PART II

AUDIT OBSERVATIONS AND

RECOMMENDATIONS
AUDIT OBSERVATIONS AND RECOMMENDATIONS

I. Awards and Recognition

Below are some of the awards and recognition received by the Provincial Government of
Sarangani (PGS) in the year 2021:

No. Name of Recognition/Award Awarded by

1 Gold Excellence Award LFP International Production
“Sarangani” Tourism Video (Philippines) Inc. - 11th International Film
Director Champ Biala and Michelle Lopez Solon Festival - Manhattan

2 Champion (Entry #7) and 1st Runner-up (Entry #6) National Economic and
Ecotourism Vlogging, Infracom - LGU Sarangani Development Authority

3 1st Time DOH Red Orchid Awards 2021 Department of Health XII
100 per cent Tobacco-free Center for Health Development
Sarangani Healthcare Facility SOCCSKSARGEN Region

4 One of the Top 10 Local Government Units with the Department of Agriculture
Highest Non-PRDP Investments in Mindanao Philippine Rural Development
January 28, 2021 Project

5 Certificate of Achievement - Rank 2 Bureau of Local Government

Year-on-Year Growth in Locally Sourced Revenues Finance Region XII
12.27 per cent for CY 2020

II. Financial and Compliance Audit

A. Basis for Qualified Opinion

❖ Inventories

1. Unrecorded issuances/consumption affect accuracy, completeness, and

existence of Inventories and understated related expenses - ₱19.352 million

Paragraph 44 of the International Public Sector Accounting Standard (IPSAS) 12,

Inventories provides that the carrying amount of inventories shall be recognized as expense
when the goods are distributed or the related service Is rendered.

Specifically, the New Government Accounting System (NGAS) for Local Government Units
(LGUs) under COA Circular No. 2002-003 dated June 20, 2002 prescribes the general
process to be followed in the control of inventory. Regarding reporting on issuance and
inventory of supplies/materials, the prescribed procedures are as follows:

1. Issuance shall be supported with Requisition and Issue Slip (RIS) consolidated in
the Summary of Supplies and Materials Issued (SSMI) - Section 121

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 2. The SSMI together with the original copy of the RIS shall be submitted to the
local accountant which shall be the basis in drawing a Journal Entry Voucher to
record the issuance. - Section 121

3. A physical count shall be conducted periodically to determine the

undistributed/unconsumed items and the cost of these items shall be restored
back to the inventory account at year end. - Section 124

Inventories of the PGS as of December 31, 2021 totaling ₱289.15 million are composed of
inventories for distribution and consumption amounting to ₱70.62 million and ₱218.53
million, respectively. Figure 1 illustrates the increasing trend of Inventories of the PGS in the
last six years. The details per account are shown in Appendix F.

Figure 1

Examination of the subsidiary ledgers as of December 31, 2021 vis-a-vis the submitted
SSMIs during the year revealed unrecorded issuances/consumption of inventories. The
subsidiary ledgers also showed perishable items that were non-moving since 2016 while
there were some that were not found in the actual count of inventories. A total of ₱19.352
million unrecorded issuances were found in post-audit of sample SSMI and RIS for the year
2021. The details are shown in Appendix G. The actual amount may even be greater since
the sample was just a portion of 2021 and does not include the unrecorded
issuances/consumption in previous years.

It was already identified in the previous years’ audit that the increase in unrecorded
issuances/consumption of inventories was due to the following:

1. Delayed recognition of inventories at the time of payment, rather than acceptance,

resulting in deferred recording of issuances/consumption to await recording of the
corresponding purchases;

2. Imposition of additional procedures and documentary requirements without

appropriate basis, i.e. requiring the submission of distribution lists, in addition to the
SSMI, as basis in drawing a Journal Entry Voucher to record the issuance; and

3. Incomplete count of inventory items and non-reconciliation of inventory records to

establish the actual remaining balance at year end.

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The above are manifestations of the lack of standardized inventory management procedures.
Also, overran by time and events, coupled with the need to develop and/or enhance
competencies of employees engaged in the inventory management process, the unadjusted
inventories continued to increase in the year 2021, hence, this reiteration.

As a result, the quality of information presented in the financial statements of the PGS is
rendered unreliable contrary to the requirement that financial statements shall present fairly
the effects of transactions, other events and conditions in accordance with the definitions
and recognition criteria for assets, liabilities, revenue and expenses set out in IPSASs.1

Specifically, the sample of unrecorded issuances/consumption found in post-audit

overstated inventories and understated the corresponding expense accounts by ₱19.352
million.

Based on the foregoing, we recommended and Management agreed to the following:

a. For the Provincial Accounting Office (PAccO) and Provincial General Services
Office (PGSO), in coordination with the Provincial Human Resource Management
and Development Office (HRMDO), to:

i. Identify intervention or training needs of its personnel and initiate capacity-

building activities to enable the latter to perform their mandated tasks and
functions with utmost quality and responsibility;

ii. Assess the current organizational structure and staffing of their departments
to determine appropriate and sufficient manpower complement and initiate
necessary reforms, subject to the approval of the LCE and the Sangguniang
Panlalawigan and other applicable laws, rules and regulations.

b. For the Management to establish and implement standardized inventory

management procedures including reconciliation and documentation processes
that will be instrumental to reducing risk and reporting errors;

c. For the Management to continually analyze existing processes and procedures to

identify opportunities for automation rather than relying on manual data entry
into spreadsheets; and

d. For the Provincial Accountant to draw the necessary journal entry voucher/s to
record the issued/consumed inventories with sufficient and appropriate and
supporting documents.

Management Comment:

The Management has accepted the above recommendations and assured that they will
establish in writing a procedural policy on Inventories stating the step-by-step procedures in
the acceptance, inspection, receipt and issuance of Inventories, including recording of
deliveries, reiteration of procedures during physical count, and updating and maintenance of
the Stock Card and Supply Ledger Card. The policy shall include guidelines regarding

1
IPSAS 1, Paragraph 27-Fair Presentation and Compliance to IPSAS

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reconciliation between accounting and general services records. The PAccO and GSO will
coordinate with HRMDO to allow identified personnel to attend training/seminars, such as,
but not limited to, Property and Supply Management.

B. Other Significant Observations

❖ Property, plant, and equipment

It is the declared policy of the State that “all resources of the government shall be managed,
expended or utilized in accordance with law and regulations and safeguarded against loss
or wastage through illegal or improper disposition to ensure efficiency, economy and
effectiveness in the operations of government.”2 Section 2 of P.D. 1445 further provides that
the responsibility to ensure that such policy is adhered to rests directly with the chief or head
of the government agency concerned.

Government resources that need to be safeguarded include property, plant, and equipment
(PPE), which, in the case of the PGS, comprises 57.57per cent of the total assets, or a total
of ₱2.948 billion, net of accumulated depreciation.

Examination of records, review of reports and post-audit of documents resulted in the

following observations in connection with PPE of the PGS:

2. Unreconciled PPE records and unrecorded lost/missing items cast doubt on the
existence of PPE - ₱705.244 million

Chapter 4 of the Handbook on Property and Supply Management System provides that
“after the physical inventory-taking, the Inventory Committee shall reconcile the results of
the count with the property and accounting records”. Reconciliation is a process that
compares two sets of records to check that figures are correct and in agreement. Through
reconciliation, variances due to missing, duplicated or incorrect records and values, among
others, are identified and resolved.

The General Ledger balances of PPE of the PGS, before accumulated depreciation,
amounted to ₱4.141 billion while balances in the RPCPPE totaled ₱2.503 billion only,
resulting in an unreconciled variance of ₱1.637 billion, composed of the following:

a. CIP accounts, which are not included in the RPCPPE - ₱938.748 million;

b. PPE items other than CIP accounts that were recorded in the books but not found in
the RPCPPE - ₱682.574 million;

c. PPE items reported in the RPCPPE as non-existing/missing - ₱19.330 million (see

observation no. 3 for more discussion;

d. PPE items found in the RPCPPE but not in the books - ₱3.340 million (see
observation no. 4 for more discussion).

2
Section 1, Chapter 1, Subtitle B, Book V, Administrative Code of 1987

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The foregoing observations are summarized in Table 1 and the details per account are
shown in Appendix H.

Table 1 - PPE Balances per General Ledger and RPCPPE, as of December 31, 2021

Contrary to above-mentioned guidelines, the PGS was only able to prepare a supposed
reconciliation of PPE records for 13 accounts, not for all PPE accounts. Review of such
reports showed that reconciliation was not properly executed such that there was no
identification of missing items in the respective set of records and there was no verification
of correct amounts and proper account classification. The submitted reconciliation reports
compared to the book balances revealed a ₱344.914 million variance. The details are
shown in Appendix I.

The reports merely showed that some PPE items in the PGSO records can be found in the
accounting records but not vice versa. Sample of PPE (Road Networks, Flood Control
Systems, Water Supply Systems, Buildings, School Buildings, and Other Structures) found
in the accounting records but missing in the RPCPPE are listed in Appendix J.

Inquiry with Management revealed that this is due to the lack of standardized reconciliation
process and procedures. Reconciliation processes are most effective when they are
consistent, thorough, documented and communicated. It should also include a mechanism
for providing proof that all activity has been reviewed and a procedure for error correction.
Employees involved in the reconciliation process should be knowledgeable and clear on
their duties and responsibilities. These aspects are wanting in the case of the PGS.

For example, the Inventory Committee reported that the Construction and Heavy Equipment
account (1-07-05-080) is completely reconciled, such that the accounting and PGSO
records both totaled ₱287.688 million. However, review of the reconciliation report
compared to the results of the physical count revealed an actual difference of ₱52.576
million composed of the following (see Appendix K for the details):

1. Items found in the accounting records and the RPCPPE but with different amounts
- ₱6.796 million (total variance) resulting in unreliable balances,

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 2. Items found in the accounting records but not in the RPCPPE of ₱45.743 million
resulting in doubtful existence of such items, and

3. Items classified as Construction and Heavy Equipment in the accounting records

but as Other Machinery and Equipment in the RPCPPE of ₱37,485.00.

In an interview, the PGSO personnel also acknowledged that the employees involved in the
inventory and reconciliation process need to undergo further capacity-building activities to
be able to perform their functions effectively.

In effect, the unreconciled variance between the results of the physical count with the
property and accounting records, especially those pertaining to items recorded in the books
but not found during the count, casts doubt on the existence of the reported balances of
PPE in the financial statements.

In view of the foregoing, we recommended and the Management agreed to the following:

a. For the Local Chief Executive to ensure that the concerned departments will
pursue their commitment to undertake the one-time cleansing of PPE account
balances provided for under COA Circular No. 2020-006 dated January 31, 2020 to
improve reliability of financial reports;

b. The Inventory Committee, in coordination with the Human Resource Department,

should assess and provide the capability-building needs of the employees to be
able to perform their functions effectively and efficiently.

c. For the Local Chief Executive to direct the concerned departments to establish
and implement a standardized reconciliation and documentation process and
procedures that will be instrumental to reducing risk and reporting errors and
continually analyze the existing reconciliation process to identify opportunities
for automation rather than relying on manual data entry into spreadsheets.

We also reiterated and Management agreed to the following recommendation:

d. Henceforth, Accounting and General Services departments shall ensure that the
proper accounting and reporting procedures for all acquisition/ receipt/ issue/
disposal of PPEs pursuant to applicable accounting standards and manuals and
other relevant laws, rules, and regulations are strictly followed.

3. Unsettled lost/missing PPE items increases the organization’s risk of fraud and
loss or wastage of government property and resources - ₱19.330 million

Anent this recurring finding on PPE, COA Circular No. 2020-006 dated January 31, 2020,
prescribing the “Guidelines and Procedures in the Conduct of Physical Count of Property,
Plant and Equipment (PPE), Recognition of PPE Items Found at Station, and Disposition for
Non-existing/Missing PPE Items, for the One-Time Cleansing of PPE Account Balances of
Government Agencies” finds application. Such circular intends to assist government
agencies to come up with reliable PPE balances that are verifiable as to existence, condition,
and accountability, thus, more reliable, and useful for decision-making.

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Specifically, for non-existing/missing PPEs, the circular provides:

Section 7.4 The Property Unit shall inform the Head of the Agency of the non-
existing/missing PPEs without pending Request for Relief and shall prepare letters
addressed to each concerned accountable officer/personnel demanding the
production of the PPE he/she is accountable for.

Section 7.9 After gathering all the necessary information…, the Property Unit shall
submit to the Accounting Unit the List of Non-existing/Missing PPEs, with complete
information on which PPEs could not be produced upon demand and those which
have pending Requests for Relief, as well as the corresponding accountable
officers/personnel.

Section 7.10 The Accounting Unit shall take up the necessary accounting entries to
recognize in the books of accounts the loss of PPE and to set up the corresponding
receivables from concerned accountable officers/personnel for the non-
existing/missing PPEs that could not be produced upon demand. It shall likewise
check if appropriate accounting entries were already taken up recognizing the loss
of PPE and setting up of accountability for those with pending Requests for Relief;
otherwise, it shall effect the necessary accounting entries.

If there are non-existing/missing PPEs for which accountability could not be established
despite exhaustion of all diligent efforts, the prescribed procedures should be followed,
which include, the conduct of investigation, demand, recognition of the loss of PPE and
setting up of corresponding receivables in the books of accounts, and derecognition from
the books of accounts subject to grant of authority by the COA.

Examination of the RPCPPE showed shortages/missing items totaling ₱19.330 million.

The summary is shown in Table 2 below. The details are shown in Appendix H.

Table 2 - Summary of Missing/Lost Items per account, as of December 31, 2021

The PGSO explained that they cannot just drop the missing items from the RPCPPE without
documentary support. i.e., approved request for relief from accountability or refund of the
monetary value of the lost property. However, as a practice, when loss or damage to
property occur in circumstances that may not be a proper subject of relief from accountability,
accountable officers do not immediately settle their accountability - they rather wait until they
leave the provincial government or until retirement. Such practice is also tolerated,
demonstrating leniency in ensuring the integrity of custodianship of properties, due to the
absence of clear internal procedures to enforce immediate settlement of property
accountabilities upon discovery of the loss at the time of the physical count. In most cases,

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the items reported as lost/missing/not presented in the RPCPPE remain in the records until
property custodianship and accountability become uncertain, especially when accountable
officers are no longer in the service.

Post-audit of sample credits to PPE in the year 2021 revealed that, upon retirement, an
employee submits an Affidavit to Deduct All Financial Obligations which authorizes the PGS
to deduct all financial obligations, including property accountabilities, against such
employee’s terminal leave benefits. The property accountability is equivalent to the original
value of the item, while accountability for semi-expendable items may be dropped ‘for being
disposable in nature and having limited a limited life span.”3 However, when asked to
submit the legal basis or written internal policy and/or guidelines of such practice, the PGS
was not able to provide any.

The foregoing observations indicate a breakdown in internal control which increases the
organization’s risk of fraud and loss or wastage of government property and resources.

Upon inquiry on the status of the implementation of the one-time cleansing of PPE, the PGS
submitted an Agency Action Plan showing their target to accomplish the constitution of the
Provincial Inventory Committee up to reconciliation of inventory count per RPCPPE and
accounting records from January to August 2022.

In view of the foregoing, we reiterated and Management agreed to the following

recommendations:

a. For the Local Chief Executive to ensure that the concerned departments will
pursue their commitment to undertake the one-time cleansing of PPE account
balances provided for under COA Circular No. 2020-006 dated January 31, 2020 to
improve reliability of financial reports;

b. For the Management to revisit their current practices in enforcing and settlement
of property accountability, stop those that are without legal basis, and establish
policies and procedures that are in accordance with applicable laws, rules and
regulations.

4. Non-moving construction-in-progress and unrecorded items understate the

applicable/related asset accounts

a. Non-moving construction-in-progress - ₱75.246 million

The revised chart of accounts for LGUs, prescribed in COA Circular No. 2015-009 dated
December 1, 2015, defines Construction in Progress (CIP) as:

“The account used to record the cost or other appropriate value of assets that are
still in the process of construction or development. As soon as the project is
completed, the CIP is closed to the appropriate asset account. The related
depreciation expense thereat should have also been computed and properly
recorded.”

3
Sample side note on Clearance Certificate No. 2020-038 dated December 21, 2020.

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Examination of the details of Construction in progress – Land Improvements consists of
accounts that were not yet closed despite final payment. According to the PGS, CIP
balances that were forwarded without details during the migration of accounting data from
manual to electronic recording/accounting system cannot be easily closed/reclassified due
to lack of sufficient details. However, this should not be the case for recorded
disbursements in 2013 to 2017, where supporting documents should have been readily
available. The ending balance of ₱75.246 million has been non-moving for four (4) to 20
years. The details are shown in Table 3.

Table 3 - Non-moving Construction-in-Progress, As of December 31, 2021

This resulted in the understatement of the related asset accounts and its corresponding
accumulated depreciation as of and depreciation expense for the year while overstating CIP.

b. Unrecorded PPE - ₱3.340 million

Under IPSAS 17, the cost of an item of PPE shall be recognized as an asset if:

a. It is possible that future economic benefits or service potential associated with

the item will flow to the entity; and

b. The cost or fair value of the item can be measured reliably.

In accordance with the above standard, PPEs found during the physical count with
reasonable basis to consider as owned by the agency falls within the first criterion and
should be included in the RPCPPE. Regarding the second recognition criterion, the unit
value shall be taken from ledger cards, or if not available, shall be established based on the
fair market value of the item. Thereafter, the accounting department should take up the
necessary entries to recognize such PPEs in the books of accounts.

Examination of the RPCPPE revealed PPE items found therein but missing in the books
totaling ₱3.340 million. Since such items were included in the RPCPPE, then they are
considered as owned by the PGS and future economic benefits associated with the items
will flow to the PLGU, thus, satisfying the first recognition criterion. The second recognition

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criterion could have been satisfied considering that the corresponding costs of the items
were measured and reported in the RPCPPE.

In addition, it was also found that one-unit Digital Mobile Radiographic Xray Machine
transferred by the Department of Health to the PGS was not included both in the RPCPPE
and the accounting records.

PPE items that were included in the RPCPPE but missing in the books were not recognized
due to lack of proper reconciliation and documentation. Regarding the unrecorded donation,
the PHO confirmed that such item was already transferred to the PGS, but the receipt was
not yet recorded by the PGSO and Accounting due to absence of supporting documents.
Interview with concerned offices disclosed that end-user departments usually receive
donated items, while the PGSO and Accounting Office are neither informed of the transfer
nor given the necessary documents to record the donated items.

As a result, unrecorded items that are existing and belonging to the PGS measured at
₱3.340 million understate PPE by such amount.
In view of the foregoing, we recommended and the Management agreed to the following:

a. The Provincial General Services and the Accounting Departments should revisit
the existing procedures in relation to receipt, recording, issuance, and utilization
of donated PPE items and put into writing the proposed reforms on the process
for the approval of the Local Chief Executive and dissemination to all
departments.

b. For the Provincial Accountant to draw the necessary journal entry vouchers to
recognize the unrecorded items with sufficient and appropriate supporting
documents.

5. Non-compliance to reporting requirements on local road networks

Part VI of COA Circular No. 2015-008, dated November 23, 2015, requires the General
Services Officer to render a Report on Local Road Network and the Inventory Committee to
prepare the Report on the Physical Count of the Network System of the LGU on a yearly
basis.

Such annual reports on local road networks for the year 2021 were not prepared by the PGS.
The physical count of local road networks was incorporated in the RPCPPE. However, it
lacked the necessary information unique to local road networks, such as, but not limited to,
Road Network ID, components, description, date constructed, and condition of such assets.

In an interview, the PGSO explained that they were not aware of these prescribed reports.
The PGS has no institutionalized mechanism to keep abreast of latest laws, rules, and
regulations, including COA issuances.

In effect, the accuracy of the disclosures in the Notes to the Financial Statements regarding
local road networks are not corroborated due to the lack of the said reports.

a. Henceforth, the Provincial General Services Officer and the Inventory Committee
should comply with the reporting requirements under COA Circular No. 2015-008
and prepare the required reports on local road networks.

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❖ Fund transfers

 Due from Non-government Organizations/Peoples’ Organizations

6. Dormant fund transfers to NGOs/POs render the existence, collectability, and

reliability of receivables doubtful - ₱23.367 million

Section 5.3 of COA Circular No. 2007-001 provides that signing officials of the Government
Organization (GO) to the Memorandum of Agreement (MOA) with NGOs/POs shall cause
close monitoring and inspection of project implementation and verification of financial
records and reports of the NGO/PO, and shall ensure compliance with the provisions of the
MOA and said Circular.

Section 6.1 of COA Circular No. 2016-005 dated December 19, 2016 requires all
government entities to conduct regular monitoring and analysis of receivable accounts,
which include fund transfers to NGOs/POs, to ensure, among others, that these are
liquidated within the prescribed period depending upon their nature and purpose.
Specifically, the Accountant is required under the same Circular to:

1. Conduct regular and periodic verification, analysis and validation of the existence of
the receivables and determine the concerned debtors (Section 7.1);

2. Reconcile the unliquidated fund transfers between the source and implementing
entities, prepare the adjusting entries for the reconciling items noted, and require
liquidation of the balances (Section 7.2); and

3. Prepare aging of dormant receivables and determine the existence of conditions

that would warrant write-off of the accounts, such as but not limited to, unknown
whereabouts of the debtor, exhaustion of all possible remedies to collect the
receivables and to demand liquidation thereof, and no pending case in court
involving the subject dormant accounts (Section 7.4).

Fund transfers to NGOs/POs of the PGS with ending balance as of December 31, 2021 of
₱33.101 million, corresponding to 8.85 per cent of the Total Receivables, were examined
vis-à-vis the above-mentioned guidelines and the following were found:

1. There was no liquidation during the year;

2. 70.59 per cent of the outstanding balance or the sum of ₱23.367 million is non-
moving for ten (10) years or more; less than ten (10) years but more than one year
amounted to ₱9.551 million or 28.85 per cent of the outstanding balance; while
current or less than one (1) year totaled ₱183,300.00.

3. 62.57 per cent of the outstanding balance or the sum of ₱20.710 million were
reported by the PGS as pertaining to fund transfers to NGOs/POs which are
allegedly fictitious as reported in the Special Audit conducted in the year 2003, can
no longer be located/traced or whose whereabouts are unknown. Observations 2
and 3 are illustrated in Figure 2 and the details are shown in Appendix L;

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 Figure 2 – Composition of Due from NGOs/POs, as of December 31, 2021

4. Despite the prevalence of dormant fund transfers to NGOs/POs, an aging of

dormant receivables is not prepared and no Request for Authority to Write-off
Dormant Receivable Accounts has been filed yet since the issuance of COA
Circular No. 2016-005; and

5. Six (6) out of the 53 NGOs/POs who were sent with confirmation letters denied any
knowledge of the subject fund transfers either because there was no turn over from
the previous officers of the organization or the lack of monitoring, inspection or
demand from the PGS; two (2) confirmed the amounts received with reservation
that they were not aware that the funds have to be liquidated; four (4) confirmed the
amounts recorded by the PGS without reservation. (See Appendix L for details.)

The conditions above were due to the following causes:

1. There is no clear system in monitoring and inspection of project implementation

and verification of financial records and reports of implementing NGOs/POs.

Interview with Management disclosed that, as a practice, the Provincial Project

Monitoring Committee (PPMC) only monitors projects implemented by NGOs/POs
that are under the Provincial Rural Development Project (PRDP), while those
funded from other sources are expected to be monitored by the
proponent/implementing departments. However, the PGS was not able to provide
any written guidelines containing such practice and/or the detailed procedures and
processes including, but not limited to, the responsible offices/personnel,
monitoring and reporting timelines, and uniform tools that will be used in the
process. It was reported in the audit year 2018 that the PGS planned to adopt a
computerized project monitoring system on that same year, but it did not
materialize yet as of the end of 2021.

2. There is no established feedback mechanism on the results of review and

examination of the submissions by the NGOs/POs to the PGS. Hence, the
NGOs/POs are not notified whether such submissions were accepted and their
accounts were already credited or further compliance is still required from them.
Accordingly, the accounts, overran by time, remain outstanding in the records of
the PGS until the officers of the NGO/PO are replaced or the NGO/PO is dissolved.

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 3. Periodic reconciliation, verification, and validation of the receivables and the
concerned debtors are not conducted regularly by the PGS. Also, NGOs/POs
which were identified by the PGS as existing were not sent with demand letters to
require liquidation of balances.

4. The dormant fund transfers are composed mostly of releases to NGOs/POs in the
previous years that were found fraudulent and irregular/illegal by the Special Audit
Team constituted in the year 2003. Some are even subjects of ongoing litigation in
the court of law.

Anent this, it was already recommended in the previous years’ audit that the PGS
has to specifically identify such accounts and be reported separately in the aging of
dormant receivables as prescribed under COA Circular No. 2016-005, so as to
determine which accounts may or may not be subjected to write-off and other
appropriate legal remedies.

The Provincial Governor, in compliance with the prior years’ audit

recommendations, issued a memorandum dated September 21, 2020 requesting
the assistance of the Provincial Legal Officer to evaluate all outstanding NGOs/POs
accounts and assess the need to apply legal action thereto. There has been no
reported progress thereafter.

The non-liquidation of fund transfers to NGOs/POs for a very long time coupled with the fact
that some of the NGOs/POs are fictitious, anomalous, or can no longer be traced cast
doubts on the existence and settlement/collectability of the specific accounts as well as the
reliability of the total receivables and the corresponding expenses thereof.

Moreover, the observed deficiencies indicate gaps in the internal control which, if not
addressed, increase risk of loss or wastage of government funds and/or property. Wise
management of government resources requires the immediate liquidation of funds to ensure
its utilization for its intended purpose, and/or the return of the unutilized portion so that it
could be used to further support other projects that are beneficial to the public rather than
being idle on the hands of defaulting NGOs/POs or tied up in projects that no evidence of
performance can be found.

With the foregoing observations, we reiterated the following recommendations:

a. For the Provincial Accountant, with the assistance of the Provincial Legal Officer,
in accordance with the memorandum of the Provincial Governor, to evaluate all
the outstanding accounts of NGOs/POs and assess the need to apply legal
remedies and actions against those who have failed to liquidate their respective
funds.

b. For the Local Chief Executive to direct the concerned officials to exert efforts to
identify and make a report on previous years’ fund transfers which are under
litigation and with on-going cases and pursue the appropriate legal remedies
available to the Provincial Government.

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We recommended the following additional course of actions:

a. For the Local Chief Executive to require the concerned officials to carry out the
procedures prescribed under COA Circular No. 2016-005 for the write-off of
dormant accounts, as applicable.

b. For the Local Chief Executive to cause the establishment in writing of a clear
system in monitoring of project implementation of NGOs/POs and ensure that
such measures are fully disseminated to and implemented by all the concerned
departments of the Provincial Government.

c. For the Provincial Accountant to initiate measures to improve its existing

processes/procedures to include a feedback mechanism which would ensure that
liquidation and/or settlement of fund transfers to NGOs/POs are properly
undertaken and recorded in the books of accounts.

d. For the Local Chief Executive to direct the concerned departments to revisit their
time and productivity factors to collectively come up with ways and means to
increase work output, other than by adding in new manning complement, to be
able to accomplish the required control measures as far as fund transfers to
NGOs/POs is concerned, such as, but not limited to the conduct of the following:

i. Close monitoring and inspection of project implementation and verification of

financial records and reports of the NGO/PO;
ii. Regular and periodic verification, analysis, and validation of the existence of
receivables and the recipient NGOs/POs;
iii. Regular reconciliation of unliquidated accounts; and
iv. Regular demand to liquidate balances.

Management Comment:

The Management agreed with the recommendations. The Accounting Office committed to
commence with the issuance of demand letters for all dormant accounts starting June 2022
and to implement a feedback mechanism starting with current fund transfers.

The Management is in the process of evaluating the adoption of new or improved policy on
screening NGOs/POs, which will include, but not limited to, requiring orientation on rules
and regulations regarding grant, utilization, and liquidation of fund transfers to NGOs/POs
before accreditation, where such accreditation shall have a period of validity. The policy will
also reiterate the responsibility of the Provincial Project Monitoring Unit in the monitoring
and inspection of project implementation.

 Fund Transfers from National Government Agencies (NGAs) – Department of

Agriculture - Philippine Rural Development Fund (PRDP)

7. Non-recording of partial liquidation against the liability account and improper

classification of some PRDP-related transactions and events resulted in
variances in reported amounts per books and the Statement of Receipts and
Expenditures - ₱148.835 million

65
Paragraph 27 of IPSAS 1 – Presentation of Financial Statements provides that fair
presentation of financial statements requires the faithful representation of the effects of
transactions, other events, and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, revenue, and expenses set out in IPSASs.

The objectives of financial reporting in the public sector should be to provide information
useful for decision making, and to demonstrate the accountability of the entity for the
resources entrusted to it among others by:

a. Providing information about the sources, allocation and uses of financial resources;

b. Providing information about the financial condition of the entity and changes in it; and

c. Providing aggregate information useful in evaluating the entity’s performance in

terms of service costs, efficiency, and accomplishments.4

The following accounts find importance in the faithful representation of the effects of
transactions, other events, and conditions regarding PRDP, vis-a-vis COA Circular No.
2015-009 dated December 1, 2015, prescribing the Revised Chart of Accounts for Local
Government Units:

✔ Trust Liabilities (2-04-01-010) - This account is used to record the receipt of

amount held in trust for specific purpose. Debit this account for payment or
settlement of the liability or compliance of condition.

✔ Other Deferred Credits (2-05-01-990) - This account is used to record the other
income received in advance not falling under any of the specific deferred credits
accounts. Debit this account when related income is earned.

Item 6.2.1 (b) of the Department of Agriculture Philippine Rural Development Project (PRDP)
Financial Management Operations Guidelines adds that:

“The financial reports will be based on data recorded using the accrual method
wherein revenues are recorded when earned regardless of when received and
expenses are recorded when incurred regardless of when paid.”

As of December 31, 2021, the PGS reported an outstanding liability to other National
Government Agencies of ₱737.611 million. Out of this amount, 25.31 per cent or ₱186.705
million was due to the Department of Agriculture (DA) in connection with the implementation
of PRDP sub-projects with a net decrease of ₱192.951 million for the calendar year 2021.
Receipts during the year were ₱31.614 million, while liquidation amounted to ₱224.565
million.

4
IPSAS 1, Paragraph 15

66
 Table 4 - Movement of PRDP Account vis-à-vis Total Due to NGAs for the year 2021

Shown in the succeeding table are the comparative balances in the subsidiary ledgers
against the reported unliquidated balances in the Statement of Sources and Application of
Funds (SSAFs), verified from the Statement of Receipts and Expenditures (SREs), for the
year ended December 31, 2021, with a variance of ₱148.835 million computed as follows:

Table 5 - Due to NGAs-PRDP as of December 31, 2021

Per Subsidiary Ledger (Due to NGAs-PRDP) ₱ 186,705,222.48

Per SRE (LP & GOP Counterpart) 37,869,769.76
Variance (In absolute amount) ₱148,835,452.72

The details of the PRDP Projects per SRE are provided below:

Table 6 - PRDP Balances as of December 31, 2021, per SRE

The substantial amount of variance between the subsidiary ledgers and the SREs was due
to the non-recognition of partial fulfillment of condition/submission of partial liquidation to
source agency, such that there is no accounting entry to reduce Due to NGAs. Such
account is reduced only upon full accomplishment of the project or full liquidation of the fund.

67
Moreover, it was also observed that some transactions, events, and conditions affecting
PRDP funds will be better presented using more appropriate accounts. Comparison of
accounting of fund transfers from NGAs and LGU counterpart contributions under the Trust
Fund by the PGS with reference to the nature and definition of accounts under COA Circular
No. 2015-002 are shown below:

Particulars Suggested Entries Actual Entries Effect to financial

(IPSAS and RCA by the PGS records and reports
compliant)
1. Receipt of fund from (Dr) Cash in Bank (Dr) Cash in Bank None
source agency (i.e. LP (Cr) Due to (Cr) Due to
and GOP funds) – NGAs NGAs
Same Entries
2. Transfer of LGU (Dr) Cash in Bank (Dr) Cash in Bank ⮚ Improper account
counterpart from GF (Cr) Trust (Cr) Other classification;
to TF – recognized as Liability Payables
Other Payables (2-99- ⮚ Overstate Other
99-990) instead of Payables,
Trust Liabilities (2-04- understate Trust
01-010). Liabilities;
⮚ Nil net effect to Total
Liabilities
3. Disbursement: Partial (Dr) Construction in (Dr) Construction None
billing – Same Entries Progress (CIP) in Progress (CIP)
(Cr) Cash in (Cr) Cash in
Bank Bank
4. Partial fulfillment of (Dr) Trust Liability* ⮚ None ⮚ Effects of
condition/submission (Dr) Due to NGAs** transactions are not
of partial liquidation to (Cr)Other faithfully represented
source agency: No Deferred Credits in accordance with
accounting entry to the definition and
reduce Due to NGAs * For LGU recognition criteria
and Trust Liabilities Counterpart for liabilities set out
and contra account ** For LP and GOP in IPSAS;
Other Deferred Counterpart
Credits (2-05-01-990).
(The absence of this ⮚ Disparity between
accounting entry is the the outstanding
main reason for the liability per general
overstatement of Due purpose financial
to NGAs accounts) statements (i.e.,
Statement of
Financial Position)
and special purpose
financial statement,
i.e. Statement of
Receipts and
Expenditures (SRE)

⮚ Overstate Due to
NGAs and Other

68
 Particulars Suggested Entries Actual Entries Effect to financial
(IPSAS and RCA by the PGS records and reports
compliant)
Payables,
understate Other
Deferred Credits;

⮚ Nil net effect to Total

Liabilities
5. Completion/Transfer (Dr) Building (Dr) Building None
of CIP to appropriate (Cr) CIP (Cr) CIP
PPE account – Same
Entries
6. Complete fulfillment of (Dr) Other Deferred Dr) Other ⮚ Effects of
condition: Credits Payables transactions are not
(Cr) Transfers (Dr) Due to NGAs faithfully represented
● Utilized trust receipts from General (Cr) Building in accordance with
are not closed to the Fund of LGU the definition and
appropriate revenue Counterpart/ recognition criteria
accounts, i.e. Equity Share for revenue set out
Transfers from NGA (Cr) Transfers in IPSAS;
(4-03-02-030) and from National
Government
Transfers from ⮚ Understate
General Fund of LGU Transfers from NGA
Counterpart/ Equity (Dr) Transfers from and Transfers from
Share (4-02-02-010), General Fund of General Fund of
respectively. LGU Counterpart/
Equity Share LGU Counterpart/
(Dr) Transfers from Equity Share
● There are no nominal National accounts
accounts in the Trust Government
Fund. (Cr) Income &
Expense
● The PPE account Summary
recognized for the
implementation of the (Dr) Income &
project was closed Expense Summary
directly to liability (Cr) Government
accounts under TF Equity
rather than the
Government Equity
account.
7. Transfer of PPE to GF (Dr) Government (Dr) Other ⮚ Improper revenue
is recorded as credit Equity Payables account used;
to Subsidy from Other (Cr) Building (Dr) Due to NGAs
Funds rather than (Cr) Building ⮚ Overstate Subsidy
Government Equity. from Other Funds in
GF books;
⮚ Nil net effect to
Government Equity

69
In addition to the effects discussed above, the non-recognition of partial liquidation or
accomplishment against the liability account resulted in the disparity between the
outstanding liability per general purpose financial statements (i.e., Statement of Financial
Position) and special purpose financial statement, [i.e., Statement of Receipts and
Expenditures (SRE)] and the overstatement of Due to NGAs accounts.

Aside from discrepancies within the PGS’ records, it was also observed that the reported
unliquidated balance per general ledger differs from that of the source agency. The
computation is shown below.

Table 7 - Comparison of PRDP Fund Balances per PGS and PRDP PSO-Mindanao, as of
September 30, 2021

This is due to liquidations made by the PGS that were not recorded in the books of the
source agency resulting in a variance of ₱25.660 million as of September 30, 2021. Such
discrepancies are not immediately settled or resolved due to lack of regular reconciliation
and coordination with the source agency on the take up of liquidation reports submitted
thereto.

In effect, reciprocal accounts between the source and implementing agencies are not equal.
Moreover, difficulties may be encountered in liquidating funds in the future, such that
documents may be lost or the personnel may change, if balances are not reconciled
regularly.

Management Comment:

The PAccO committed that the suggested entries are being prepared currently to correct the
variances from the subsidiary ledgers and per SRE. The said adjusting entries (JEV) will be
transmitted with the set of Monthly Financial Statement for the month of April 2022. The
PAccO will also continue to coordinate with the source agency and will request for a
reconciliation of the PRDP Projects balances.

Recommendations:

Considering the foregoing observations, we recommended and Management agreed to the

following:

a. For the Local Chief Executive to require the Provincial Accountant and other
concerned officials and employees to revisit the recording of transactions
affecting Philippine Rural Development Project (PRDP) funds, and Trust Funds in
general, to faithfully represent effects of transactions and events related thereto
for the fair presentation of the financial transactions of the PGS in compliance
with IPSAS.

70
b. For the Provincial Accountant to conduct regular reconciliation of records with
the source agency. Submit the required documents to facilitate the recording of
liquidations that were not yet taken up by the source agency to update the PGS’
account with the latter.

 Local Development Fund

8. Non-implementation of projects under Local Development Fund within the

targeted period deprived the constituents of the Province of the benefits that
could have been derived therefrom - ₱109.714 million

Local Government Units (LGUs) are required to set aside a local development fund (LDF),
which should be no less than 20 per cent of the LGU’s share from national taxes pursuant to
Section 287 of the Local Government Code. The LDF is intended for specific programs,
projects and activities in furtherance of the development agenda of the government as
embodied in prescribed development plans and investment programs.

LGUs are enjoined to observe the policies and guidelines in the appropriation and utilization
of the LDF as contained in DBM-DOF-DILG Joint Memorandum Circular (JMC) No. 1 dated
November 4, 20205, one of which is that development projects to be funded out of the 20 per
cent DF are well-planned and procurement-and-implementation-ready (Section 3.2.3).

Accordingly, the General Provisions of Appropriation Ordinance No. 2020-10-009

authorizing the Annual Budget of Sarangani for FY 2021, specifically Section 48, provides:

“Section 48. Prioritization of Programs, Projects and Activities (PPAs). No PPA’s

shall be funded in this Annual Budget without the supporting plans and not
included in the approved Annual Investment Program (AIP). The proponents of
proposed programs/projects/activities should comply with the necessary requirements
such as road right of way (ROW) and program of works (POW) for infrastructure
projects, and logical framework for non-infrastructure projects (emphasis supplied).”

The IRA share of the PGS for the year 2021 amounted to ₱1.485 billion, of which 20 per
cent was appropriated for development projects under Appropriation Ordinance No. 2020-
10-009, with details as follows:

Functional Description Appropriated

Classification Amount
3918 Purchase, Construction & Improvement of ₱ 6,000,000.00
Government Facilities-Education, Culture, Sport
4918 Purchase, Construction & Improvement of 22,277,814.00
Government Facilities-Health
6918 Purchase, Construction & Improvement of 84,777,814.00
Government Facilities-Housing and Community
Development
8911 Agricultural Development Projects 6,300,000.00

5
Revised Guidelines on the Appropriation and Utilization of the Twenty Percent (20 per cent) of teh Annual
Internal Revenue Allotment for Development Projects

71
 Functional Description Appropriated
Classification Amount
8918 Purchase, Construction & Improvement of 172,968,280.00
Government Facilities-Economic Services
8919 Other Economic Services Projects 187,418,280.00
9911 Public Debt Loan Amortization-Domestic 24,853,720.00
Total Appropriations in the Annual Budget – LDF ₱297,049,814.00
CY 2021 Internal Revenue Allotment (IRA) ₱1,485,249,067.00
LDF Percentage to IRA 20 per cent

For the year ending December 31, 2021, there are twenty-two (22) projects totaling
₱109.714 million funded under the LDF that were not yet implemented. The details of the
said unimplemented programs or projects, its expected outputs, and amount are shown in
Table 8 below:

Table 8 - List of Unimplemented Projects under Local Development Fund for the year 2021

No. Program/ Expected Outputs Amount

Project/Activity
1 Agri-Infra Production Provided post-harvest facilities: 6,300,000.00
Support Services  2 PO's provided with MPDP in Brgy.
Katubao, Kiamba & Brgy. Kablacan,
Maasim;
 3 PO's provided w/ Multi-commodity
Dryers in Maitum, Malapatan and
Maasim;
 3 PO's provided with Mini-processing
facilities (Roaster & Grinder for Cacao
& Coffee, and Fish Storage and
Facilities) in Maitum, Maasim & Alabel;
 3 councils provided with solar irrigation
for vegetable in Datal Basak, Maasim,
Datal Batong, Malungon & E. Alegado,
Glan;
 Decrease Post-harvest losses; 10 per
cent increase in income.
2 Construction of PGSO 1 unit building constructed to serve as the 10,000,000.00
Building and unified office for the general services of
Warehouse, Alabel the PLGU Sarangani that will provide
convenient workplace for better services
to the clients
3 Greening and Constructed 1 unit reservoir and 1000 3,000,000.00
Landscaping of Capitol ln.m. water distribution system
Compound, Alabel
4 Construction of Datal Constructed 1-unit Potable Water 3,000,000.00
Basak Water System, System; 320 households provided access
Maasim to safe water
5 Concreting/Improvement 750 meters of road concreted and 8,000,000.00
of NHW Jct. Luan provided with drainage facilities, slope
(Maguling)-Ticulab- protection and safety features

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No. Program/ Expected Outputs Amount
Project/Activity
Caface (Tuanadatu
Provincial Road)
6 Construction of Market 1 unit Market Shed Constructed 3,000,000.00
Shed at Datal Basak,
Maasim
7 Construction of Datal One unit health center constructed 2,500,000.00
Bukay Health Center
Brgy. Datal Bukay,
Glan
8 Modification of Existing Electrical System in SMC modified 17,000,000.00
Electrical System in
SMC
9 Improvement of Hospital electrical system improved 1,500,000.00
Electrical System at
Malungon Municipal
Hospital
10 Construction of Water Constructed water system facility for 2,000,000.00
System for Maasim Isolation Facility as provincial counterpart
Isolation Facility to the DOH-HFEP Project
11 Improvement/Rehab of One unit foot bridge rehabilitated 2,000,000.00
Big Margus Foot
Bridge, Glan
12 Construction of Sitio 45.60 ln.m foot bridge constructed 3,000,000.00
Balakayo Foot
Poblacion, Malungon
13 Construction of Kiblat 30 ln.m. foot bridge constructed 3,000,000.00
Foot Bridge, Malungon
14 Construction of 2 units 2 units box culvert constructed 2,500,000.00
box Culvert along Datal
Basak FMR, Maasim
15 Construction of
CCTV System, Local Area Network, 10,000,000.00
Legislative Bulding,
elevator and airconditioning units
Phase VI Capitol
installed; Additional 2-unit septic vaults
Compound, Alabel (concrete); Fire Detection and Alarm
System installed
16 Construction of 50 meters slope protection constructed 2,000,000.00
Barangay Kawayan
Slope Protection,
Malungon
17 Construction of Sitio 1-unit multi-purpose drying pavement 600,000.00
Nian Multi-Purpose constructed
Drying Pavement at
Brgy. Tamban,
Malungon
18 Construction of Multi- 1-unit MPH constructed 2,768,338.00
Purpose Hall,
Barangay Tampal,
Malungon

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No. Program/ Expected Outputs Amount
Project/Activity
19 Concreting of Kalaneg- 600 linear meters of provincial road 8,000,000.00
Mabay-Old Poblacion- concreted
Kiambing Road (Mabay
Section), Maitum
20 Hospital Development Improvement of Sarangani Provincial 17,000,000.00
and Upgrading - Hospital
Improvement of
Sarangani Provincial
Hospital (SB No. 3)
21 Sarangani Plastic
1 covered area (shed) for the plastic chair 1,300,000.00
Recycling Facility factory constructed in Bagacay, Alabel; 1
staff house established; Procured office
equipment and fixtures; 1 motor vehicle
procured, 1 unit ELF truck vehicle
procured; repaired 1 elf truck vehicle and
motor vehicle, PPEs and other supplies
procured, crates and other supplies
procured, 1 desktop computer with UPS
and printer with scanner procured, 1 unit
industrial platform weighing scale
procured
22 Sarangani Medical  1 admin building constructed at 1,246,500.00
Waste Treatment Bagacay, Alabel;
Facility  Constructed Sanitary Landfill Facility
(Category III) at Bagacay, Alabel;
 Constructed washbay and receiving
area;
 Procured 1 brand new unit closed-
container van for healthcare waste
collection;
 Office equipment and fixtures procured;
 PPEs and laboratory supplies;
 1 set desktop computer with UPS and
printer with scanner procured;
 Procured LPG tanks, power sprayer
and weighing scale;
 LPG tank refill and garbage containers
procured
TOTAL 109,714,838 .00

As reported by Management, some of the projects are already up for publication, while
some are in the process of preparation of plans and program of work or for the LCE’s
approval. As discussed during the exit conference, there is a need to revisit the setting of
timelines to accomplish the targeted programs/projects/activities in a given year contrary to
the current practice that targeted implementation is generally set at January to December of
the subject year.

74
The inclusion of projects/programs/activities in the AIP and the Annul Budget despite the
absence of supporting plans and program of works is contrary to the above-mentioned
requirement that development projects to be funded out of the 20 per cent DF are well-
planned and procurement-and-implementation-ready. The Management explained that
implementation of such requirement is indeed a challenge, and if strictly observed, might
lead to having few qualified projects for inclusion in the annual budget.

The non-implementation of the projects resulted in non-attainment of the intended purpose

of the same. These projects being included in the Annual Investment Plan enjoy the
presumption of urgency and priority. They are deemed primary contributors to the
achievement of the goals and objectives of the LGUs as embodied in its development plans.

Considering the foregoing observations, we recommended the following:

a. For the Provincial Development Council and the Local Finance Committee to
revisit the prioritization process to ensure that development projects to be
funded out of the local development fund are well-planned and procurement-and-
implementation-ready;

b. For the Local Finance Committee together with the implementing departments to
formulate realistic and attainable targets and work plan to ensure that funded
PPAs will be implemented upon availability of the funds and within the desired
period.

❖ Other Areas

 Compliance to GSIS and HDMF Laws

9. Low collection efficiency on GSIS and HDMF loan amortizations due to non-
prioritization of obligations to said institutions.

Section 49 of R.A. No. 116406 provides that deductions from salaries and other benefits
accruing to any government employee for payment of an individual employee’s obligations
due to “the BIR, PhilHealth, GSIS, and HDMF shall be satisfied ahead of all other
obligations (emphasis supplied).”

With regard to collection and remittance of amounts due to the GSIS, the Revised
Implementing Rules and Regulations (RIRR) of R.A. 8291 provides that the government
agency shall deduct from the fixed monthly compensation of the employee the amounts due
the GSIS and remit the same thereto within the first ten (10) days of the month following the
month when the deductions were effected.7

On the other hand, Section 2, Rule VII, IRR of R.A. No. 9679 provides that “if a member
avails any loan from the HDMF and the member consents in writing to pay the same through
salary deductions, the employer shall be duty-bound to faithfully implement the same and
shall continue to do so until the loan is fully paid.” Section 3 further provides that the

6
FY 2021 General Appropriations Act
7
Section 14, Revised Implementing Rules and Regulations of R.A. 8291

75
employer shall remit to the Fund the employees’ loan amortizations within fifteen (15) days
from the date the same were collected.

Failure to remit the amounts due to the GSIS would result in suspension of all loan
privileges, not just of the defaulting member, but of all the members of the agency as well
as disqualification from receiving the yearly dividends8. Furthermore, any unremitted loan
amortizations and other amounts due the GSIS shall be deducted from the proceeds of the
loans and claims that will be due the member9.

Regarding obligations to the HDMF, failure without lawful cause or with fraudulent intent to
comply with the provisions of R.A. 9679 shall constitute an offense punishable by a fine of
not less than, but not more than twice, the amount involved or imprisonment of not more
than six (6) years, or both.10

In addition to above adverse consequences, Section 52 of R.A. 8291 lists the following
punishable acts, among others:

1. Whoever fails or refuses to comply with the provisions of the Act or with the
rules and regulations adopted by the GSIS; and

2. The heads of the political subdivisions and the personnel thereof who
are involved in the collection of accounts due the GSIS who shall fail,
refuse or delay the payment of such accounts to the GSIS.

General ledgers showed the following balances of Due to GSIS and Due to Pag-IBIG
accounts:

Table 9 - Balances of Due to GSIS and Pag-IBIG per fund, as of December 31, 2021

Further examination of the details of balances of the Due to GSIS accounts revealed
negative balances of ₱193,099.76 and ₱6,812.38 in General Fund and Trust Fund,
respectively. These negative balances are indications of errors in withholding, remittance,
and recording of Due to GSIS, rendering the account balance unreliable.

Moreover, in response to inquiries sent to GSIS and HDMF, the following certifications from
said institutions revealed the following:

1. Collection efficiency on GSIS Loan Amortizations for CY 2021 is 62.53 per cent; and

8
Section 16.1, Id.
9
Section 16.2, Id.
10
Section 1, Rule XII, IRR of R.A. 9679

76
 2. Multi-purpose and Calamity Loan Amortization of the PGS’ employees are in
arrears.

The trend of PGS’ collection efficiency on GSIS loan amortizations is shown below:

Despite its increasing trend, the current collection efficiency ratio of the PGS on GSIS loan
amortizations is still considerably low11. Moreover, the GSIS low collection efficiency rate
and HDMF obligations in arrears are indications of non-compliance to the above-mentioned
laws and rules, specifically on the deduction of loan amortizations from employees’ salaries
and benefits and remittance thereof to said institutions.

The following were the identified causes of the observed conditions:

a. Decision of employees-borrowers not to deduct loan amortizations from their salary

and other benefits, believing that, as an option, they can have it deducted from the
proceeds of succeeding loans and from future claims that will be due them during
active service or upon retirement;

b. Leniency of the Management in imposing the prioritization of GSIS and HDMF

obligations as first preference in employees’ salary deductions;

c. Persistence of some employees in applying for loan despite limited capability to

pay the monthly amortizations; and

d. Non-implementation of the sanctions provided by law resulting in employees

getting used to refusing or failing to pay obligations without experiencing the
adverse consequences thereto.

As a result, the variance in loan collections could negatively affect the realization of
collection targets of GSIS and HDMF and compromise the benefits they provide or will be
provided to their respective members. Also, the members-borrowers in default may later
suffer unmanageable levels of penalties and surcharges. Moreover, the PGS is exposed to
the risk of suffering the above-quoted adverse consequences provided by law.

11
As a benchmark, DILG Memorandum Circular No. 2017-53 dated March 22, 2017 requires at least 80 per cent overall payment of
members loans as one of the assessment criteria to be eligible for the award of “Seal of Good Local Governance”.

77
Management Comment:

The GSIS eBCS loans remittances 90 per cent threshold enhancement is due for
implementation starting May 2022. This will ensure remittance of at least 90 per cent of
current loan amortization based on the monthly billings. Payrolls that do not meet the
threshold will be suspended in pre-audit and will not be processed for payment. As part of
corrective measures of the Province, regarding payroll matters, a draft proposal is being
prepared.

A memorandum was issued last March 2022 regarding payroll matters on the observance of
the Net Take Home Pay of not lower than Five Thousand Pesos (₱5,000.00) and reiteration
of the order of preference for payroll deductions. Subsequently, another memorandum was
issued regarding GSIS Loans Remittance Threshold as mentioned in the implementation of
GSIS eBCS Loans Remittance.

Before loans are approved, payrolls per index of payments reflected in the HRIS and all
billings, including due and demandable (DND) and in arrears, are being checked and
verified. Also, the Net Take Home Pay are one of the requirements before the said loan will
be approved as per indicated in the certification of AAO.

Recommendations:

To address the above observations, we reiterated and the Management accepted the
following recommendations:

For the Local Chief Executive:

c. Impose to all officials and employees of the Provincial Government compliance to
the prioritization of obligations as prescribed in the General Appropriations Act;
and

d. Direct the conduct of regular information and education dissemination activities

to educate employees on the consequences of late or non-payment of loans, i.e.
deduction of obligations from retirement benefits is not an option they can
exercise in paying their obligations but rather, the consequence of non-
compliance.

For the payroll in-charge:

a. Implement prioritization of obligations in the salary deductions of employees
under their respective offices by ensuring billings are complied with in the
preparation and approval of payrolls.

For the Agency Authorized Officer (AAO)

a. Make sure that the net take home pay of an employee is sufficient to cover the
regular monthly amortization before approving the loan applied for.

For the Provincial Accountant:

a. Ensure in the processing of payment of salaries and benefits of PGS’ officials
and employees that the prescribed prioritization of obligations is complied with
by, among others, validating whether the actual payroll deductions agree with
monthly billings.

78