Executive Summary

A. Introduction

The Department of Tourism (DOT) was created by virtue of Presidential Decree

No. 189 dated May 11, 1973, primarily as a policy, planning, programming, coordinating
and administrative entity of the Executive Branch of the government in the development
of the tourism industry, both domestic and international.

With the approval of Republic Act No. 9593 otherwise known as the “Tourism Act
of 2009”, DOT shall be the primary planning, programming, coordinating, implementing
and regulatory government agency in the development and promotion of the tourism
industry, both domestic and international, in coordination with its attached agencies and
other government instrumentalities. It shall instill in the Filipino the industry’s
fundamental importance in the generation of employment, investment and foreign
exchange.

The DOT was headed by Secretary Alberto Aldaba Lim until August 2011 and was
replaced by the incumbent Secretary Ramon R. Jimenez, Jr. who assumed office in
September 2011. The Secretary is assisted by three Undersecretaries and three Assistant
Secretaries. The DOT has 15 Regional Offices which implement the domestic tourism
programs. Separate books of accounts are maintained by the DOT – Office of the
Secretary (DOT-OSEC) and its Regional Offices.

For calendar year 2011, DOT had 598 plantilla positions wherein 481 were filled-
up. In addition, it employed 208 job order personnel who were assigned to different
offices of the Department.

B. Financial Highlights

The DOT’s results of operations and financial condition for CY 2011 with
comparative figures in CY 2010 are presented below:

CY 2011 CY 2010 Increase(Decrease)

Financial Condition
Assets P 882,421,833.04 P 2,414,588,037.65 P(1,532,166,204.61)
Liabilities 804,772,708.31 144,811,229.37 659,961,478.94
Government Equity 77, 649,124.73 2,269,776,808.28 (2,192,127,683.55)
Results of Operation
Total Income P1,492,539,947.66 P 1,713,582,212.41 P (221,042,264.75)
Total Expenses 1,282,414,922.24 1,479,452,514.12 (197,037,591.88)
Net Income (Loss) P 210,125,026.20 P 234,129,698.29 P (24,004,672.09)
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 CY 2011 CY 2010 Increase(Decrease)
Sources of Income
Allotments P1,565,965,303.21 P 1,367,983,277.04 P 197,982,026.17
Obligations 1,418,508,186.73 1,323,233,679.07 95,274,507.66
Unobligated
Balance P 147,457,116.48 P 44,749,597.97 P 102,707,518.51

The DOT received total allotments of P1,565,965,303.21, including its extended

appropriation of P40,837,609.05 with obligations incurred of P1,418,508,186.73, leaving
an unexpended balance of P147,457,116.48. Of this amount, P11,203,359.62 was
reverted to the General Fund and P136,253,756.86 was extended to CY 2012.

C. Operational Highlights

The Philippine tourism industry in 2011 was a momentous one, filled with new
hope, enthusiasm, and optimism for the industry. Visitor arrivals reached 3.9 million, an
increase of 11.2% from the previous year. The top 14 destinations were Metro Manila,
Cebu, Boracay Island, Camarines Sur, Baguio City, Davao City, Cagayan de Oro,
Zambales, Bohol, Puerto Princesa City, Camiguin, Cagayan Valley, Negros Oriental and
Ilocos Norte.

With the issuance of Executive Order Nos. 28 and 29 that provided policy and
institutional reforms in the civil aviation industry in support of tourism growth, the
Philippine Air Panel, with DOT as member, concluded air talks with Malaysia, Papua
New Guinea and Sri Lanka which offers unlimited direct flights to secondary destinations
such as Cebu, Clark and Davao, among others.

DOT endorsed 34 new tourism projects with total investment value of P28.9 billion.
The accommodation sector accounted for the biggest share with 90% followed by
medical tourism facilities. Once fully operational, the endorsed projects will employ
some 8,706 people.

In partnership with the private sector, DOT continued to participate in leading

international travel fairs and events, wherein attendance to these events resulted in
substantial business leads for travel agents, tour operators and accommodation properties.
It also provided the venue to sustain awareness of the Philippines as a favored tourism
destination.

D. Scope of Audit

Financial and compliance audits were conducted on the transactions of the DOT for
CY 2011. The audit included analysis of accounts and review of transactions and test of
compliance and applicable laws, rules and regulations. Value for money audit was also
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conducted to determine the existence and adequacy of criteria/guidelines being used in
the evaluation of the necessity and amount of financial assistance extended to various
proponents and whether the existing criteria, if any, are followed and/or monitored. The
team also evaluated the implementation of the TOP-COP project and the efficiency of
two regional offices in accrediting tourism enterprises.

The consolidated financial statements (FS) as of December 31, 2011 are the
combined FS of the Office of the Secretary and all the DOT Regional Offices (ROs). Part
II of this report, however, does not include the observations and recommendations
pertaining to ROs IV and VIII.

The extent of implementation of prior years’ audit recommendations were

likewise, validated, the results of which are presented in Part III of the report.

E. Independent Auditor’s Report

The Audit Team rendered a qualified opinion on the fairness of the presentation of
the financial statements of the DOT due to the following accounting errors and
deficiencies:

With Effect on
Amount
Obs. Nature of Error/ the FS
Accounts Affected P
No. Deficiencies Over(Under)
(in million)
statement
Errors Affecting Asset Accounts
4 Amount of unreleased Cash-National 0.79 (0.79)
checks in RO III not Treasury, MDS
restored back to the cash Cash in Bank, 0.02 (0.02)
balance Local Currency,
CA
5 Expended fund transfers Cash in Bank- 88.73 88.73
to various PTOs which Foreign
remained unliquidated Currency, CA 41.59 41.59
for over one year to Cash in Bank-
more than three years Foreign
Currency, SA
6 Expended fund transfers Due from NGAs 13.56 13.56
to various government Due from GOCCs 9.45 9.45
agencies and NGOs/POs Due from LGUs 47.38 47.38
which remained un- Due from
liquidated for over one NGOs/POs 7.64 7.64
year to more than three 78.03
years
7 Grant of financial Due from 0.57 (0.57)
assistance in RO III NGOs/POs
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 With Effect on
Amount
Obs. Nature of Error/ the FS
Accounts Affected P
No. Deficiencies Over(Under)
(in million)
statement
erroneously recorded as
Advertising Expense
instead of Due from
NGOs/POs

8(a) Expended funds trans- Due from Regional

ferred to Regional Offices 6.48 6.48
Offices which remained
unliquidated for over
one year to more than
three years
9 Expended Advances to Advances to
Officers and Employees Officers and 14.05 14.05
which remained un- Employees
liquidated for over one to
more than three years
11(b) Procurement of promo- Other Supplies 0.13 (0.13)
tional items and other Inventory accounts
small tangible items with
estimated useful life of
more than one year
recorded as outright
expense
12(b) Unrecorded purchased Various PPE 0.85 (0.85)
equipment in ROs III, VII accounts
and XII
12(c) Net understatement due to Various PPE 0.23 (0.23)
incorrect computation accounts
and/or failure to record
depreciation in ROs III,
XII and CAR
12(e) Unserviceable assets still Various PPE 1.90 1.90
recorded as PPE accounts

Other Assets (1.90)

Net Financial Impact 226.29
Total Assets 882.42
% to Total Assets 25.64%

Error Affecting Liability Accounts

4 Amount of unreleased Various liability 0.81 (0.81)
checks in RO III not accounts
restored back to the cash
balance
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 With Effect on
Amount
Obs. Nature of Error/ the FS
Accounts Affected P
No. Deficiencies Over(Under)
(in million)
statement

Accounting deficiencies
8(b) Unreconciled difference Due from Regional 2.95
between reciprocal acc- Offices and
ounts in the Central Office Due to Central
and Regional Offices Office
11(a) Unreconciled difference Various Inventory 1.04
between accounting accounts
records and Report of
Physical Count of
Inventories
12(a) Unreconciled difference Various PPE 20.20
between accounting accounts
records and RPCPPE of
OSEC
12(d) Failure to conduct or Various PPE 23.60
complete physical accounts
inventory of PPE in ROs
III, XII, XIII and NCR
12(f) Subsidiary ledgers and NQ
AREs not -do-
maintained/updated

For the above errors and deficiencies, we recommended that management:

• require the Cashier of RO III to prepare the required Schedule of Unreleased

Checks on a monthly basis and the Accountant to make the appropriate
adjustments to restore the amount of unreleased checks to the cash and
liability accounts at the end of the year;

• require the concerned officers and employees to submit the

accounting/terminal/liquidation reports of fund transfers as well as cash
advances and refund any unused balance in compliance with the requirements
of the MOAs and COA Circular Nos. 94-013 and 2007-001;

• monitor the submission of the liquidation reports of each PTO Special

Disbursing Officer and concerned SDOs and require the immediate
submission of the liquidation reports to record expenditures incurred from the
fund transfers as they are incurred and reduce the balance of the cash
accounts;

• require the Accountant of RO III to book up the grant of financial assistance

under the account Due from NGOs/POs;
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• require the Accountant to monitor the liquidation of cash advances, send
demand letters regularly and upon failure to liquidate, withhold the salaries or
any amount due from the concerned officers and employees, until their
balances have been fully liquidated;

• exert extra effort to locate the accountable officers who are no longer
connected with the Department and initiate legal action to compel them to
liquidate or return the cash advances given to them;

• instruct the Accountants concerned to record purchases and issuances of small

tangible items with estimated useful life of more than one year as inventory
and expense accounts, respectively;

• require the Accountants of ROs III, VII and XII to book up the equipment
purchased under their appropriate PPE account and their corresponding
accumulated depreciation;

• require the Accountants of ROs III, XII and CAR to review the depreciation
schedule vis-à-vis the audit team’s schedule on the recomputation of
accumulated depreciation and carrying values as of December 31, 2011 and
make the necessary adjusting entries;

• direct the Accountant to reclassify the unserviceable properties to the Other

Assets account;

• require the Regional Accountants thru their respective Regional Directors to

submit immediately to the central office all liquidations of fund transfers
received by them and initiate a periodic reconciliation of the balances of these
reciprocal accounts;

• direct the Accountant and Supply and Property Officer to maintain the ledger
and stock and property cards, respectively, and to reconcile these records
periodically to identify any discrepancy; further, the Accountant be required
to book up adjustments, if any, in order to arrive at the correct balances; and

• require the Inventory Committee to conduct and/or exert additional effort to

complete the inventory taking of property, plant and equipment and submit a
copy of the RPCPPE to the Office of the Auditor.

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F. Other Significant Observations and Recommendations

Value for Money Audit

1. DOT granted a total of P13,200,000 financial assistance to three proponents who

were not eligible recipients of fund assistance as contemplated under DOT Office
Circular No. 98-35 and as defined in COA Circular No. 2007-001 dated October 25,
2007. Moreover, there were no defined criteria/guidelines/limitations in
determining the amount of financial assistance that may be extended for a particular
event. (Observation No. 1)

We recommended that management (a) exercise due diligence in the evaluation of

eligible proponents that will be granted financial assistance; and (b) revisit the
guidelines on the availment of financial assistance and include (i) the standards/
parameters to serve as basis in determining the appropriate amount of financial
assistance; and (ii) the submission by the proponents of additional documents such
as detailed cost breakdown to avoid excessive amount of grant.

2. The TOP COP project proposal did not provide for success indicators necessary in
the evaluation of the efficiency and effectiveness of the project; thus, evaluation of
the project was based merely on comments and feedbacks of the training
participants. Furthermore, the budgeted amount of P2.1 million for the uniform of
the TOP COP graduates was not in accordance with the mandate of Republic Act
(RA) 9593 or the Tourism Act of 2009 and had no added-value to the success of the
project. (Observation No. 2)

We recommended that management require the Office of Tourism Standards and

Regulation, which is the implementing Office of the TOP COP project, to
(a) revisit the objectives of the project and the mandate of the Tourism Act and
come up with more appropriate and beneficial activities; (b) come up with a more
adequate and detailed plan for the implementation of the project to avoid excesses
and to facilitate efficiency in the project; and (c) conduct an evaluation of the
project based on a more responsive criterion.

3. DOT ROs I and V attained only 13% and 14% of accreditation on the Primary and
Secondary Tourism Enterprises, respectively, caused by poor implementation of
Section 17 (a) 2, Chapter I, Rule II and Sections 122 and 123, Chapter I, Rule VII
of the Implementing Rules and Regulations (IRR) of Republic Act (RA) 9593.
(Observation No. 3)

We recommended that management (a) conduct intensive campaign for mandatory

as well as voluntary accreditation of all Tourism Enterprises in the regions;
(b) forge a Memorandum of Agreement with Local Government Units represented
by their respective Local Chief Executives, to include accreditation from DOT as
pre-requisite in the renewal or issuance of Primary and Secondary Tourism

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 Enterprises’ business permits; and (c) strengthen the monitoring system on the
compliance with accreditation rules and regulations and impose the necessary
sanction for non-compliance.

Compliance Audit

4. Several lapses were noted in the Department’s procurement of goods and services
such as (a) absence of public bidding in the procurement of sponsorship contracts
from Travel Time Production, Inc. (TTPI); (b) unrealistic/deficient procurement
plan; (c) deficiencies in the application of different modes of procurement;
(d) non-procurement of common-use supplies from the PS; and (e) failure of DOT
Region IX to register with PhilGeps. (Observation No. 14)

We recommended that management:

(a) discontinue the renewal of TPPI’s contract and conduct public bidding in the
procurement of similar contract;
(b) submit a realistic APP by (i) preparing PMPPs for the different programs,
activities, and projects (PAPs) prior to the preparation of the APP; (ii) requiring
the Marketing Teams to appropriately include the familiarization tours in their
PPMPs and submit the PPMPs on time, so that procurement for the said activity
will be included in the APP of the Department; and (iii) requiring the Budget
Officer to furnish a copy of the budget proposal and the corresponding PPMPs
to the BAC Secretariat for its review and consolidation into the proposed APP;
(c) require the Procurement Division to adhere to the guidelines set by RA 9184 in
the procurement of goods or services by (i) resorting to the alternative modes of
procurement only when the requirements set in the IRR of RA 9184 are met;
(ii) advising the end-users to avoid indicating the brand names in their Purchase
Requests; and (iii) purchasing common-use supplies from the PS, if available;
and
(d) immediately register with the PhilGEPS.

5. The DOT did not require refund from the proponent Policy Research, Information
Strategy and Media (PRISM) when the latter failed to undertake the event agreed
upon in the MOA. PRISM failed to submit the required documents needed to
evaluate validity of the transactions. (Observation No. 17)

We recommended that Management require PRISM to refund the initial amount of

financial assistance and the subsequent release of the second tranche in the amount
of P10,000,000.00.

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 The foregoing observations and recommendations were discussed with the
concerned officials and management comments were incorporated in Part II of this
report, where appropriate.

G. Implementation of Prior Years’ Recommendation

Out of the 38 prior years’ audit recommendations, 11 were fully implemented, 21

were partially implemented and six were not implemented. Details are discussed in Part
III of this report.

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