4.

Overhead expenses charged by DANECO to SEP/BLEP and rehabilitation

projects implemented during CYs 2012 to 2015 exceeded the 5.0 percent
contingency cost set by NEA by as much as P24.68 million, thus
increasing the total project costs and reducing the amount to be
returned/refunded to NEA.

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 COMPLIANCE WITH RELEVANT LAWS, RULES AND REGULATIONS

The implementation of SEP/BLEP and rehabilitation projects requires the

ECs, such as DANECO, to submit budget request together with supporting
documents to NEA-Accelerated Total Electrification Office (ATEO) for
review and approval of project cost.

Based on the ATEO Unnumbered Memoranda of various dates in the

approval of the project cost, the approved project cost per sitio or barangay
is composed of the following cost items;
 Material cost;
 Labor cost;
 Freight and handling cost, if applicable;
 Contingency which is 5% of materials, labor and freight and handling
costs; and
 Service charge

Based on the releases of funds by NEA to DANECO, it was noted that the
amount received by DANECO is net of service charge/income. To account
for the utilization of funds received, DANECO prepared an AOF on a per
project basis indicating all expenses charged against the funds received.

Examination of the submitted AOFs revealed that disbursements

amounting to P36.04 million classified as overhead expenses were
charged or liquidated against the funds received by DANECO. However,
it was noted that there were no expenses/charges pertaining to
contingency. In a query with DANECO Management as to the type of
expenses that maybe charged against contingency, the Audit Team was
informed that in the AOF which was patterned after the format given by
NEA, all expenses not related to project materials and labor are charged
to overhead expenses and that all expenses related to contingency are part
of overhead expenses.

Based on the foregoing information, the overhead expenses should be

limited to 5.0 percent of the project cost or equivalent to contingency cost
allocated by NEA. Examination of AOFs, however, revealed that the actual
disbursements pertaining to overhead expenses charged against the funds
received exceeded the 5.0 percent limit by P24.68 million, as tabulated
below:
 Table 13: Overhead expenses charged against the funds received exceeded the 5% contingency limit

Contingency Overhead
NEA Limit Expenses per Excess
Fund Source Project
Approved (a) AOF (b) (c) = a - b
Amount
2012 Batch 1 BLEP – 3 Brgys. P11,691,620.13 P444,561.60 P578,700.40 P134,138.80
2012 Batch 2 5,658,905.86 212,265.25 232,361.37 20,361.37
SEP – 5 Sitios
2013 GAA SEP – 20 Sitios 16,339,571.81 644,697.45 2,340,463.30 1,695,765.85

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 COMPLIANCE WITH RELEVANT LAWS, RULES AND REGULATIONS

Table 13: Overhead expenses charged against the funds received exceeded the 5% contingency limit
Contingency Overhead
NEA Excess
Fund Source Project Limit Expenses per
Approved (c) = a - b
(a) AOF (b)
Amount
2013 GAA SEP – 22 Sitios 9,521,908.63 364,559.48 1,818,929.19 1,454,369.71

2013 GAA SEP – 9 Sitios 4,707,470.21 175,591.25 443,280.45 267,689.20

2011-OVLP SEP – 1 Sitio 900,000.00 37,472.27 607,075.50 569,603.23
2013 Additional SEP – 23 Sitios 14,678,132.75 551,600.18 1,684,484.80 1,132,884.62
2013 Additional SEP – 12 Sitios 11,273,094.18 474,832.84 1,067,020.75 592,187.91
70,161,090.50 2,669,448.12 12,524,482.02 9,855,033.90
2014 GAA SEP – 55 Sitios
121,480,000.00 5,784,761.90 14,745,198.39 8,960,436.49
Calamity Grant Rehabilitation
Total P266,411,794.07 P11,359,790.34 P36,041,996.1 P24,682,471.0
7 8

Charging contingency/overhead expenses in excess of the limit increased the total cost of the projects
and correspondingly reduced the amount of subsidy to be returned/refunded by DANECO to NEA.