Republic of the Philippines

Commission on Audit Center for International Trade

Commonwealth Avenue, Quezon City Expositions and Missions

AUDIT OBSERVATION MEMORANDUM (AOM)

AOM No. 17-___

Date: July 31, 2017

FOR : CLAYTON H. TUGONON

Executive Director
CITEM, Pasay City

Attention : MA. LOURDES D. MEDIRAN

Chairman, CITEM Bids and Awards Committee

WILMA G. DULAY
OIC, Controllership

We have audited the disbursement for the official contractor for aluminum booth systems
and venue enhancement re: Manila FAME October 2016 covered by Disbursement Voucher
(DV) No. MFO-16122224 amounting to P3,202,750.00 being paid to Exist Exhibit Systems
Technology Corporation and observed the following:

1. The contract is not duly supported by Certificate of Availability of Funds and not duly
witnessed by Chief Accountant contrary to Section 86 of PD 1445, LOI No. 968 and Section
46 of PD 1177.

Section 86 of PD 1445.

“ … no contract involving the expenditure of public funds by any government agency shall be
entered into or authorized unless the proper accounting official of the agency concerned shall
have certified to the officer entering into the obligation that funds have been duly appropriated
for the purpose and that the amount necessary to cover the proposed contract for the current
fiscal year is available for expenditure on account thereof, subject to verification by the auditor
concerned. The certificate signed by the proper accounting official and the auditor who verified
it, shall be attached to and become an integral part of the proposed contract, and the sum so
certified shall not thereafter be available for expenditure for any other purpose until the
obligation of the government agency concerned under the contract is fully extinguished”.

Section 87 of the same law further provides that any contract entered into contrary to
the abovementioned requirement shall be void and the officer or officers entering into
the contract shall be liable to the government or other contracting party for any
consequent damage to the same extent as if the transaction had been wholly
between private parties.
 LOI No. 968, ensuring that contracts are signed only when supported by available
funds, provides that “All contracts for capital projects and for the supply of
commodities and services, including equipment, maintenance contracts, and other
agreements requiring payment which are chargeable to agency current operating or
capital expenditure funds, shall be signed by agency heads or other duly authorized
official only when there are available funds. The Chief Accountant of the
contracting agency shall sign such contracts as witness and contracts without
such witness shall be considered as null and void”.

Section 46 of PD 1177, in addition, provides that “No funds shall be disbursed, and no
expenditure or obligations chargeable against any authorized allotment shall be
incurred or authorized in any department, office or agency without first securing the
certification of its Chief Accountant of Accounting Unit as to the availability of funds
and the allotment to which the expenditure or obligation may be properly charged…”

By checking the said DV and contract, certification that budget is available and fund
earmarked/obligated for the purpose (signed by OIC, Finance Division) can be found only in
the Budget Utilization Request, but that certification cannot serve the purpose of Certificate
of Availability of Funds because BUS only comes after the perfection of the contract and not
before as required by law. Further, the only witness in the said contract is the Department
Manager of MARCOMM and no signature of Chief Accountant as witness is affixed therein.

2. The subject contract is undated as to when it was perfected and when it was approved
by the Head of Procuring Entity (HoPE).

The date as to the perfection of the contract, as well as the date it was approved by
HoPE is important because these are the reckoning points in determining whether the
following procedural matters have been complied with properly.

a. 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. (COA Circular 2009-001, Clause 3.1)

b. The concerned Procuring Entity shall issue the Notice to Proceed together with a
copy or copies of the approved contract to the successful bidder within seven (7)
calendar days from the date of approval of the contract by the appropriate
government approving authority. All notices called for by the terms of the contract
shall be effective only at the time of receipt thereof by the successful bidder. (Section
37.4 of Revised IRR of RA 9184)

The contract has a date of notarization which is October 28, 2016, however, we cannot
assume that the same is the date of perfection and/or approval of the contract because it
 is later than the term of the contract which is from October 17, 2016 to October 22, 2016
and is way later than the Notice to Proceed which is October 7, 2016. If we assume
otherwise, it will violate the provision as mentioned above that Notice to Proceed shall
be issued to contractor within 7 calendar days from date of approval of the contract.

3. The DV and/or contract are not supported by approved APP, thus the provision
under Sec. 7.2 of the Revised IRR of RA 9184 is not satisfied.

Section 7.2 of the Revised IRR of RA 9184

“No procurement shall be undertaken unless it is in accordance with the approved

APP, including approved changes thereto. The APP must be consistent with the duly
approved yearly budget of the Procuring Entity and shall bear the approval of the HoPE or
second-ranking official designated by the HoPE to act on his behalf”.

The Project Procurement Management Plan (PPMP), instead of APP, is the one
attached to the DV. The highlighted amount in the total of P4,159,500.00 in the PPMP
which comprised of various items, the mode of procurement of which is Public Bidding
and Small Value Procurement, does not coincide with the Approved Budget for the
Contract (ABC) which is P3,943,500.00 which was subjected only to Public Bidding as
the mode of Procurement. We cannot accept PPMP alone because it merely supports
the APP and should have been any inconsistencies between the two, APP prevails
because this is the one submitted to and approved by the HoPE and/or other oversight
bodies like GPPB.

4. The subject contract were not also submitted to our office (Resident Auditor’s Office)
within 5 working days from its execution, thus the same were not subjected to our
auditorial review in violation of COA Circular 2009-001.

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.

The copies of documents required to be submitted shall include but

not limited to the following:

a. Invitation to Apply for Eligibility and to Bid;

b. Letter of Intent;
c. Eligibility Documents and Eligibility Data Sheet;
d. Eligibility Requirements;
e. Results of Eligibility Check/Screening;
f. Bidding Documents (Sec. 17.1, IRR-A, RA 9184);
g. Minutes of Pre-bid Conference, if applicable;
h. Agenda and/or Supplemental Bid Bulletins, if any;
i. Bidders Technical and Financial Proposals;
j. Minutes of Bid Opening;
k. Abstract of Bids;
1. Post Qualification Report of Technical Working Group;
m. BAC Resolution declaring winning bidder;
 n. Notice of Post Qualification;
o. BAC Resolution recommending approval;
p. Notice of Award;
q. Contract Agreement;
r. Performance Security;
s. Program of Work and Detailed Estimates;
t. Certificate of Availability of Funds, Obligation Request;
u. Notice to Proceed
v. 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.

Any unjustified failure of the officials and employees concerned to comply with the
requirements herein imposed shall be subject to the administrative disciplinary action
provided in (a) Section 127 of Presidential Decree No. 1445; (b) Section 55, Title I-B,
Book V of the Revised Administrative Code of 1987; and (c) Section 11 of Republic Act
No. 6713.

Upon receipt of information or discovery by the auditor of such failure by management to

comply with the required submission, an Audit Observation Memorandum shall be issued
by him calling the attention of the latter, and requesting compliance, else the transactions
covered by the unsubmitted documents be suspended in audit and the penalty prescribed
by law under 4.1 be enforced.
(COA Circular 2009-001 dated Feb. 12, 2009, Clauses 3.1, 4.1 and 4.2)

This particular observation is already raised in the previously issued AOM (AOM
No. 2017-01-(16) dated Feb. 6, 2017) which is not fully complied with by CITEM
Management, thus this reiteration.

We recommend that Management:

a. secure first the Certificate of Availability of Fund from Chief Accountant before
entering into a contract, as provided for by law, and make it a point to make the Chief
Accountant as witness to the said contract.

b. should cultivate the practice of entering the date of execution and/or approval in each
contract it is entering with outside suppliers/contractors.

c. submit the required APP, not only the PPMP, as one of the attachment in the DV
and/or contract, highlighting the portion which is attributable to the said contract.

d. assure that every contract it is entering into must be submitted to Resident COA
Auditor within 5 working days from the date of its execution together with all the
supporting documents needed for the latter’s auditorial review of the said contract in
compliance to COA Circular 2009-001.
 May we have your comments on the foregoing audit observations within fifteen (15)
calendar days from receipt hereof.

CHONA U. GABRONINO
State Auditor IV
Audit Team Leader

HENEDINA R. OTADOY
State Auditor V
Supervising Auditor

Proof of Service of AOM No. 2017-_____ dated June 31, 2017

OFFICE Printed Name Signature Date

Executive Director
BAC Chairman
Controllership