EXECUTIVE SUMMARY

A. Financial Highlights

The financial condition, results of operations and sources and application of funds
of the Department of Public Works and Highways (DPWH) for Calendar Year (CY) 2010
with comparative figures for CY 2009 excluding those pertaining to Energy/Malampaya
Fund, were as follows:

Increase
2010 2009
(Decrease)
Financial Condition:
Assets P514,848,282,767 P515,743,088,481 (894,805,714.00)
Liabilities 68,070,810,429 63,220,508,982 4,850,301,447.00
Government Equity 446,777,472,338 452,522,579,499 (5,745,107,161.00)
Results of Operation:
Income 140,755,034,052 154,559,933,158 (13,804,899,106.00)
Expenses 14,611,524,308 12,645,471,710 1,966,052,598.00
Sources and Application of Funds:
Allotment 174,044,480,097.64 179,510,399,253 (5,465,919,155.36)
Obligations 141,755,431,129.66 153,706,313,420 (11,950,882,290.34)
Balance 32,289,048,967.98 25,804,085,833 6,484,963,134.98

The Notice of Cash Allocation (NCA) received by the DPWH for CY 2010
totaled P13,660,181,181. There was a decrease of P9,581,644,047 as compared to the
total amount of NCA received in CY 2009.

B. Scope of Audit

The audit covered the financial transactions and operations of DPWH for the year
ended December 31, 2010. The objectives of the audit were to (a) verify the level of
reliance that may be placed on management’s assertions on the financial statements; (b)
recommend agency improvement opportunities; and (c) determine the extent of
implementation of prior year’s audit recommendations.

The audit also covered the utilization and management of the Malampaya Funds
released by the DBM to the DPWH.

C. Auditor’s Report

In view of the errors which misstated various accounts, the auditor rendered an
adverse opinion on the fairness of the presentation of the consolidated December 31,
2010 financial statements which do not include the Energy/Malampaya Funds for which
separate financial statements were issued by DPWH.

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 The herein consolidated results of audit of the DPWH excludes the results of the
audit of 3 PMOs namely Central Labor Based-Comprehensive Agrarian Reform Program
Office (CLB-CARP), PMO-Cotabato-Agusan River Basin Development Project
(CARBDP) and PMO-Cebu South Coastal Road Project- Metro Cebu Development
Project III (PMO-CSCRP-MCDP III) for which no transmitted report was submitted.

Amount and
Effect % of
Obs.
on the FS Error to
No. Nature of Errors Account/s Affected
Under(Over) Account
Stated Balance
(in million)
Errors Affecting Asset Accounts
a) Completed projects not CIP accounts (72,459.57)
1 transferred to the Registry of PI accounts
Public Infrastructures Land/Land Improvements
b) Completed projects already CIP accounts (2,309.68)
transferred to the recipient
agencies and/or end-users but
still carried in the DPWH books
c) School Buildings dropped from School Buildings 15.09
the books but not accepted by
the recipient agency
d) Demolished buildings still Office Buildings (943.51)
carried in the books
e) Non-project related expenses CIP accounts (309.07)
recorded under the CIP accounts
f) Reversion of various payable CIP accounts 15.39
accounts which have been
outstanding for more than 10
years erroneously credited to
CIP
g) Abnormal/negative balances of CIP accounts 2,290.96
CIP accounts
h) Unrecorded and erroneous Various PPE accounts 679.26
recording of PPE
i) Obsolete/unserviceable/damaged Various PPE accounts (52.67)
PPE not disposed and still
recorded under the PPE accounts
j) Inadequate provision for Various PPE accounts (8.17)
depreciation that understate the
Accumulated Depreciation
account and consequently
overstate the PPE accounts
Net Overstatement - PPE P(73,081.97) 14.66%
a) Erroneous recording of Cash in Bank - LCCA (4.20)
3
collections and deposits
b) Erroneous recording of Cash NT-MDS 5.55
disbursements
c) Unrecorded petty cash fund Petty Cash Fund .01

d) Unrecorded reversion of unused Cash NT-MDS (6.12)

NCA
Net overstatement - Cash (4.76) 0.16%

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 Amount and
Effect % of
Obs.
on the FS Error to
No. Nature of Errors Account/s Affected
Under(Over) Account
Stated Balance
(in million)
4 a) Unrecorded liquidations Due from NGAs (31.34)
b) Misclassification of receivable Various Receivable
(2.58)
accounts accounts
Total Net overstatement –
(33.92) 0.67%
Receivables
6 Erroneous recording of Advances to Advances to Contractors
(3.24)
Contractors transactions
Abnormal Balances Advances to Contractors 4.89
Net Understatement – Advances to
1.65 0.03%
Contractors
8 a) Unrecorded issuances Various Inventory
(75.46)
accounts
b) Unissued inventories directly Various Inventory
12.95
recorded as expense accounts
Net overstatement - Inventories (62.52) 10.92%
45 Unrecorded Disallowances Receivables-
Disallowances and 0.37 0.04%
Charges
Net Errors Affecting Asset Accounts P(73,181.15)
Total Assets 514,848.28
Percentage of Errors to Total Assets 14.21%
Errors Affecting Liability Accounts
a) Unrecorded payment of Accounts Payable (5,186.94)
obligations/payables by foreign
2
lending institutions pending
receipt of NCAA from DBM
b) Non-reversion of long Accounts Payable (3,224.83)
outstanding/undocumented
payables
c) Abnormal/negative Accounts Payable 2,159.33
d) Unrecorded Road Right of Way Accounts Payable 157.84
claims
e) Unrecorded and erroneous Accounts Payable 35.01
recording of outstanding
payables and payments thereof
Net Overstatement – A/P (6,059.59) 11.52%
9 a) Abnormal balances Guaranty Deposits 65.94
Payable
b) Erroneous recording of refund of Performance/Bidders/Bail (4.79)
performance security Bond Payable
Guaranty Deposits 4.79
Payable
Net understatement - GDP 65.94 1.88%
10 Unrecorded liquidations Due to Other NGAs (460.24)
Due to Central Office (12.55)
Overstatement – Inter/Intra- (472.79) 13.87%
agency Payables

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 Amount and
Effect % of
Obs.
on the FS Error to
No. Nature of Errors Account/s Affected
Under(Over) Account
Stated Balance
(in million)
43 Unrecorded remittances Due to BIR (2.40)
Abnormal balances Due to BIR 31.64
Net understatement – Due to BIR 29.24 3.62%
Errors Affecting Liability Accounts 6,437.20
Total Liabilities account 68,070.81
Percentage of Errors to Total Liabilities 9.46%
Errors Affecting Government Equity
11 Erroneous recording of prior year PYA 3.43 No net
terminal leave benefits as current year Government Equity (3.43) Effect
expenses

Moreover, the DPWH failed to establish the existence and accuracy of the
balances of the following asset and liability accounts as of December 31, 2010, which
added to the unreliability of the affected account balances:

Obs. Nature of Deficiencies Accounts Affected Amount

No. (in million)
1 Unreconciled difference between the accounting PPE P 4,679.65
records and the physical counts of PPEs
Dormant CIP and other PPE balances not supported CIP and other PPE 132,935.54
with SL and other documents
2 “Unreconciled balances” without detailed SLs Accounts Payable 926.80
3 Cash balances not backed-up with actual cash in the Cash in Bank- LCCA 35.75
depository banks
Unreconciled difference between book and bank Various Cash accounts 108.69
balances
Dormant cash balances not supported with sufficient Various Cash accounts 803.13
records
4 Unliquidated Fund Transfers Inter-Agency Receivables 723.50
Balances not supported with SL and other documents Various Receivables 521.17
accounts
Dormant uncollected receivables on equipment rentals Accounts Receivable 18.22
5 Dormant/Long outstanding other prepaid expenses Other Prepaid Expenses 473.66
6 Unsupported/undocumented balances Advances to Contractors 387.59
8 No physical count and non-reconciliation of GL and Various Inventory 64.03
inventory report balances accounts
Obsolete inventories Various Inventory 0.59
accounts
9 “Unreconciled balances” without detailed SLs Guaranty Deposits (37.76)
Payable
10 Unsupported/undocumented balances Inter-Agency Payables 345.85
12 Dormant balances Items in Transit 737.72
Total P142,724.13

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

On PPE accounts

a) create a Team to assist the Chief Accountant in verifying the Construction In

Progress, Public Infrastructures and Land accounts to come up with a list of
completed infrastructure projects;

b) require the Chief Accountants of the concerned DPWH offices to:

 reclassify all completed projects to the PI accounts and then transfer the
same to the Registry of Public Infrastructures on the basis of the list of
completed projects supported with Certificate of Completion and other
pertinent documents;

 prepare the JEV dropping from the books of accounts the costs of
completed projects transferred/turned-over to the recipient agencies,
particularly the DepEd and LGUs;

 make the necessary adjustment to correct the charging of non-project

related expenditures to the Engineering and Administrative Overhead
(EAO) funds;

 maintain updated Property, Plant and Equipment Ledger Cards (PPELCs)

for each class of property to record the acquisition, adjustment and
disposal; and

 verify and investigate thoroughly the abnormal and unreconciled balances

and make the necessary adjustment to come up with the accurate balance
of each PPE account;

c) require the Property Officer of the concerned DPWH offices to maintain an

updated Property Cards and to regularly reconcile the same with the Ledger
Cards maintained by the Accounting Unit;

d) create an Inventory Team/Committee and a Technical Working Group (TWG)

that will conduct physical inventory of all the properties at least once a year
and furnish the Chief Accountant and the Property Officer with a report to
reconcile with their respective records for the accurate presentation of the
balances of PPE accounts in the Financial Statements; and

e) require the accountants concerned to make the necessary adjusting entries to

correct the errors and the unrecorded PPE and to take up in the books the
unrecognized depreciation.

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On Accounts Payable and Other liability accounts

a) regularly request DBM and BTR for the issuance of the NCAA and JEV,
respectively, to update and adjust the significant misstatements in the
Accounts Payable pertaining to direct payments; and disclose properly in the
Notes to the Financial Statements the non-recording of these direct payments
from the loan proceeds pending receipt of NCAA and JEV from DBM and
BTR, respectively;

b) instruct the Accountants to determine/identify the valid claimants of RROW

compensation prior to payment to ensure that only those entitled to the claim
are paid and revert accounts payable with outstanding balance aged two years
or more and with no valid/actual claimants;

c) analyze and investigate the causes of the negative and abnormal balances and
record the corresponding adjustments to correct the deficiency; if possible,
institute remedies to recover the excess amount paid to the creditors in case of
overpayment;

d) strengthen the review of journal entries and supporting documents for

outstanding claims before recording the same in the books of accounts to
minimize and avoid mistakes/errors in recording; and require the staff at the
Accounting Division to attend seminars on Accounting to equip and update
them on the proper accounting and recording of transactions;

e) make the necessary adjustments in the books to record the Accounts Payable
for the unpaid cost of the lot and recognized all liabilities incurred for the
period to ensure that the accounting transactions are reported in the financial
statements in the period in which they relate;

f) direct the concerned accountants to adjust the balance of accounts payable to

reflect the corrections of the errors noted; closely supervise the accounting
staff, and strengthen the review process to ensure proper/correct recording of
transactions to avoid errors and misleading information and to come up with
accurate balance of account in the financial statements;

g) consider formulating and/or coming up with a policy to include in the

conditions of the contract, the minimum retention amount or percentage as
final billing/payment on the contract cost to ensure and/or guarantee the
complete and satisfactory performance/delivery of the contractors and their
submission of the required documents;

h) instruct the concerned Accountants and the ADB-PMO to coordinate with

each other to confirm and validate the documentary requirements and pending
claims still due to the contractors and discuss possible alternative solutions
that will hasten the submission of the necessary documents in order to

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 facilitate the processing of their claims; otherwise, consider the option of
waiving in favor of the government the unclaimed final billings and other
claims after proper notice is served to the concerned contractors;

i) record as Accounts Payable in the books of DPWH the unpaid obligations to

contractors after the validity thereof is established by appropriate documents
and funding; and

j) examine, analyze and reconcile the liabilities with “unreconciled balance” and
record the corresponding adjustments to correct errors in recording.

On Cash accounts

a. conduct a detailed review and analysis of the Cash accounts by gathering

information on all the bank accounts maintained by the DPWH and request
the banks to give the department copies of the bank statements and identifying
the reconciling items by comparing entries in the accounting and bank records
and immediately record adjustments in the books to eliminate unreconciled
balances. Thereafter, conduct regular bank reconciliation of accounting and
bank records in accordance with Section 74 of PD 1445 and submit on time
and on schedule the monthly bank reconciliation statements to detect
errors/reconciling items and effect immediate correction in the books of
accounts. Further, subsidiary ledgers per bank accounts must be maintained to
facilitate reconciliation of records; and

b. direct the Chief Accountants concerned effect the necessary adjustments to

correct the accounting errors noted in audit.

On Receivables

a. require the LGUs, GOCCs and the NGAs to submit the liquidation reports
pertaining to the above balances together with the Credit Notice (CN) issued
by its Resident Auditor and to refund any unutilized balance;

b. stop the release of additional funds to the City Mayor of Quezon City,
MMDA, LGUs, GOCCs and other NGAs until after the previous releases are
fully liquidated;

c. prepare the JEVs to correct the noted errors affecting receivable accounts, and
henceforth, maintain SLs for these accounts and regularly reconcile the
balances with the GL balances and update recording/posting of transactions at
all times;

d. vigorously pursue collection of receivable accounts to avoid/prevent the piling-

up of uncollected/unsettled accounts at the end of the year;

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 e. for those accounts which could no longer be documented and have been
dormant for several years, request for write-off from the Commission on
Audit in accordance with the procedures prescribed under existing rules and
regulations; and

f. undertake a study that will identify various options to release the fund directly
to the end-users to avoid delay in project implementation by eliminating
certain stages in processing, facilitate liquidation and promote accountability;
and take appropriate actions that will prevent the accumulation of huge
amount of unliquidated fund transfers taking into account the
deficiencies/inefficiencies that will later be identified in the study.

On Other Prepaid Expenses

a. analyze and validate the balances of Other Prepaid Expenses reflected in the
financial statements and accordingly take up the necessary adjustments to
correct the erroneous balance of the account as at year-end or take appropriate
action in accordance with COA Circular No. 97-001; and

b. require that the Supply Officers concerned include in the Monthly Report of
Gasoline Consumption all issuances of gasoline and oil supported with the
duplicate copy of the Charge Invoice and the corresponding approved
Gasoline Withdrawal Slip and submit the reports to the Accountant as basis
for adjusting the errors noted and stop making advance payments for gasoline
requirements.

On Advances to Contractors account

a) conduct a detailed analysis of the effects of the various errors in the recording
of advance payments and the recoupment thereof as well as of other
transactions affected, and prepare the necessary adjustments to correct the
errors;

b) review and validate the balance of the account by tracing prior years’ records
and transactions, to fully identify/document the composition of the account.
For accounts that could no longer be documented, request for write-off from
the Commission on Audit in accordance with the procedures prescribed under
existing rules and regulations; and

c) maintain an updated subsidiary ledgers with relevant information, to facilitate

verification and determination of the composition/details of the account and
prompt recoupment of advances. Reconcile the SL balances regularly with the
controlling account in the general ledger to detect errors/discrepancies in
recording and to effect immediate adjustment, thus, ensuring the preparation
of accurate Schedule of Advances to Contractors.

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On inventories

a. instruct the concerned Supply Officers to promptly prepare the Monthly

Report of Supplies and Materials Issued (MRSMI) and submit the same on
time to the Accountant for recording; maintain Stock Cards and reconcile
property records periodically with the accounting records to detect
discrepancies and effect immediate corrections, if necessary;

b. direct the concerned Accountants to prepare adjusting entries for the net
overstatement to correct the balances of the inventory accounts and
henceforth, observe the perpetual system in recording purchases and use the
MRSMI in recording issuances; and

c. dispose in accordance with the prescribed procedures, all unserviceable

inventories to provide spaces for other purposes and earn additional income
from the disposal thereof .

On Guaranty Deposits Payable

a. review the previous records of the transactions to determine what caused the
abnormal, irregular and “unreconciled balances” in the Guaranty Deposits
Payable account and prepare a Journal Entry Voucher to effect correction in
the books; and

b. prepare a Journal Entry Voucher to correct the erroneous recording of refund

of performance security.

On Inter-Agency Payables

a. make the necessary adjusting entries to correct the balances of affected

accounts and strengthen the review and supervision over the work of
subordinate personnel to avoid errors in recording transactions; and

b. create a committee to conduct the verification and reconciliation of the

undocumented/unreconciled amounts and effect the recording thereof. We
also recommended that in the meantime the unreconciled amounts are still not
adjusted, proper disclosure be made in the Notes to Financial Statements.

On Terminal Leave Benefits Expense

a. record the terminal leave at the time it was incurred and not at the time of
payment; and advise the Chief of the Personnel Division to compute the
vacation leave and sick leave balances correctly and ensure that any entries in
the DPWH Employees Leave Card are adequately documented.

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 On Items in Transit

a. evaluate the account and initiate steps for the write-off of the balance in
accordance with the requirements under COA Circular No. 97-001 dated
February 5, 1997.

On Due to BIR

a. follow strictly the provisions on withholding of taxes and remit the same
within the prescribed period as provided in Revenue Regulations No. 2-98
dated April 17, 1998; require the Accountant to prepare the JEVs to take up
unrecorded remittances and to correct the abnormal balances.

D. Other Significant Observations and Recommendations

Hereunder are the other significant audit observations noted during the year and
the corresponding recommendations including the results of audit on Malampaya Funds
that are discussed in detail in Part II of this report.

Value for Money

1. A total of 64 locally funded projects with a contract cost of P5,170,898,484.69

were not completed within the contracted time due to the inability of the DPWH
to sufficiently carry out detailed engineering investigations, surveys and designs,
including the acquisition of road right of way, which is required under Section
17.6, Rule VI of the Revised Implementing Rules and Regulation (IRR) of RA
9184, resulting in the non-utilization of the fund allotted for the projects under
the General Appropriations Act, lower fund absorption capacity, cost overruns
and lesser value for money already spent on suspended projects. (Observation
No. 26)

We recommended that management cause the following actions:

a) undertake bidding and award of contract only after the detailed engineering
investigation, survey and design, clearances, etc. for the project, had been
sufficiently carried out as provided in the IRR of R.A. 9184. Likewise, the
guidelines set forth under the Regional Project Monitoring and Evaluation
System (RPMES) be strictly followed to ensure the early detection of problems
that would impede project implementation;

b) instruct the regional offices and the engineering districts to maximize the
utilization of the budget released for Preliminary and Detailed Engineering
Works by conducting detailed engineering for all projects with reasonable
accuracy to lessen variation orders and delayed completion of projects;

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 c) enjoin full cooperation of the Local Government Units (LGUs) in relocating
affected families as well as in safeguarding areas where RROW have been
resolved;

d) coordinate with other government agencies involved in implementing

infrastructure projects to avoid overlapping with projects of the DPWH’s;

e) integrate in the proposed budget a provision for realistic or forward looking cost
estimates for RROW, including the development cost of relocation sites for the
affected families, considering that land appreciates in value; and

f) facilitate the settlement of the road right of way (RROW) problems to avoid
delay in project implementation, and impose liquidated damages and terminate or
rescind contracts on infrastructure projects with negative slippages; and

g) for DPWH-IV-B to (i) conduct inspection to determine the status of the project;
(ii) evaluate and determine the extent of damage or loss; (iii) take appropriate
action to cause the immediate completion of the project; and (iv) enforce legal
action against the contractor for the damages to recover the amount of losses.

2. Of the twelve infrastructure projects proposed for implementation in CY 2008 to

2010 under the Road Improvement and Risk Mitigation Component of NRIMP II
Projects, only one was implemented which resulted in very low loan absorption
capacity of only 31.99% or loan utilization of only P368.44 million as against the
projected disbursements of P1,151.48 million as at year-end. (Observation No.
27)

We recommended that the NRIMP-PMO and the SBAC for NRIMP II fast track
the procurement evaluation procedures, activities, and processes in order to
implement and complete the infrastructure projects on time and within schedule to
achieve the loan objectives, maximize loan utilization and provide full benefits to
the public.

3. Projects for the rehabilitation of flood control facilities, roads and bridges
damaged/destroyed by typhoons Ondoy and Pepeng on September 26, 2009 and
October 3, 2009, respectively, have not been undertaken within the
Implementation Schedule as approved by JICA due to delayed procurement.
Moreover, expenditures incurred for the projects totalling P3.50 million were
charged against government counterpart funds resulting in the non-utilization of
the loan as of December 31, 2010. (Observation No. 28)

We recommended that management fast track the procurement process for the
POPSTIRP projects within the approved implementation schedule to (a)
maximize the utilization of the loan proceeds; (b) avoid incurrence of large
commitment fees for the undisbursed amount of the loan; and (c) provide
sustained protection to affected residents from further damages thru immediate
rehabilitation of damaged flood control facilities, roads and bridges, and

xi
 restoration of access to various socio-economic activities in the areas affected by
tropical storm Ondoy and typhoon Pepeng.

4. Two infrastructure projects funded under the Saudi Fund for Development (SFD)-
Assisted Mindanao Road Improvement Project (MRIP) Loan No. 1/433, incurred
negative slippages due to slow progress of accomplishment caused by the critical
peace and order situation. (Observation No. 29)

We recommended that the Saudi Fund for Development- Project Management

Office (SFD-PMO) (a) justify/explain the negative slippage incurred by the
contractor supported by independent report (such as Police Report, Weather
Report from PAG-ASA); (b) justify/explain the noted deficiencies/ observations
raised in the TAS inspection reports; and (c) submit immediately the approved
catch up plan/program for the completion of the projects.

5. Two projects, the City of San Fernando Flood Control Works (Contract Package
3A) and the Flood Mitigation Works in Guagua, Pampanga, which were not
completed by the end of CY 2010, were not suspended nor terminated despite
negative slippages of 29% and 16.77%, respectively, contrary to the General
Conditions of the Contract resulting in low loan utilization/absorption capacity of
only P1.47 billion or 31.28% of the total appropriated amount of P4.70 billion.
(Observation No. 30)

We recommend that management monitor the project implementation and ensure

that the project is on schedule and, if necessary, issue a suspension once the
slippage is more than negative 15%.

We also recommended that management see to it that foreign-assisted projects are

completed before the loan expires to maximize the utilization of the loan
proceeds.

6. The Upper Makar Bridge No. 1 with a total project cost of P160,233,587.53
(Phases I to V) and the Malaang Bridge with the total cost of P60,000,000.00
remained closed and unsafe to motorists due to the absence of bridge approaches
and Road-Right-of-Way problems resulting in the non-utilization of the same by
the public. (Observation No. 31)

We recommended that management of DPWH-Region XII:

a) seek the assistance of the local government officials in resolving the road-
right-of-way issues so that the approaches to the bridges may be completed
and opened to traffic and road users; and

b) undertake complete and accurate detailed engineering including the

preparation of the Site or ROW Plans prior to bidding and award of contracts.

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7. Nationally funded infrastructure projects totalling P14,765,130.30 which were
implemented jointly with the Local Government Units (LGUs) were not
completed as scheduled and the covering Memorandum of Agreement (MOA)
does not provide for any sanctions on the LGUs for non-compliance therewith and
to the timeliness for implementation of projects resulting in the deprivation of the
intended users of the benefits and use of the project. (Observation No. 32)

We recommended that closer monitoring and supervision be undertaken by the

DPWH to ensure effective and timely implementation of the project and
compliance with the MOA.

We also recommended an evaluation of the effectiveness of the joint

implementation of the projects with the LGUs. Since the risk of delay and non-
implementation of contracts will be more mitigated through regular infrastructure
contracts by DPWH, involvement by the LGUs may be dispensed with and they
may just wait for the turnover of the completed projects and record the same in
their books of accounts.

8. Slow availment of Official Development Assistance (ODA) funds arising from

delayed implementation of foreign-assisted infrastructure projects resulted in the
incurrence of commitment fees amounting to P308,448,184.88 on top of interest
charges from CY 2002 to CY 2010. (Observation No. 33)

We recommended that management:

a. accelerate/maximize the utilization of loan proceeds by adopting efficient and

timely procurement procedures in accordance with the guidelines of the
foreign lending institutions (FLIs);

b. perform resurvey/update the project design/specifications/scope of work

before the procurement/bidding in order to avoid additional works and/or
several variation orders during the project implementation;

c. settle first the problems on the land acquisition and resettlement, which is a
factor contributory to the delay, before entering into a loan agreement with
foreign countries/institutions, to ensure the smooth implementation of the
project;

d. make representations with the DBM for the immediate

allocation/appropriation of the peso counterpart funds and the timely and
opportune release thereof; and

e. adopt an effective Project Monitoring System that will keep track of the
implementation of the projects vis-à-vis the approved Implementation
Schedule and the Disbursement Schedule embodied in the loan
agreement/appraisal report to avoid the incurrence of huge commitment fees.

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Compliance

9. Specific provisions of the IRR of RA 9184 on splitting and post-qualification

were violated in the bidding and award of the contract amounting to
P40,000,000.00 for the project entitled Restoration of Damaged
Revetment/Dredging of Flood Control of Meycauayan River (Valenzuela Side)
Phases I to VIII resulting in the possibility that the government may have been
denied the most advantageous price for the project. (Observation No. 35)

We recommended and management agreed to:

a. investigate the bidding and awarding of the contract for the Restoration of
Damaged Revetment/Dredging of Flood Control of Meycauayan River
(Valenzuela Side) Phases I to VIII and hold liable all those involved in the
non-observance of the IRR of RA 9184;

b. instruct the DPWH- NCR BAC/TWG/Secretariat to in the future undertake a

more cautious post-qualification of the winning bidder to ensure that legal,
financial and technical qualifications of bidders meet those prescribed in the
procurement law to promote real and genuine competition;

c. strictly comply with the IRR-A of RA 9184 and observe the rules and
regulations and other budgetary controls in the utilization of funds intended
for infrastructure projects; and

d. conduct a thorough inspection of the project and demand from the concerned
contractors immediate repair to rectify the defects noted following the
standard construction method acceptable to DPWH at no cost to the
government.

10. Post-qualification of contractors and evaluation of bids were not efficiently and
effectively conducted in the North Metro Manila Engineering District, thereby,
exposing the government to various risks such as delay in project accomplishment
and/or substandard quality of work. (Observation No. 36)

We recommended and management agreed to:

a. require concerned contractor to submit the name of the proposed new Project
Manager/Engineer and (also of the foreman), his qualifications, experience,
list of projects undertaken and other relevant information, on such projects
where replacement of personnel are to be made taking into account their
submitted commitments and furnish COA a copy thereof;

b. instruct the NMED Project Engineer to monitor and ensure the proper
accomplishment of the concerned projects; and

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 c. direct the BAC and TWG to scrutinize the sufficiency of the contractor’s
manpower and equipment on all the projects to be awarded and not on an
individual project, in cases where the latter is the lowest bidder in several
projects which have the same or overlapping implementation period. This is in
order to require the contractor to augment its manpower and/or equipment to
be utilized in the projects awarded to it or to disqualify it from obtaining
several award or contracts in consonance with the provisions of Section 23.7
of R.A. 9184 IRR.

11. Contract cost of six infrastructure projects in DPWH-OSEC and Regions II, VIII
and X exceeded by P76,330,600.43 the allowable limit or the COA Estimated
Cost plus 10% to the disadvantage of the government. (Observation No. 13)

We recommended that management:

a. abide strictly and enforce the rules and procedures in the preparation of cost
estimates for all the infrastructure projects as established by DPWH
Department Order No 57, s. 2002, to avoid excessive contract costs as
commonly observed by COA- RTITS;

b. take necessary actions for the immediate settlement/correction of the

deficiencies noted in the technical review and evaluation of contracts and in
the inspection of the projects;

c. instruct the Accounting Division/Section to deduct from the billing of the

remaining contracts the excess cost and recover any overpayments made to
contractors;

d. require the contract for Flood Mitigation Works in Guagua, Pampanga under
PHUMP III and every contract of the department to undergo review by the
Legal Service/lawyers of the agency to ensure that documents are valid and
legal and in accordance with Section 12 of Executive Order No 242 and that
the requirements of RA 9184 are complied with; and

e. secure clarification from the BAC and the TWG to clear the ambiguity caused
by the use of the term Direct Negotiation in the contract and other related
documents.

12. Previously approved Obligations Request (OBrs) in DPWH Region X were

cancelled and realigned to finance three new projects costing P76 million even
after the allotments had expired contrary to National Budget Circular No. 519.
(Observation No. 14)

We recommended that management look for other sources of funds that could be
utilized to validly finance the execution of the three projects subject to the
provisions of RA 9184 and its Revised Implementing Rules and Regulations.

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13. The DPWH Regional Office No. XII was not able to utilize the allotments in the
amount P14,022,130.29 under SARO No. SR2010-12-007835 due to its late
release from the Central Office and the inadequate Annual Procurement Plan
(APP) for CY 2010, resulting in its reversion at year-end. (Observation No. 15)

We recommended that management (a) judiciously plan and consider foreseeable

aspects in the preparation of its Annual Procurement Plan (APP) in accordance
with the provisions of Section 7 of the IRR of RA 9184 with due consideration to
foreseeable emergencies based on historical records of the major projects of the
agency; (b) comply with the provisions of GPPB Circular No. 01-2009 dated 20
January 2009 providing for the Guidelines Clarifying the Procurement Activities
which may be undertaken without an issued allotment to facilitate the immediate
implementation of projects even pending receipt of a SARO; and (c) make
representation for the early release of SAROs to the Regional Offices to give
ample time to implement the procurement process prior to obligation so that
reversion of allotments can be avoided and that funds available can be utilized to
implement programmed projects.

14. Various disbursements totalling P79.38 million were considered irregular,

unnecessary, excessive and/or extravagant contrary to COA Circular 85-55-A.
(Observation No. 19)

We recommended that management direct the concerned officials to

explain/justify the irregular disbursement of funds. If justification is not
acceptable, cause the immediate refund of the amounts involved from the
claimants or from all persons who authorized and/or approved the payments.
Henceforth, exercise prudence in the discharge of fiscal responsibility particularly
the disbursement of funds to avoid wastage of government funds and property.
Further, enhance the review process as well as supervision on the processing of
claims to prevent occurrence of similar irregularities.

Audit of Malampaya Funds Received

15. The use of Gas-Malampaya Fund for development infrastructure projects was not
in accordance with the subject and intent of P.D. No. 910. (Observation No. 47)

We recommended that DBM, DOE and DoF refrain from funding infrastructure
projects which are not within the intent of P.D. 910.

16. SAROs were released to DPWH by DBM without the list of priority infrastructure
projects approved by the Department of Energy (DOE) in violation of
DBM/DOE/DoF Joint Circular No. 3 dated January 30, 2008. (Observation No.
48)

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 We recommended that management comply with the requirement of Executive
No. 693 on the submission of complete list of priority infrastructure projects to
the Department of Energy (DOE) to be funded by the Malampaya Fund to ensure
that proper review and approval by the DOE have been undertaken prior to
implementation.

17. Infrastructure projects of DPWH-NCR and RES-NCR funded from Fund 154 –
Energy Development Fund or Special Fund were not completed due to
insufficiency of funds allotted; thus, the intended users were deprived of the
benefits and comforts that are expected to be derived from the projects when
completed. In the RES – NCR, the repairs of equipment funded out of Fund 154
were considered unnecessary since the equipment are no longer suitable in
desilting the shrinking esteros and other river tributaries in the NCR; thus, the
government and the public did not get the best value for money spent on the
repairs. (Observation No. 49)

We recommended and management agreed to:

a. strictly comply with the limitations set forth under the GPBB Circular No. 01-
2009 dated 20 January 2009 and Section 85 of Presidential Decree (PD) 1445
in the conduct of biddings and awarding of contracts;

b. hasten the completion of the uncompleted projects so that the public may
receive the entire benefit and value for government funds used to implement
them; and

c. conduct an analysis or study to determine whether it is more prudent to have

the flood control equipment at the RES retired and to acquire a new one which
will be more efficient and more suited to the present condition rather than
undertake expensive repairs from time to time.

E. Status of Prior Years’ Recommendations

Of the 37 audit recommendations included in the DPWH CAAR for CY 2009, 7

were fully implemented, 27 were partially implemented, and three were not implemented.

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