 are still under appeal and no Notice of Finality of Decision had been issued hence the same are not recorded in the agency books as ReceivablesDisallowances/Charges. The disallowances of P59,541,716.35 for CY 2010 consist of Personnel Enhancement Incentive of P46,424,328.24 granted to officials and employees of the City of Iloilo, Financial Assistance of P5,270,000 given to different barangays of Iloilo City and Cash Allowance of P7,847,388.11 of National Government officials and employees assigned to the City of Iloilo. Of the total suspensions of P939,054.77, P258,134.57 has already been settled, leaving a balance of P680,920.20. Recommendation We recommend that the LGU Management faithfully adhere to the prescribed government laws rules and regulations, ensure economy, efficiency and effectiveness in their operations and require adequate documentation of its

financial transactions to avoid disallowances and suspensions in the post audit of their accounts by the COA Auditor. 5. The City of Iloilo paid Cash allowances to officials and personnel of DILG, DepEd-Division of Iloilo City, Internal Affairs Service and City and Regional Prosecutors Office totaling to P3,406,723.66 out of the unexpended balance of the FY 2010 Calamity Fund contrary to item b.4 of the IRR of R.A. No. 8185, thus depriving the constituents of the use of the fund in case of calamity. We have audited the FY 2010 4th Quarter City Cash Allowance released by the City of Iloilo on January, 2011 to officials and personnel of DILG, DepEdDivision of Iloilo City, Internal Affairs Service and City and Regional Prosecutors Offices totaling P3,406,723.66, covered by the following reference documents and particulars:
Check No. --------------0034260557 0034260569 0034260579 0034260588 0034260604 0034260620 0034260654 0034260720 Date ---------1/3/11 1/4/11 1/6/11 1/7/11 1/10/11 1/12/11 1/17/11 1/27/11 Total Amount of Check -----------------P 3,600.00 3,542,874.46 1,009,125.00 1,174,162.37 806,670.82 452,096.48 126,187.78 721,847.11 Amount Disallowed ------------------P 3,600.00 2,668,548.14 280,606.42 411,832.24 22,936.86 3,600.00 3,600.00 12,000.00 P3,406,723.66 ==========

The LGU provided funds for the City Cash Allowance of national government officials and personnel concerned from the unexpended balance of the FY 2010 Calamity Fund through Appropriations Ordinance No. 2010-108 (Supplemental Budget No. 8) which was enacted by the Honorable Members of the Sangguniang Panlungsod on December 20, 2010 and later approved by the Honorable City Mayor on December 21, 2010 (Annex III.d). In the review dated January 10, 2011 (Annex III.e) of such budget, the Department of Budget and Management (DBM) Region VI, Iloilo City, declared the expenditure items in the appropriations ordinance, including the City Cash Allowance, inoperative effective immediately in view of item b.4 of the IRR of R.A. No. 8185 which states:

10

Any unexpended balance of the Calamity Fund at the end of the Current Year shall revert to the Unappropriated Surplus for re-appropriation during the succeeding budget year. Under Section 353 of the Local Government Code of 1991, the official fiscal year of local government units shall be the period beginning with the first (1st) day of January and ending with the thirty-first (31st) day of December of the same year. The total amount of P3,406,723.66 was disallowed in audit because the use of FY 2010 Calamity Fund for the City Cash Allowance was contrary to item b.4 of the IRR of R.A. No. 8185, as pointed out by the DBM Region VI in the aforementioned budget review. We have issued ND No. 12-001-100-(11) dated February 1, 2012, in this regard. Recommendation We recommend that the Iloilo City Government observe strictly the laws rules and regulations on the use of calamity fund to ensure that the desired services and benefits can be delivered to its constituents in times of calamities. We also recommend that the Local Chief Executive direct the persons liable to settle the said disallowance. 6. The rate of project implementation of 48.60% funded from the 20% Development Fund could have been increased to a higher level had there been proper coordination among the project beneficiaries and the officials involved in planning, execution and monitoring. We have evaluated the status of implementation of the projects funded out of the CY 2011 - 20% Development Fund and noted the following observation: The 2011 Annual Development Plan and Investment Program (ADPIP) embodies the list of sectoral programs, projects and activities with their corresponding budgets designed to help address Iloilo Citys development needs and concerns for CY 2011. These developmental concerns are among the priorities of the LGU in pursuing its vision of becoming a Premier City by 2015.

11

Local plans and programs were classified into three categories, namely: General Public Services, Social Services and Economic Services with a corresponding share of the budget of 12.76%, 63.37% and 23.87%, respectively. As the Citys concern for development was impressively presented in the ADPIP, actual project implementation did not speak so well of the desired output. The percentage of project implementation was only 48.60% by the end of 2011. (Annex III.f) For CY 2011, the agency appropriated a sum of P 122,311,761.00 for development projects to be funded from the 20% Development Fund. Evaluation of project implementation showed the relative accomplishments per category, viz: General Public Services - 9.87%; Social Services 51.21% and Economic Services 62.36%. At the end of the year only P59,438,451.00 of the appropriated amount of P122,311,761.00 or 48.60% was expended for implemented projects. We also noted that numerous projects from the CY 2010 Development Fund were only implemented in CY 2011. While budget consideration is not a deterrent factor in project implementation, the desired services/benefits could have been delivered to the Citys constituents on time and to the optimum level had there been proper coordination among the project beneficiaries and the officials involved in planning, execution and monitoring of such projects. Moreover, the rate of project implementation could have been increased had monitoring mechanisms been put in place in gauging the efficiency of implementation in real time so that whatever deficiencies/ shortfall which may have been noted along the way, the same could have been rectified within the time frame of implementation. It is thru feed-back that inputs for efficiency and further improvement are drawn. We issued AOM No. 2012-003 dated March 8, 2012 for this finding. In response, the City Budget Officer replied that the delay in implementation was due to a change in administration during the first semester of CY 2010 that necessitated the observance of a transition period so that the new administration may appraise the existing programs and projects of the City, it being subject to the approval and clearance of the City Mayor. In addition, the ADPIP is being prepared by the City Development Council with the City Engineers Office as the primary implementing office. Monitoring of implementation thereof rests with them. Meanwhile, the City Budget Office releases allotments based on request of the end-user and approved by the Local Chief Executive. Nevertheless, the City Budget Office gave an assurance to take note of the audit recommendations and

12

shall undertake to give sound advice to the concerned offices/departments with regard to these matters, particularly the Local Chief Executive. The OIC City Engineer also justified that numerous projects from CY 2010 Development Fund were only implemented in 2011 due to the domino effect of sixty (60) days (before and after) banning period of the Commission on Election on construction projects in line with the 2010 National Election and forty five (45) days (before and after) on Local Election. It took the City until September 2011 to start implementing the 2011 projects. Nevertheless, the OIC City Engineer made assurance that the projects for CY 2012 will be implemented as scheduled. Recommendation We recommend that the rate of implementation of projects funded from the 20% Development be enhanced so that the desired services and benefits which go with these projects be delivered to the constituents of the City without unnecessary delay. We further recommend that regular monitoring mechanisms be employed in assessing the rate of progress of project implementation and that a closer coordination among the officials involved in planning, execution and monitoring be enhanced to achieve the desired level of efficiency. 7. Due to the absence of proper monitoring controls, payments for garbage collection and transport services totaling to P46,708,593.75 were not supported with official trip tickets contrary to the contracts term of reference; thus, the propriety of disbursements were not ensured. We have audited the payments to JS Layson & Co., Inc. for garbage collection and transport services totaling P46,708,593.75 for the period December 1, 2010 to March 31, 2011 and found out that official trip tickets were not made to support the claims for payment contrary to the contracts terms of reference, thus proper monitoring controls were not put in place to ensure the propriety of disbursements. The terms of reference of the Contract for Garbage Collection and Transport Services dated March 24, 2010 stipulates:

13

xxx, the Office of Public Services shall provide official trip ticket forms to be filled up by driver/collection crew, signed by the Contractors foreman and approved by the LGU designated inspector and by the LGU Officer in charge of garbage collection. Xxx The Office of Public Services shall keep all records of collection trips and complete the same for the required monthly accomplishment report, which shall form part of the documents for its billing purposes. Details of billings and corresponding payments are as follows:
Date 1/6/11 2/04/11 3/03/11 4/13/11 5/10/11 6/08/11 7/07/11 8/04/11 9/05/11 10/7/11 11/8/11 12/5/11 Check No. 0034260582 0034260784 0034261034 0035906335 0035906567 0035906877 0035907149 0035907466 0035907715 0037605667 0037605882 0037606179 Gross P4,231,500.00 4,231,500.00 3,822,000.00 4,231,500.00 4,095,000.00 4,231,500.00 4,095,000.00 4,231,500.00 4,231,500.00 4,095,000.00 4,231,500.00 4,095,000.00 -----------------P49,822,500.00 -----------------Taxes P264,468.75 264,468.75 238,875.00 264,468.75 255,937.50 264,468.75 255,937.50 264,468.75 264,468.75 255,937.50 264,468.75 255,937.50 ----------------P3,113,906.25 ----------------Net P3,967,031.25 3,967,031.25 3,583,125.00 3,967,031.25 3,839,062.50 3,967,031.25 3,839,062.50 3,967,031.25 3,967,031.25 3,839,062.50 3,967,031.25 3,839,062.50 ------------------P46,708,593.75 ------------------Period 12/131/10 1/1-31/11 2/1-28/11 3/1-31/11 4/1-30/11 5/1-31/11 6/1-30/11 7/1-31/11 8/1-31/11 9/1-30/11 10/131/11 11/130/11 Days 31 31 28 31 30 31 30 31 31 30 31 30 Trips 78 78 78 78 78 78 78 78 78 78 78 78 Rate P1,750 1,750 1,750 1,750 1,750 1,750 1,750 1750 1,750 1,750 1,750 1,750

Total

The use of aforementioned official trip tickets was not observed because the Office of the City General Services has not yet come up with and provided forms to be accomplished by contractors personnel for approval by the designated LGU personnel. The contractor consistently billed the LGU for 78 trips per day at P1,750 per trip based on the contracts scope of work. The apparent disregard of the pertinent terms of reference of the contract on the use of official trip tickets shows that monitoring controls are not in place to ensure that the desired services have been rendered and payments of claims are sufficiently supported with complete documentation. We have issued AOM No. 11-009 dated December 7, 2011 on this observation. In reply to the audit memorandum, the LGU management claimed

14

that they have been consistently monitoring the daily number of trips rendered by the contractor through their Garbage Monitoring report at the Calajunan Disposal Facility. The reports are part of the attachments in every claim/payment to the service contractor. In compliance to the auditors recommendation, the LGU management would be implementing the use of monitoring reports/official trip tickets at the dispatch area in every district after giving due information to the personnel involved and the service contractor as soon as possible. Recommendation We recommend that the Office of the City General Services (GSO) implement the use of official trip tickets to facilitate the monitoring of daily number of trips rendered by the contractor and to verify the accuracy of its billing statements. The concerned employees of the GSO should be made aware of their responsibilities as specified in the contract on garbage collection and transport services to ensure that the LGU derives the desired services and value for money being expended for the purpose. We commend management for implementing this recommendation effective January 2012. 8. In the procurement of materials for the improvement /installation of street lighting of the different barangays of Iloilo City and instructional materials charged against Special Education Fund aggregating to P12,921,529.00, the Agency failed to adhere to Rule II, Section7 of the Revised Implementing Rules and Regulations; thus, causing piecemeal purchases and splitting of Requisitions and Purchase Orders contrary to COA Circular 76-41 dated July 30, 1976. Rule II, Section 7 of the Revised Implementing Rules and Regulations of Republic Act 9184 sets forth the initial steps of the procurement process wherein the end-users are required to prepare their respective Program Project Management Plan (PPMP) for consolidation into the proposed Annual Procurement Plan (APP) of the Agency. This APP serves as a vital tool to the agency in the management and phasing of their procurement needs. Commission on Audit Circular No. 76-41 dated July 30, 1976 deals on the prohibition against splitting of requisitions, purchase orders, vouchers and others. Within the sphere of Government procurement, splitting is associated with requisitions, purchase orders, deliveries and payments in the form of:

15

a.

Non-consolidation of requisitions for one or more items needed at or about the same time by the requisitioner (splitting of requisitions);

b. Issuance of two or more purchase orders based on two or more requisitions for the same or at about the same time by different requisitioners (splitting of P.O.); and c. Making two or more payments for one or more items involving one purchase order (splitting of payments).

In the review of Purchase Orders, we noted numerous deviations from the given criteria summarized in the tables presented below:
Table A. Procurement of Electrical Supplies from Topmost Dev. Corp. P.O. No.
11-08-0540 11-08-0561 11-08-0562 11-08-0563 11-08-0564 11-04-0193 11-04-0244 Total

Date
08/24/2011 08/10/2011 08/10/2011 08/10/2011 08/10/2011 04/20/2011 04/27/2011

Supplier
Topmost Dev. Corp. Topmost Dev. Corp. Topmost Dev. Corp. Topmost Dev. Corp. Topmost Dev. Corp. Topmost Dev. Corp. Topmost Dev. Corp.

Amount
199,243.00 49,783.00 49,799.00 50,704.00 50,717.00 749,514.00 74,076.00 1,223,836.00

Items Purchased
Electrical Supplies Electrical Supplies Electrical Supplies Electrical Supplies Electrical Supplies Electrical Supplies Electrical Supplies

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Table B. Procurement of Instructional Materials from St. Augustine Publishing

P.O. No. 11-05-0321 11-05-0323 11-05-0328 11-08-0536 11-08-0538 11-08-0537 11090633 11100696 11100698 11100700 Date 06/28/2011 06/28/2011 05/25/2011 09/02/2011 09/02/2011 09/02/2011 11/03/2011 11/03/2011 11/03/2011 11/03/2011 Supplier St. Augustine Publications St. Augustine Publications St. Augustine Publications St. Augustine Publications St. Augustine Publications Various textbooks St. Publications St. Publications St. Publications St. Publications St. Publications St. Publications St. Publications Augustine Augustine Augustine Augustine Augustine Augustine Augustine Amount 999,845.00 499,895.00 499,920.00 499,848.00 699,975.00 699,865.00 799,784.00 1,499,685.00 1,499,370.00 1,999,656.00 999,880.00 499,985.00 499,985.00
P11,697,693.00

Items Purchased
Textbooks Textbooks Instructional Materials Various textbooks Various textbooks Various textbooks Instructional Materials Instructional Materials Instructional Materials Instructional Materials Instructional Materials NAT Reviewer NAT Reviewer

11-10-0701 11100702 11090664 Total

11/03/2011 11/03/2011 11/03/2011

The given data show that similar goods needed at about the same time are procured from the same supplier in several transactions instead of consolidating the same in one single procurement Evidently, (2) two among the (3) three conditions of splitting are manifested in these transactions. The circular further states that in whatever form splitting has been resorted to, the idea is to do away with and circumvent control measures promulgated by the government. As evidently noted in the given transactions, the pertinent provisions of R.A. 9184 were not observed at the very onset of the procurement process. The needs of the different departments as reflected in their respective Project Procurement Management Plan (PPMP) were not consolidated and contained in an Annual Procurement Plan. Procurement needs are still being catered on a per purchase request basis making the process more tedious and inefficient.

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The existing practice had resulted in: (a) increased consumption of office supplies as the same set of documents are being attached to several vouchers covering the purchase of similar goods from the same supplier at about the same time; (b) added man-hours in processing the same claims from the same suppliers being split into several P.O.s and disbursement vouchers and (c) non-availment of volume discounts for bulk purchase. While this deficiency deals more on procedural flaws and not intended to circumvent control measures, this could be a pre -disposing factor to splitting which is not acceptable under procurement laws. This finding was previously brought to the attention of management. It is sad to note however that the same remain unaddressed. An Audit Observation Memorandum No. 12-004 dated March 2, 2012 was issued to call on the attention of the LGU management. Recommendation We recommend that management consider the strict observance of Rule II, section 7 RA 9184 and Commission on Audit Circular No. 76-41 as well as the imposition of control measures to ensure that procurement is effected in an efficient, economical and effective manner that is most advantageous to the government and to prevent possible disallowances for such violation. 9. Proper liquidations of financial assistance granted to government and nongovernment organizations totaling to P11,843,500.00 were not complied with contrary to prescribed accounting and monitoring controls, thereby resulting in untimely verification of financial records and reports and evaluation of project implementation. We have audited the financial assistance granted to government and non-government organizations totaling P11,843,500.00, and observed that proper liquidation of funds were not complied with contrary to prescribed accounting and monitoring controls, thereby resulting in untimely verification of financial records and reports and evaluation of project implementation. 1. Iloilo Dinagyang Foundation, Inc. (IDFI) - P7,673,500.00 The LGU released the following financial assistance totaling P7,673,500.00 to the IDFI:

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Date --------1/7/11

Check No. --------------003687391

Purpose ---------------------------------2011 Iloilo Dinagyang Festival, January 14-23, 2011 2011 Iloilo Dinagyang Festival, January 14-23, 2011 Iloilo-Panay Badminton Club, 1st Mayor Jed Patrick E. Mabilog Dinagyang Badminton Cup, January 20-21, 2011 Panay Anglers Association Inc., Mayors Cup Dinagyang Tournament, January 22-23, 2011 2011 Iloilo Dinagyang Festival, January 14-23, 2011 Practical Shooting Association, Inc., st 1 Mayor Jed Patrick E. Mabilog Dinagyang Shooting Competition, January 21-23, 2011 Aliwan Festival, April 1417, 2011 Total

Amount ----------------P1,000,000.00

Submission of liquidation ----------------11/8/11

No. of days Liquidated -------------289

No. of days Delayed -----------229

1/14/11

0034260646

4,313,500.00

11/8/11

289

229

1/18/11

0034260664

160,000.00

11/14/11

297

237

1/18/11

0034260663

100,000.00

11/14/11

295

235

1/20/11

003687394

1,000,000.00

11/8/11

289

229

1/25/11

003260708

30,000.00

12/23/11-

334

274

4/15/11

0035906360

1,070,000.00 ----------------P7,673,500.00 ==========

12/13/11

240

180

As shown in the records, liquidation documents and reports of financial assistance were submitted by the IDFI to the LGU after 289 to 334 days from completion of each activity. Item 5.4 of COA Circular No. 2007-001 dated October 25, 2007 states: Within sixty (60) days after completion of the project, the NGO/PO shall submit the final Fund Utilization Report certified by its Accountant and approved by its President/Chairman to the GO, together with the inspection report and certificate of project completion rendered/issued by the GO authorized representative, list of beneficiaries with their acceptance/acknowledgment of the project/funds/goods/services received. The validity of these documents shall be verified by the internal auditor or equivalent official of the GO and shall be the basis of the GO in recording

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the fund utilization in its books of accounts. These documents shall support the liquidation of funds granted to the NGO/PO. The IDFI was delayed by 180 to 274 days in submitting the liquidation documents and reports. As a consequence of its failure to submit the required reports, it was precluded from receiving funds to support its promotional marketing of the Dinagyang Festival at the Independence Day Celebrations in New York and Washington D.C., U.S.A. last June, 2011. Despite the City Accountants reminder to the Foundation to liquidate the previous financial assistance as embodied in a letter dated October 24, 2011, the same was not complied with before the delegation left for the U.S. Timely submission was not facilitated because the Memorandum of Agreement (MOA) dated October 19, 2010 entered into by and among the LGU, IDFI and San Jose Parish Placer did not specifically stipulate the 60-day reglementary period nor did it require liquidation of prior financial assistance before the release of a new one. The delayed submission of utilization reports from November to December 2011 has deterred the LGU from promptly verifying actual expenditures before the forthcoming 2012 Iloilo Dinagyang Celebration scheduled on January 20 to 22, 2012. To date, such utilizations are not yet credited to the account of the IDFI and recorded in the books of the LGU because verification has not been completed. While we recognize that some controls are in place, there is still a need to impose tighter controls particularly in the setting up of the terms and conditions of the MOA and the reglementary period for liquidations so that future events needing financial assistance will not be adversely affected. It was also noted that the 1st Mayor Jed Patrick E. Mabilog Dinagyang Badminton Cup of the Iloilo Badminton Club, Mayors Cup Dinagyang Tournament of the Panay Anglers Association, Inc. and 1st Mayor Jed Patrick E. Mabilog Dinagyang Shooting Competition of the Practical Shooting Association, Inc. were not included in the 2011 Iloilo Dinagyang Festival Factsheet, Budget and in the Schedule of Activities. However, financial assistance totaling P290,000.00 were extended to the IDFI for such purposes for the use of the respective sports associations. This scheme circumvented COA Circular No. 2007-001 which requires the submission of eligibility documents by the concerned sports associations to qualify for financial assistance. 2. Brgy. Mohon P170,000.00

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The LGU granted financial assistance totaling P170,000.00 to Brgy. Mohon, Iloilo City for the Arevalo District Fireworks Contest held on January 16, 2011, to wit: Date ---------1/12/11 1/13/11 Check No. --------------0034260625 0034260637 Total Amount ---------------P120,000.00 50,000.00 --------------P 170,00.00 =========

However, liquidation of the aforesaid financial assistance was not required contrary to item 4.6 of COA Circular No. 94-013 dated December 13, 1994 which provides: Within ten (10) days after the end of each month/end of the agreed period for the project, the IA shall submit the Report of Checks Issued (RCI) and the Report of Disbursement (RD) to report the utilization of funds. Only actual project expenses shall be reported. The reports shall be approved by the Head of the IA. The City Accountant explained that submission of liquidation report was relinquished because verification of actual expenditures out of the financial assistance was all done at the barangay level. This practice, however, did not facilitate monitoring and recording of related actual expenditures in the books of the LGU. An Audit Observation Memorandum No.12-001 dated January 2, 2012 was issued to call the attention of the City Government. Consequently, the City Accountant endorsed the said memorandum to the concerned personnel in charge of these activities. In a letter from the President of the Iloilo Dinagyang Foundation, Inc. dated February 8, 2012, he promised timely submission of liquidation on subsequent activities and that they have already fully liquidated and complied with to their best efforts the documentary requirements that COA is requesting on the subject audit observation memorandum. A justification was also received from the Sports Development Officer stating that the three sports activities namely, the 1st Mayor Jed Patrick E. Mabilog Dinagyang Badminton Cup, Mayors cup Dinagyang Fishing Tournament and 1st Mayor Jed Patrick E.

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Mabilog Shooting Competition were included in the official calendar of activities as part of the 2011 Dinagyang Celebration. These were excluded from the 2011 Dinagyang Factsheet and budget because as agreed with the City Tourism and IDFI, the sports division of the City Mayors Office will shoulder the expenses of the different sports activities that will request inclusion in the celebrations special events due to lack of budget on the part of the City Tourism and IDFI. As to delayed submission of liquidation reports, the Sports Development Officer assured that additional controls were already made by his office to correct the matter in the 2012 Dinagyang Celebration and that disciplinary actions will be instilled to those who will fail to follow the guidelines on proper liquidation. Recommendation We recommend that the LGU consider incorporating in the MOA the requisites in granting additional financial assistance, the liquidation terms and required monitoring and project accomplishment reports. We further recommend that a Memorandum of Agreement requiring submission of a liquidation report be executed prior to the release of funds. It should be the responsibility of the barangay to return unused balance to the LGU upon completion of the purpose and refund audit disallowance, if any. 10. Collection of light fees from six (6) public markets for the period December 2010 to September 2011 fall short by P6,305,496.17 or 34.14% compared to the actual cost of electric consumption paid by Iloilo City amounting to P18,473,638.66, indicating that the Local Economic Enterprise has not fully attained the desired economic viability. We have reviewed the monthly electric bills of the six (6) public markets from December 2010 to September 2011 and observed that the collected light fees were lesser by P6,305,496.17 compared with the actual cost of the electric consumption paid by Iloilo City which runs counter to the principle of economic viability of local economic enterprises. The public markets were established as local economic enterprises under Regulation Ordinance No. 2009-316 of the City of Iloilo. As an economic enterprise, each public market should exist on its own funds, satisfy both the economic and social objectives of the local government concerned and generate income while improving the delivery of basic goods or services to the people.

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For the duration of the 10-month period, the public markets consumed 2,123,207 kwh of electricity costing P18,473,638.66 (Annex III.g). However, the collection of light fees from market lessors in the same period amounted to P12,168,142.49 only, a shortfall in collection of P6,305,496.17 or 34.13% which had been subsidized by the funds of the Office of the Local Economic Enterprise (LEE) coming from other sources. The payments of light fees by market lessors were stipulated in the lease contracts but the rate of light fees was not categorically stated therein. In the absence of a prescribed rate, the Office of the LEE billed light fees to market lessors based on their actual consumption at the prevailing monthly rate of PECO per kwh. The electric consumption of the communal areas, facilities, administrative offices of the public markets and any related overhead costs were not considered in the billing of the light fees. In addition, the electric consumption of the public markets included that of the legislative offices located at the Iloilo Terminal Market. As a result, actual expenses for electricity exceeded the actual collection for the same period. An Audit Observation Memorandum No. 12-006 dated March 28, 2012 was issued to call the attention of the management on this deficiency. A reply received from the City Treasurer stated that they are considering the COA recommendations to address the issue at hand. Recommendation We recommend that the existing policy on the rate of the light fees being collected at the public markets be reviewed and control measures be set to ensure sustainability of operations. The entire funding requirements for the electric consumption may be sourced from the collection of light fees in order that electricity expenses would be self-liquidating. The LGU may consider imposing fixed or variable electric charges to market lessors for the electric consumption of communal areas, facilities, administrative offices of the public markets and any related overhead costs in addition to their actual usage. The rate of light fees should be specified and expressly authorized by an ordinance pursuant to Sec. 305(c) of R.A. 7160. We further recommend that the electric consumption of the regular offices of the LGU located at the Iloilo Terminal Market should be segregated from the electric bill of the public markets to be paid by the General Fund in view of the matching principle of accounting.

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11. Payments for conference and membership fees made to Regional Association of Treasurers and Assessors in Region VI (REGATA VI), Inc. and Philippine Association of Assessing Officers (PAAO) amounting to P84,100.00 and P4,500.00 were inconsistent with the guidelines embodied in the Bureau of Local Government Finance (BLGF) Regional Circular No. 01-2001 dated January 13, 2011 and National Budget Circular (NBC) No. 442 dated November 29, 1995. We have audited the payment to the Regional Association of Treasurers and Assessors in Region VI (REGATA VI), Inc. and Philippine Association of Assessing Officers (PAAO) totaling P84,100.00 and P4,500.00, respectively, and observed the following deficiencies/errors: 1. The payment by the LGU of conference fees totaling P75,600.00 to REGATA VI during the Annual Performance Conference-Workshop and General Assembly of Provincial, City, Municipal Assessors & Treasurers and Ranking Personnel of Treasury & Assessment Offices held at Iloilo Grand Hotel, Iloilo City on January 25 to 27, 2011 were not consistent with the Bureau of Local Government Finance (BLGF) Regional Circular No. 01-2001 dated January 13, 2011. (Annex III.h) While said conference was called for by BLGF Region VI, Iloilo City through Regional Circular No. 01-2001 dated January 13, 2011, payment of conference fees were made in favor of REGATA VI, a private organization. The circular and the nature of its purpose implied that the Bureau, which is tasked to supervise and coordinate the conduct of local treasury and assessment operations of the provinces, cities and municipalities within the region for proper implementation of laws, decrees, rules and regulations and administrative issuances of the Department of Finance, has the responsibility for the conduct of such conference, in which case it is deemed proper that the payments should have been made to and receipted by BLGF Region VI. Considering that the conference is an annual undertaking by the BLGF Region VI, as observed, substantial amount of government funds are being expended for the purpose without the benefit of COA audit in the context of treating the collections as public funds. 2. Checks issued for the payment of conference fees were dated January 27, 2011 while the covering official receipts were dated January 25, 2011.

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3. The LGU paid REGATA VI and Association of Assessing Officers (PAAO) a total of P13,000.00 to settle membership fees and CY 2011 annual dues of personnel, contrary to National Budget Circular (NBC) No. 442 dated November 29, 1995. (Annex III.h) Department of Budget and Management NBC No. 442 dated March 29, 1995 re: Cost of Participation of Government Officials and Employees in Conventions, Seminars, Conferences, Symposia and Similar Gatherings states: Membership and similar fees paid for personal or individual membership in private organizations shall be for the account of the member concerned and shall not be charged to government funds. However, institutional membership fees, i.e., agency membership may be charged to government funds. The payments were authorized by BLGF Region VI through the same Regional Circular No. 01-2011 as chargeable against the appropriation of the LGU subject to accounting and auditing requirements. However, such authorization appeared inconsistent with NBC No. 442. The LGU could have saved the amount for the payment of fees and dues had NBC No. 442 been observed. We issued AOM No. 11-008 dated November 28, 2011 on these deficiencies. In reply, City Treasurer and the City Assessor commented: 1. The conference was authorized by BLGF, Region VI in view of the request for authority dated January 11, 2011 by the President of REGATA VI to conduct the same and that the letter of the REGATA VI President also requested for the inclusion of BLGF personnel to act only as secretariat and at the same time facilitate the circularization of a regional memorandum to ensure more attendance of the REGATA VI members. The Bureau is responsible only in providing technical guidance in the conduct of said training pursuant to the Bureaus existing mandate while the conference/assembly itself is being run/conducted by REGATA VI in which members registration fees were made to and receipted by the association. Expenses for supplies and materials, snacks and lunch, honorarium of lecturers and speakers and other necessary expenses were shouldered by REGATA VI. 2. It is a common practice in the organization that Official Receipt is issued on the first day of the conference/seminar to persons who registered. Trust and

25

confidence is reposed by REGATA VI upon all its members and it is always presumed that those who registered are paying participants. However, it so happened that the processing of voucher was delayed, hence, the issuance of check for the purpose was also delayed and was dated only January 27, 2011, just in time before the seminar ends. 3. The City Treasurer and City Assessor are fervently requesting for a reconsideration for the payment of membership fees and promise that the same will not be committed again. Recommendation We recommend that the conference fees be paid to Bureau of Local Government Finance Region VI. We recommend that the LGU refrain from paying the membership fees and annual dues of personnel concerned to REGATA VI and PAAO. 12. Non-consolidation of procurement needs and the non-observance of procurement procedures in violation of Rule II, Section 7.3.4 of the revised IRR of RA 9184 and Sec. 22 of the Manual on the New Government Accounting System for Local Government Units had resulted in piece-meal purchases of jetmatic pumps in varying prices at almost the same time aggregating to P1,428,718.60. In the post-audit of disbursements on procurement, particularly the acquisition of jetmatic pumps, we noted the following observations: 1. The City paid a total of P 1,428,718.60 for the procurement of 422 units jetmatic pumps in five separate transactions, P1,140,218.60 of which were not supported with actual distribution lists duly signed by the respective recipients. (Annex III.i) 2. A perusal of the pertinent documents showed that the same items procured at about the same time were differently priced since the pricing was closely pegged against the individual cost estimates of each end-user. To cite a concrete example, Purchase Orders numbered 110-60385 dated June 09, 2011 and 110-60394 dated June 22, 2011, showed a relative price difference of P1,400.00 and

26

P1,199.80 per unit, respectively as compared to our canvassed price of P 2,400.00 (Annex III.j). Comparative analysis between the prices set by end-users in the Purchase Requests and the actual purchase prices per Purchase Orders showed that the cost estimates set by end-users were made as the bases of the Approved Budget for the Contract. Consequently, it follows that the higher the cost estimates, the higher are the actual purchase prices. The absence of review mechanisms to serve as control measures for establishing the price reasonableness of the items procured, coupled with the non-consolidation of quarterly procurement needs had resulted to the aforementioned conditions. 3. A comparative evaluation of Purchase Orders Numbered 1070325 and 107-0365 further revealed a downward trend in pricing from P3,398.00 in December 16, 2010 to P2,885.00 in February 07, 2011, or a drop in price of P513.00 per unit, considering that the estimated price set by the requesting office was P2,900.00. As shown in Annex B, the latter has the lowest price difference of P485.00 against the canvass price of P2,400.00, among the five transactions. We analyzed the root cause of variable pricing as earlier cited in the sample transactions and noted that the condition emanated from the different cost estimates set by different end-users in their purchase requests which were not subjected to review and consolidation prior to procurement. Instead, each Purchase Request was catered on a piece-meal basis. Section 122 of the Manual on the New Government Accounting System for Local Government Units require that the Office of the General Services Office (GSO) is responsible for the preparation of the Purchase Request for supplies and materials needed for the quarter based on the approved Annual Procurement Program (APP). This is based on the premise that the Project Procurement Management Plans (PPMPs) of the respective end-users had been reviewed and consolidated by the BAC Secretariat pursuant to Rule II, Sec.7.3.4 of the revised Implementing Rules and Regulations (IRR) of Republic Act. (RA) No. 9184.

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We brought this matter to the attention of management, through Audit Observation Memorandum No. 12-007 dated March 30, 2012. No management response was given on this finding. Recommendation We recommend strict compliance to Rule II, Section 7.3.4 of the revised IRR of RA 9184 and Section 122 of the Manual on the New Government Accounting System for Local Government Units and a valid justification for the material unit price variances found in audit. Review mechanisms over purchases particularly on cost estimates and actual purchase cost should be installed so as to ensure that financial resources can be maximally utilized. We further recommend that a distribution list duly signed and dated by the identified beneficiaries be submitted as one of the supporting documents of the paid vouchers covering payments for the purchase of jetmatic pumps. 13. The management of rentals on the use of public plazas is lodged with the Association of Barangay Captains (ABC) which is not in accord with City Ordinance No. 40, Series of 1972, thus depriving the City of a potential source of income. A perusal of City Ordinance No. 40, Series of 1972, entitled An Ordinance Imposing Fees for the Use of Public Places Owned or Administered by the City of Iloilo revealed the following observations: 1. The said Ordinance was enacted on February 24, 1972, 40 years ago and has not been subjected to any updating; 2. The rates fixed in the ordinance is no longer suited to the current economy; 3. The provisions of the Ordinance have not been strictly enforced, and; 4. The City Treasures Office has not been collecting the rental rates pursuant to the Ordinance.

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It was learned through interviews and queries that it is the Association of Barangay Captains (ABC), a private organization registered with the Securities and Exchange Commission (SEC) that manages the stall rentals of public plazas including the collection, disbursement and accounting of income derived from such rentals which are not being subjected to audit. This policy is not provided in the existing ordinance. While Executive Orders of the City Mayor numbered 49-A and 77-A, both series of 2011, dated September 5 and December 13, respectively, authorized and designated the ABC Jaro District headed by its President Rammy J. Guintibano to manage and maintain the 2012 Jaro Agro-Industrial Fair at Jaro Plaza, Iloilo City, the said Order did not spell out in particular the financial aspect detailing the proper use and accounting of income derived therefrom. In the absence of an updated City Ordinance relative to Ordinance No. 40, control measures in managing and accounting for income derived from the use of public plazas and other public places are not put in place to the advantage of the LGU. Rental rates should likewise be amended to suit the current economy. There should be an appropriate sharing scheme of income derived from stall rentals between the association being authorized to manage and the City Government considering that the use of public plazas is one potential source of income to the City. We have issued Audit Observation Memorandum No. 12-005 dated March 20, 2012 for this deficiency. According to the City Mayor during the exit conference, public plazas will no longer be rented out to private entrepreneurs during fiestas and trade fairs as there is a plan to develop and beautify the same. Recommendation We recommend that City Ordinance No. 40, series of 1972 be amended/revised to suit the current economic conditions. Pending such amendment/revision, the Ordinance shall remain enforceable. We further recommend that there shall be a sharing scheme of income between the City and the concerned Association of Barangay Captains to ensure that what should accrue to the LGU must be earned.

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14. Assets donated by other government and private entities to the City of Iloilo were not covered with Deeds of Donation and Acceptance of Donations pursuant to the pertinent provisions in the Handbook on Property and Supply Management hence these were not recorded in the books of accounts as donated assets in accordance with the financial statement assertion on completeness, thus understating the Property, Plant and Equipment accounts. The financial statement assertion of completeness requires that all transactions that should be recorded have been recorded. On the other hand, the pertinent provision in the Handbook on Property and Supply Management System requires a Deed of Donation and an Acceptance of Donation as attachment papers of the donated assets. Moreover, Section 23 of the Local Government Code of 1991 states: Local chief executives may, upon authority of the sanggunian, negotiate and secure financial grants or donations in kind, in support of the basic services or facilities enumerated under Section 17 hereof, from local and foreign assistance agencies without necessity of securing clearance or approval thereof from any department, agency, or office of the National Government or from any higher local government unit; Provided, that projects financed by such grants or assistance with national security implications shall be approved by the national government agency concerned: Provided, further, that when such national agency fails to act on the request for approval within thirty (30) days from receipt thereof, the same shall be deemed approved. The local chief executive shall, within thirty (30) days upon signing of such grant agreement or deed of donation, report the nature, amount, and terms and of such assistance to both Houses of Congress and the President. Donated assets were obtained by the LGU from various donors. These assets remain unrecorded in the books of accounts as of December 31, 2011 due to lack of documentation. Donations are usually received by the City Mayors Office. However, the corresponding donation papers were not obtained/prepared.

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Ideally, all donations should be covered by Deeds of Donation. After execution of the Deeds of Donation, the City General Services Office should be furnished with a copy thereof for recording in the property records and thereafter, the City Accountant for booking-up the same in the books of accounts. In the absence of the deeds of donation, the assets remain unrecorded in the property records and in the accounting books, thus understating the Property, Plant and Equipment accounts. We have issued AOM No. 12-011 dated May 16, 2012 on this deficiency. Recommendation We recommend that the City Mayors Office document every donated asset by executing a deed of donation duly signed by the donor and donee, reflecting thereon the type of asset being donated, the related cost/s, the intent for the use of the said donation and to furnish the City General Services Office and the City Accountant with copies thereof for recording purposes. The City General Services Office and the City Accountant shall record all donated assets in the property and accounting records, respectively, based on the deeds of donations being furnished by the City Mayors Office. These Offices should coordinate to ensure compliance with regulations on donated assets. For donations without value, the City Mayor may create a committee to appraise the value of the donated asset for proper recording in the books of accounts. 15. Collection of parking fees on public areas pursuant to Sec. 133 of Tax Ordinance No. 2007-016, which could have increased the revenue collections of the City, has not been imposed. Sec. 133 of Tax Ordinance No. 2007-016 provides: (a) Night Parking. for using street, sidewalk or public place in front of their houses or in places of business as their garage or parking space during night time: 1) For cars and jeepneys per quarter or fraction thereof.....P350.00 2) For buses and trucks per quarter.. 500.00

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3) For container vans/travel per night or fraction thereof.. 50.00 Stickers shall be issued by the City Treasurer to vehicle upon payment of the above mentioned Night Parking Fees. Vehicle found night parking without stickers shall be impounded and kept in the City Motor Pool at the expense of the owner. b) Day Parking Fee For all owners/drivers of private motor vehicle using designated parking area of the PNP as parking places between the hour of 7:00 oclock in the morning to 5:00 oclock in the afternoon shall pay the following fees: 1) For cars and jeepneys per hour or fraction thereof ....P5.00 2) For all container vans/trailers per hour or fraction thereof.. 5.00 3) For buses and trucks per hour or fraction thereof.... 5.00 The Office of the City Treasurer shall assign collectors for the purpose of collecting day private motor vehicle and shall be responsible for the issuance of official receipts or cash ticket for such payment. The City of Iloilo has not been collecting the night and day parking fees since the effectivity of Tax Ordinance No. 2007-016 on January 1, 2008 due to non-implementation of the parking regulation which is still wanting of implementing guidelines as there is no particular office directed under the ordinance to undertake the same. We sent an audit query to solicit management comments on the observation. While we recognize the constraints given by management for the non-implementation, the same may be addressed by setting strategies, mechanisms and well defined implementing guidelines to that effect. An Audit Observation Memorandum No. 12-009 dated was issued on this deficiency. In a letter reply from the City Treasurer, she informed that a conference was called by the Honorable City Mayor on April 30, 2012 and discussed issuance of the following directives:

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1. City Police Director Marito Valerio- To coordinate with Iloilo Citys Transportation Management and Traffic Regulation Office (TMTRO) in identifying areas in the city as parking spaces for submission to the Sangguniang Panlungsod for designation. 2. OIC-City Engineer Karl Quimsing- To prepare the signage for parking spaces identified by PNP-TMTRO and designated by the Sangguniang Panlungsodthrough an ordinance. 3. City Treasurer Katherine T. Tingson To prepare the assignment of treasury personnel/collectors of Parking Fees upon approval by the Sangguniang Panlungsod of the parking spaces. The City Government is currently considering the option to submit in a competitive bidding the towage requirement of Night Parking Fee to companies in Iloilo City with towage trucks and/or similar vehicles. Recommendation We recommend that parking fees on public places be imposed by implementing the night and day parking regulations. Necessary amendments should be made on Sec. 133 of Tax Ordinance No. 2007-016 to operationalize the collection of the parking fees. Specific office should be mandated to come up with the implementing rules and regulations, setting forth the apprehension of parking violators that includes the impounding and towing of vehicles. 16. Payroll preparation and processing of the different departments , offices and sections was not in accordance with the prescribed guidelines set forth under Section 261 of the Government Accounting and Auditing Manual, Volume I, thereby resulting in duplication of the workload and incurrence of additional man-hours and cost of supplies. We have reviewed the procedures in the preparation and payment of payrolls by the City of Iloilo for the year ended December 31, 2011 and observed the following: 1. The different departments, offices and sections of the LGU prepared and processed payrolls of regular personnel for the 1st and 2nd quincena of the month separately contrary to the prescribed guidelines under Sec. 261 of the Government Accounting and Auditing Manual (GAAM) Vol. I, thereby

33

resulting in duplication of the workload, added man-hours and incurrence of additional supplies costs. Under Sec. 261 of the GAAM Vol. I, government offices may make payment of salaries and allowances to government officials and employees twice a month, first on the 15th and the second on the last day of the month. The following guidelines shall be observed in the preparation of the General Payroll: a. For each month, the payroll shall be prepared in two (2) sets one (1) for the first half and one for the second half. b. The payroll for the first half of the month shall reflect the basic monthly salary, all allowances and itemized monthly deductions. c. Net pay for the first half and second half shall be computed as follows: Basic salary plus all allowances less total deductions divided by two (2). The different departments, offices and sections of the LGU prepared and processed their respective payrolls for the payment of salaries and allowances of 1,689 regular personnel. Separate payrolls were prepared and processed for the 1st and 2nd quincena of the month. The net pays of personnel for the two (2) pay days during the month were not of equal amounts because different sets of deductions were made on each pay period. More than 50% of the salaries of personnel were accrued on the 1st half of the month in order to accommodate bigger salary deductions during this pay period. Moreover, payment of the Personnel Economic Relief Allowance (PERA) was deferred to the end of the month. Based on Sec. 261 of the GAAM Vol. I, there should only be one (1) payroll every month for each of the different departments, offices and sections of the LGU. The payroll should reflect the basic salary plus allowances less deductions divided by two in order to arrive at the equal net pay for the 1st and 2nd quincena of the month. The monthly payroll should be prepared in two (2) sets to support the payments made for each quincena. It has been the practice of the LGU to prepare and process payrolls twice a month instead of once a month. Such practice duplicated the monthly workload, man-hours and office supplies in accomplishing the task. The total number of paid

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payrolls of about 2,859 for the year ended December 31, 2011 could have been reduced by 1,429 had the monthly scheme been observed. Moreover, monthly salaries and allowances of about 170 LGU employees chargeable to the Special Education Fund (SEF), semi-monthly wages of 2,638 job order hires, 289 Transportation Management and Traffic Regulation Services (TMTRO), 85 Barangay Peacekeeper Acting Team (BPAT), 268 Coordinated Executive Sangguniang Panlungsod Efforts for Development of Iloilo City (CESPEDIC) and 124 Legislative Support Program (LSP) personnel and quarterly honorarium of 2,379 Department of Education (DEpEd), 643 Philippine National Police (PNP), 85 Bureau of Jail Management and Penology (BJMP) and 95 Bureau of Fire Protection (BFP) employees were paid through cash advances drawn by disbursing officers for the purpose. This practice involved additional man-hours to disbursing officers and long queuing of personnel concerned at the Office of the City Treasurer in claiming their emoluments as compared to payments through ATM accounts. The time spent could have been used more productively in the actual performance of the personnels respective functions. We have issued AOM No. 12-008 dated April 3, 2012 on this deficiency. The recommendation earned the appreciation of the City Accountant. She assured that the payroll makers, payroll clerks and other employees concerned will undergo orientation on proper preparation and processing of payrolls of permanent employees on a monthly basis which take effect on May 2012. As for the salaries of non-regular employees, the City Mayor has already taken into consideration the payment scheme recommended and will implement it in the succeeding month. As to our recommendation on centralization and computerization of payroll system, this is one project that is being considered for the year after the implementation of the biometrics system for time keeping. Recommendation We recommend that the payrolls of regular personnel be prepared and processed on a monthly basis. These payrolls should be prepared in two (2) sets, reflecting both the 1st and 2nd quincena of the month. The net pay should be arrived at by adding the basic salary and all allowances less total deductions divided by two (2). The payroll proof list showing the semi-monthly net pay credited to the personal bank accounts of the personnel should form part of the supporting documents of the Auto Debit Advice (ADA) issued to the bank by the LGU.

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The payroll preparation should include the monthly payslips to be distributed to every employee at least one (1) day before the 15th of the month. It should be indicated in the payslip that the employees net pay has been credited to his/her bank account. We further recommend that the payrolls of SEF, job order, TMTRO, BPAT, CESPEDIC, LSP, DepEd, PNP, BJMP and BFP personnel totaling 6,776 be paid through Automated Teller Machines (ATM) to save on man-hours, avoid queuing of personnel during paydays, promote ease and convenience of personnel in claiming their emoluments and optimize personnel productivity. Likewise, the LGU may consider adopting a centralized and computerized payroll system to promote effectiveness and efficiency in the payment of salaries, allowances, wages and other benefits to personnel. 17. The minimum net monthly take home pay of P3,000.00 as mandated under Section 43 of the General Provisions of the General Appropriations Act of 2011 were not implemented and complied with by 352 employees of the City as of December 31, 2011. Sec. 43 of the General Provisions of the General Appropriations Act of 2011 provides: Deductions from salaries, emoluments or other benefits accruing to any government employee chargeable against the appropriations for Personal Services may be allowed for the payment of individual employees contributions or obligations due the following: (a) The BIR, GSIS, HDMF and PHILHEALTH; (b) Mutual benefits associations, thrift banks and non-stock savings and loan associations duly operating under existing laws which are managed by and /or for the benefit of government employees; (c) Associations/cooperatives/provident funds organized and managed by government employees for their benefit and welfare; (d) Duly licensed insurance companies accredited by national government agencies; and

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(e) Organizations and companies such as banks, non-bank financial institutions, financing companies and other similar entities that have authority to engage in lending and mutual benefits or mutual aid system as stated in their respective constitutions and by-laws approved by government regulating bodies such as the Securities and Exchange Commission (SEC), Insurance Commission (IC), Banko Sentral ng Pilipinas (BSP) and Cooperative Development authority (CDA). PROVIDED, That such deductions shall not reduce the employees monthly net take home pay to an amount lower than Three Thousand Pesos (P3,000.00), after all authorized deduction: PROVIDED, FURTHER, That in the event total authorized deductions shall reduce net take home pay to less than Three Thousand Pesos (P3,000.00), authorized deductions under item (a) shall enjoy first preference, those under item (b) shall enjoy second preference, and so forth. There were 352 employees receiving a monthly net take home pay of less than P3,000.00 as of December 31, 2011. The LGU allowed these employees to contract loans with the government and private lending institutions to the extent of reducing their net take home pay below P3,000.00 in violation of the aforecited criteria. Furthermore, preference of authorized deductions should have been applied. An AOM No. 12-010 dated May 9, 2012 was issued to call the attention of the management regarding this violation for which a positive response was given. Considering that most of the City Government Employees have existing loans payable for more than a year, an appeal was made to give them time until these accounts are settled, then the implementation. Recommendation We recommend that the prescribed minimum employees monthly net take home pay under the GAA be observed. Effective January 1, 2012, the P3,000.00 minimum limit was increased to P5,000.00 pursuant to Sec. 37 of the General Provisions of the current GAA of 2012.

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