Findings No.1 COPA Annual Audit Report 2006

July 26, 2008

The Audit Team had conducted a financial, compliance and performance audit on the operations and fiscal transactions of the City Government of Malaybalay for the Calendar Year 2007. We had performed our examination in accordance with the prescribed government auditing standards and other applicable laws, rules and regulations which we deemed appropriate for the existing conditions.

Our audit was made to determine the Agency’s degree of compliance with and adherence to the Constitution, the Local Government Code of 1991 and other pertinent laws, rules and regulations in the conduct of their fiscal operations. Of equal importance is our audit objective to ascertain if the financial statements present fairly the financial status and the results of its operations for the year then ended.

In the conduct of our audit, we had performed audit methodologies and techniques which would test the internal controls and other systems employed by the Agency to ensure the validity, legality and propriety of its transactions and operations. We had audited the transactions and phases of operations of the Agency which, to our informed auditorial judgment, has potential material and substantial effect on the fair presentation of its fiscal status and the results of its operations for the year just concluded.

The result of our audit verification disclosed both favorable and unfavorable findings which will be discussed hereunder. We had recommended specific course of actions to be taken by the concerned Agency officials to remedy the latter findings noted in our audit and we strongly suggest that these recommendations be implemented immediately.

We would like to commend the Agency’s management for various laudable accomplishments, noteworthy among these are the following:

The City Government increased the collection of its local income for CY 2007 to P38,934,560.05 from P36,027,384.87, or an increase of 8.07% from its collection in CY 2006;

The City Government has successfully implemented the DOF-LOGOFIND-assisted 7-building, 57-classroom project costing P25,246,96146, constructed in Barangay Managok National High School and Elementary School, Barangay Bangcud National High School and Barangay Sumpong Elementary School. The loan portion of P7,680,238.80 of the project has been fully paid within the required period;

The City was awarded as one of the Most Child-Friendly City for CY 2006 by the Department of Social Welfare and Development; and,

City Mayor Hon. Florencio T. Flores, Jr. was named as one of the Most Outstanding City Mayor for CY 2006 by the League of Cities of the Philippines.

Notwithstanding these accomplishments enumerated above, the City Government, as noted in our audit, had some substantial deficiencies in strategic areas such as procurement, collection of receivables and the establishment of effective internal control on their cash collections.

However, before the discussion of the noted deficiencies, the Audit Team deemed it necessary to disclose in this Report the pending contract review of the contract executed by and between the City Government of Malaybalay and H.R. Lopez Co. Inc. for P225,330,795.38, for the Planning, Design, Site Development and Construction of the Malaybalay City Public Market, Bus Terminal and Commercial Building.

Initial review made by the COA Region X, Technical Services Office raised the following issues:

The contractor have undertaken all the phases of work of the proposed project, in violation of Executive Order No. 40 and its Implementing Rules and Regulations, (Annex A – 3rd Indorsement dated May 24, 2006 of Atty. Francisco G. Opinaldo, Jr., RCD-TSO COA RX);

“Whether or not the award of the project to H.R. Lopez Co., Inc. is valid considering that there is no Certificate of Availability of Funds at the time of Bidding/ Award. The fact that the funds are yet to be derived through floating of Bonds;

Whether or not the mode of award and construction through the contractor’s own “design and construct” is valid in this jurisdiction considering that the Agency did not prepare its own Detailed Estimates as basis for the Approval of the Budget for Contract;

Whether or not a contracted project may be paid on a lump sum basis without quantifying the individual actual accomplishments based on the itemized pay item. The fact that there is no approved budget for contract of the project;

Whether or not Sections 85 and 86 of P.D. 1445 have been breached in this instance.” (Annex B – Unnumbered Memorandum of Atty. F. G. Opinaldo, Jr. Regional Cluster Director, COA RX, TSO, dated Sep. 11, 2006, to Atty. Celso L. Vocal, RCD, COA RX, LAO).

In reply to the issues raised in the review, the Agency submitted the following answers, to wit:

On the issue of the lack of Certificate of Availability of Funds at the time of Bidding/ Award –

“The award of the project to H.R. Lopez Co., Inc. was subject to a resolutory condition. This was made known in the publication of the Invitation for Prequalification, xxx, that the winning Bidder for planning, design, site development and construction of the x x x, is willing to accept payment in form of Malaybalay City Bonds redeemable in Seven (7) years from date of issuance because the funds are yet to be derived through bond floatation.” (Annex C – Letter of City Mayor Hon. Florencio T. Flores, Jr. dated October 25, 2006)

On the validity of the mode of award and construction through the contractor’s own “design and construct” scheme and the non-preparation of the Agency of its own Detailed Estimates –

“a. no funds available to conduct separate bidding for the procurement of consulting services for the design and planning and construction of civil works. xxx

b. Adapted the feasibility study through the Sangguniang Panlungsod Resolution No. 2003-7155 dated July 1, 2003, xxx…” (Annex C)

On the issue as to whether or not the project may be paid on a lump sum basis –

“The project was not paid on a Lump Sum Basis, in fact as stipulated in the Contract Agreement for the project in Article VII 7.8 x x x..:

It is hereby understood by the parties herein that the nature of this Agreement is pay item of work contract for the design and construction of the PROJECT.” (Annex C)

On the last issue of the supposed breach of Sections 85 and 86 of P.D. 1445 –

“The city government has obtained a certification from RCBC Capital Corporation last August 08, 2004 that they will underwrite the proceeds of the Malaybalay City Bonds.” (Annex C)

It is however noted that the Management did not made any responsive reply on the issue raised in the 3rd Indorsement dated May 24, 2006, of the COA RX-TSO, that is– violation of the provisions of Executive Order No. 40, series of 2001 on prohibition on the contractor of undertaking all the phases of work of the project.

Considering the complexity of the issues involved, which admittedly is beyond the competence of the Audit Team to resolve, and coupled with the contract amount involved in the project, we deemed it necessary to seek the assistance of the COA Regional Office No. X, Legal and Adjudication Office.

We are quoting hereunder the action taken by the said Office in its 14th Indorsement dated April 16, 2007 to Dir. Roy L. Ursal, Director III, Legal and Adjudication Office-Local, Legal and Adjudication Sector, COA Central Office –

“Premises considered and considering the immensity of the project involved, the cost being tagged at Php 225,330,795.30 and being a novelty case, this Office elevates the matter to that honorable office for comment and other appropriate disposition.”

Having disclosed this matter, we now go to the discussion of the deficiencies noted by the Audit Team on the financial operations of the City Government of Malaybalay for CY 2006, to wit:

Public bidding as the general mode of procurement was not strictly implemented by the City Government thus, the purchase of drugs and medicines, medical, dental and laboratory supplies amounting to P5,669,077.58 through Direct Contracting or Shopping is questionable and not in conformity with the conditions set forth in Secs. 50 and 52 of the Government Procurement Reform Act (R.A. 9184) and its Implementing Rules and Regulations.

The City Government has purchased a total of P9,386,700.94 worth of drugs and medicines, medical, dental and laboratory supplies for CY 2006. This procurement was made through the following modes:

Competitive Public BiddingP 2,740,849.61Shopping3,099,620.75Direct Contracting2,569,456.83Negotiated Purchase976,773.75Grand TotalP 9,386,700.94

A schedule of the purchase orders covering these procurements is attached hereto as Annex “D” and made an integral part of this Report.

Section 10 of the IRR-A of R.A. 9184 prescribes that –

“All procurement shall be done through competitive bidding, except as provided in Rule XVI of this IRR-A.”

As noted in our audit, it was established that the Agency resorted to public bidding only for the 29% of the total procurement of drugs, medicines, medical, dental and laboratory supplies for CY 2006, contrary to the above-cited provision of law. The City Government resorted to the alternative modes of procurement for the remaining 71% of the subject procurement.

To avail of the alternative methods of procurement, R.A. 9184 and its IRR-A has strictly prescribed for the following requirements, to wit:

“Rule XVI – Alternative Methods of Procurement

Sec. 48. Alternative Methods

Subject to the prior approval of the head of the procuring entity or his duly authorized representative, and whenever justified by the conditions provided in this Act, the procuring entity may, in order to promote economy and efficiency, resort to any of the alternative methods of procurement provided in this rule. In all instance, the procuring entity shall ensure that the most advantageous price for the Government is obtained.

In accordance with Section 10 of this IRR-A, as a general rule, the procuring entities shall adopt public bidding as the general mode of procurement and shall see to it that the procurement program allows sufficient lead time for such public bidding. Alternative methods shall be resorted to only in the highly exceptional cases provided for in this Rule.

Sec. 50.Direct Contracting – Direct contracting or single source procurement is a method of procurement of goods that does not require elaborate bidding documents. The supplier is simply asked to submit a price quotation or a pro-forma invoice together with the conditions of sale. The offer maybe accepted immediately or after some negotiations. Direct contracting may be resorted to by concerned procuring entities under any of the following conditions:

xxx.

Those sold by an exclusive dealer or manufacturer which does not have sub-dealers selling at lower prices and for which no suitable substitute can be obtained at more advantageous terms to the Government.

Sec. 52. Shopping

Shopping is the method of procuring of goods whereby the procuring entity simply request for the submission of price quotations for readily available off-the-shelf goods or ordinary/regular equipment to be procured directly from suppliers of known qualifications. This method of procurement shall be employed only in any of the following cases:

When there is an unforeseen contingency requiring immediate purchase: Provided however, that the amount shall not exceed fifty thousand pesos(P50,000); or.

Procurement of ordinary or regular office supplies and equipment not available in the Procurement Service involving an amount not exceeding two hundred fifty pesos (P250,000); Provided, however, that the procurement does not result in splitting of contracts, as provided in Section 54.1 of this IRR-A: Provided, further, That at least three (3) price quotation from bona fide suppliers shall be obtained.

Sec. 54. Terms and Conditions for the use of Alternative Methods

Splitting of Government Contracts is not allowed. Splitting of Government Contracts means the division or breaking up of Government Contracts into smaller quantities and amounts, or dividing contract implementation into artificial phases or sub-contracts for the purpose of evading or circumventing the requirements of law and this IRR-A, especially the necessity of public bidding and the requirements for the alternative methods of procurement. ”

The Bids and Awards Committee, as one of its prescribed function, shall recommend to the head of the procuring entity the use of Alternative Methods of Procurement as provided for in Rule XVI hereof (Sec. 12.1 of the IRR-A of R.A. 9184).

During the review, we had noted that majority of the procurements made through the alternative modes of direct contracting and shopping did not squarely meet the requirements prescribed by the aforementioned provisions of law.

To be more specific, in the procurement of medicine, dental and medical supplies through Direct Contracting, no certification as to the non-availability of suitable substitutes of the items procured which can be obtained at a more advantageous terms to the City Government of Malaybalay were made to justify the resort to Direct Contracting. In resorting to the alternative mode of procurement through Shopping several procurements above the threshold amount of P250,000 were made, in violation of Sec. 52(b) of the said R.A. 9184.

As a result of these deficiencies and in the absence of any comparative prices at the time the procurements were made, we could not ascertain whether the contracts covering these procurements were advantageous and beneficial to the Agency under audit.

When we sought for their comments and justifications on this audit finding, the Management through the City Mayor and the BAC Chairman reasoned out that most of the subject procurements made through direct contracting and shopping were emergency in nature and were not included in the list of medicines submitted by the City Health Office for procurement.

However, they made the assurance that for the incoming CY 2007, they would strictly implement and enforce the provisions of R.A. 9184, particularly on the resort to the alternative methods of procurement.

Recommendation:

Require the City Mayor and the BAC to strictly follow the provisions of R.A. 9184 and its Implementing Rules and Regulations. Also, remind them to carefully screen and evaluate the purchase requisitions that necessitate the use of alternative method of procurement.

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Written by admin · Filed Under Commission on Audit, Malaybalay

Comments

One Response to “Findings No.1 COPA Annual Audit Report 2006”

joy on June 28th, 2010 2:00 pm

good am.. as a resident of local Managok, Malayablay City , ” poydi ba kami makabalo sa:
1. financial status as amo barangay ( audited ) From Administration of Capt. Ravidas and the treasurer Eping Balinas.
Reason : 1. to erase in the mind of the residents that there are existing discrepancy in the records
2. Im just curious because i noticed that the barangay managok is in thirst of development./ projects .

I hope this will be given attention by the concerns para sa ikalipay sa katawhan sa managok ug sa kalomboan niini.

tanx

thank you.

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