Republic of the Philippines

Commission on Audit Center for International Trade

Commonwealth Avenue, Quezon City Expositions and Missions

AUDIT OBSERVATION MEMORANDUM (AOM)

AOM No. 17-___

Date: July 31, 2017

FOR : CLAYTON H. TUGONON

Executive Director
CITEM, Pasay City

Attention : MA. LOURDES D. MEDIRAN

Chairman, CITEM Bids and Awards Committee

WILMA G. DULAY
OIC, Controllership

We have audited the payment to Masangkay Computer Center for the purchase of hardware
requirements for CY 2016 Re: CAPEX 2016 amounting to P1,597,288.00 covered by
Disbursement Voucher (DV) No. EO- 1612200 and observed the following:

The total amount of P1,597,288.00 is comprised of the following items:

CATEGORY QUANTITY ARTICLES UNIT TOTAL

PRICE AMOUNT
Desktop 1 unit Asus DT-ROG-G20CB Desktop P 138,680 P 138,680
Laptop 24 units Acer Aspire F5-573G-787n Laptop 49,278 1,182,672
Printer 1 unit Epson L1800 Printer 25,280 25,280
Card Reader 4 pcs. Smart Card Reader 10,000 40,000
Data Collector 6 pcs. Pocket Sized Data Collector Zebex 13,288 79,728
Scanner 4 pcs. Barcode Scanner Zebex 15,988 63,952
Printer 1 pc. Epson DS-860 49,988 49,988
Speaker 1 pc. JBL Xtreme Bluetooth Speaker 16,988 16,988
TOTAL P 1,597,288

The following observations are the results of our audit:

1. CITEM purchased high-end electronic gadget/computer equipment without any attached

justification for doing so, in violation of Annex C of COA Circular 2012-003 dated October
29, 2012 which partly provides that:
 “Cases that are considered “Unnecessary” Expenditures or Uses of Government
Funds and Property

xxx
7. Purchase of high-end or expensive models/brands of electronic gadgets such
as mobile phones, desktops, laptops, etc. unless justified by circumstances.

“High-end” is a term which pertains to a thing of superior quality or sophistication and

usually high in price. (Merriam Dictionary). We believe that one unit Asus desktop
computer which was purchased for P138,680 is of superior quality or sophistication, with
the following specifications:

Processor: Intel Core i7-6700

RAM: 16 GB DDR4 Memory
Storage: 1 Terabyte HDD/ 128 GB SSD Hard Disk

2. The semi-expendable property included in this purchase is not recorded in accordance with
Government Accounting Manual’s provisions for Inventory.

Sec. 10. Semi-expendable Property. Tangible items below the capitalization threshold
of P15,000 shall be accounted as semi-expendable property. The following policies apply as
follows:
a. Semi-expendable property which were recognized as PPE shall be reclassified to the
affected accounts.
b. These tangible items shall be recognized as expenses upon issue to the end-user.

Sec. 11. Accountability over Semi-expendable Property. Inventory Custodian Slip

(ICS) (Appendix 59) shall be issued to end-user of Semi-expendable Property to establish
accountability over them. Accountability shall be extinguished upon return of the item to the
Property and Supply Division/Unit or in case of loss, upon approval of the relief from property
accountability.

3. Property Acknowledgement Receipt is not in accordance with the prescribe COA form for PAR for it
lacks column for important details such as the Date Acquired and Amount of the Property.

4. Criteria in Recognizing PPE

GAM, Sec. 3. Criteria for Recognition. The cost of an item of PPE shall be recognized as
assets if, and only if:
a. it is probable that the future economic benefits or service potential associated with the
item will flow to the entity;
b. the cost or fair value of the item can be measured reliably;
c. beneficial ownership and control clearly rest with the government;
d. the asset is used to achieve government objectives; and
e. it meets the capitalization threshold of P15,000.

GAM, Sec. 4. Applying the Capitalization Threshold of P15,000. The capitalization

threshold of P15,000 represents the minimum cost of an individual asset recognized as a PPE on
the Statement of Financial Position.
a. Items with individual values below the threshold but which work together in the form
of a group of network asset whose total value exceeds the threshold shall be
recognized as part of the primary PPE. (Example: computer network, PABX system,
sewerage system).

Expenditures incurred on purchasing, developing, and operating hardware, like

web servers, staging servers, production servers and internet connections of a website
is accounted for as PPE if the total value of the primary asset (communications
networks) and these items is within the threshold of P15,000 and above
.
b. This threshold shall be applied on an individual asset or per item basis. Each item
within the bulk acquisition with aggregate or total value of PPE, such as library
books, computer peripherals and small items of equipment, will need to meet the
capitalization threshold to be recognized as PPE.

GAM, Sec. 19. Receipt, Inspection and Acceptance of PPE. Receipt of items purchased by
the agency/entity shall be inspected by the inspection officer/committee before acceptance by the
Supply and/or Property Custodian. Acceptance shall be made only if the PPE delivered conform
to the standards and specifications in the PO (Appendix 61). Inspection and acceptance shall be
made using the IAR (Appendix 62).
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GAM, Sec. 20. Recording of Deliveries. Deliveries of PPE shall be recorded immediately in
the Property Card (Appendix 69) maintained by the Supply and/or Property Division/Unit on the
basis of the IAR and other supporting documents. The IAR and other supporting documents shall
be forwarded to the Accounting Division/Unit for the recording of deliveries in the books of
accounts through JEV and in the Property, Plant and Equipment Ledger Card (PPELC)
(Appendix 70). Based on the IAR and other supporting documents, the Supply and/or Property
Division/Unit shall prepare the DV and submit to the Accounting Division/Unit for the processing
of payment (Refer to Chapter 6-Disbursements).
GAM, Sec. 21. Issue of PPE. Based on approved RIS, the Supply and/or Property Custodian
shall prepare the Property Acknowledgement Receipt (PAR) (Appendix 71) to support the issue of
property to end-user. The PAR shall be renewed at least every three years or every time there is a
change in accountability or custodianship of the property.

Sec. 40. Idle, Unserviceable and Fully Depreciated PPE. The following are the
policies on idle, unserviceable and fully depreciated PPE:
a. Temporary idle activity or abandonment of PPE does not preclude depreciating the
asset, as future benefits are consumed not only through usage but also through
obsolescence, and wear and tear.
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b. A PPE is said to be fully depreciated when the carrying amount is equal to zero or
residual value. The cost of fully depreciated assets remaining in service and the
related accumulated depreciation and accumulated impairment losses shall not be
removed from the accounts.
c. A PPE is said to be unserviceable if it is no longer capable of providing the entity
with future economic benefits or service potential.
d. All unserviceable property shall be reported in the Inventory and Inspection Report of
Unserviceable Property (IIRUP) (Appendix 74). PPE reported in the IIRUP shall be
dropped from the books by debiting Impairment Loss-Property, Plant and Equipment
(cost of the PPE less Accumulated Depreciation).

Sec. 42. Accounting and Property Records to be maintained for PPE. The Chief
Accountant shall maintain the PPELC for each category of PPE including work and other
animals, livestock etc. The PPELC shall be kept to record promptly the acquisition, description,
custody, estimated useful life, depreciation, impairment loss, disposal and other information about
the asset. For check and balance, the Property and Supply Office/Unit shall likewise maintain PC
for PPE in their custody to account for the receipt and disposition of the same. The balance per
PC shall be reconciled with PPELC maintained by the Accounting Division/Unit. They shall also
be reconciled with other property records like PAR.
The following are the forms/reports necessary to account for PPE:
a. Purchase Request (Appendix 60) – this form shall be used by the requisitioner to request
for the purchase of PPEs items not available on stock. It shall be the basis of preparing
the Purchase Order (PO).
b. Purchase Order (Appendix 61) – this form shall be prepared by the Supply and/or
Property Division/Unit to support the purchase of PPE, supplies and materials, etc. It
serves as the contract between the entity and the supplier for the delivery of specified
items based on the stipulations stated which was agreed upon during the procurement
process.
c. Inspection and Acceptance Report (Appendix 62) – this form shall be used to report the
result of the inspection made by the Authorized Inspector on the deliveries and the
status of the accepted items by the Supply and/or Property Custodian. This form shall
also be used for the inspection of repairs, infrastructures and reforestation projects.
d. Property Card (Appendix 70) – this card shall be used by the Supply and/or Property
Division/Unit to record the description, acquisition, transfer, disposal, and other
information about the PPE. It shall be kept for each class of PPE.
e. Property, Plant and Equipment Ledger Card (Appendix 71) – this card shall be used for
each class of PPE to record the acquisition, description, custody, estimated life,
depreciation, impairment, disposal, transfer/adjustment, repair history and other
information about the property. It shall be kept and maintained by the Accounting
Office/Unit.
f. Property Acknowledgement Receipt (Appendix 72) –This form shall be used by the
Supply and/or Property Division/Unit to report the issuance of PPE and the
acknowledgement of the end-user.
g. Report on the Physical Count of Property, Plant and Equipment (Appendix 73) – this
form shall be used to report the physical count and condition of PPE by type as at a
given date, including those which are unrecorded and those which could not be
accounted for. It shows the balance of PPE per property cards and per count and the shortage/overage, if
any. It shall be rendered by the Inventory Committee, on its yearly
physical count of properties owned by the entity.
h. Inventory and Inspection Report for Unserviceable Property (Appendix 74) – this report
shall be used to account for all unserviceable property of an entity which is subject to
disposal. It also serves as the basis in derecognizing the unserviceable properties carried
in the PPE accounts.
i. Report of Lost, Stolen, Damaged or Destroyed Property (Appendix 75) – this form shall
be used by the accountable officer/employee to report or notify the concerned officials
of the lost, stolen, damaged or destroyed property.
j. Property Transfer Report (Appendix 76) – this form shall be used every time there will
be transfer of property from an outgoing officer to his successor or from one
accountable officer/employee to another of the same or another entity.
Section 103 of Presidential Decree No. 1445 (Government Auditing Code of the Philippines)
provides:

SECTION 103. General liability for unlawful expenditures. -- Expenditures of government funds or
uses of government property in violation of law or regulations shall be a personal liability of the
official or employee found to be directly responsible therefor. (Emphasis supplied.)

5. The contract is not duly supported by Certificate of Availability of Funds and not duly
witnessed by Chief Accountant contrary to Section 86 of PD 1445, LOI No. 968 and Section
46 of PD 1177.

Section 86 of PD 1445.

“ … no contract involving the expenditure of public funds by any government agency shall be
entered into or authorized unless the proper accounting official of the agency concerned shall
have certified to the officer entering into the obligation that funds have been duly appropriated
 for the purpose and that the amount necessary to cover the proposed contract for the current
fiscal year is available for expenditure on account thereof, subject to verification by the auditor
concerned. The certificate signed by the proper accounting official and the auditor who verified
it, shall be attached to and become an integral part of the proposed contract, and the sum so
certified shall not thereafter be available for expenditure for any other purpose until the
obligation of the government agency concerned under the contract is fully extinguished”.

Section 87 of the same law further provides that any contract entered into contrary to
the abovementioned requirement shall be void and the officer or officers entering into
the contract shall be liable to the government or other contracting party for any
consequent damage to the same extent as if the transaction had been wholly
between private parties.

LOI No. 968, ensuring that contracts are signed only when supported by available
funds, provides that “All contracts for capital projects and for the supply of
commodities and services, including equipment, maintenance contracts, and other
agreements requiring payment which are chargeable to agency current operating or
capital expenditure funds, shall be signed by agency heads or other duly authorized
official only when there are available funds. The Chief Accountant of the
contracting agency shall sign such contracts as witness and contracts without
such witness shall be considered as null and void”.

Section 46 of PD 1177, in addition, provides that “No funds shall be disbursed, and no
expenditure or obligations chargeable against any authorized allotment shall be
incurred or authorized in any department, office or agency without first securing the
certification of its Chief Accountant of Accounting Unit as to the availability of funds
and the allotment to which the expenditure or obligation may be properly charged…”

By checking the said DV and contract, certification that budget is available and fund
earmarked/obligated for the purpose (signed by OIC, Finance Division) can be found only in
the Budget Utilization Request, but that certification cannot serve the purpose of Certificate
of Availability of Funds because BUS only comes after the perfection of the contract and not
before as required by law. Further, the only witness in the said contract is the Department
Manager of MARCOMM and no signature of Chief Accountant as witness is affixed therein.

6. The subject contract is undated as to when it was perfected and when it was approved by
the Head of Procuring Entity (HoPE).

The date as to the perfection of the contract, as well as the date it was approved by
HoPE is important because these are the reckoning points in determining whether the
following procedural matters have been complied with properly.

a. Within five (5) working days from the execution of a contract by the government
or any of its subdivisions, agencies or instrumentalities, including government-owned
and controlled corporations and their subsidiaries, a copy of said contract and each
of all the documents forming part thereof by reference or incorporation shall be
furnished to the Auditor of the agency concerned. In case of agencies audited on an
engagement basis, submission of a copy of the contract and its supporting
 documents shall be to the Auditor of the mother agency or parent company, as the
case may be. (COA Circular 2009-001, Clause 3.1)

b. The concerned Procuring Entity shall issue the Notice to Proceed together with a
copy or copies of the approved contract to the successful bidder within seven (7)
calendar days from the date of approval of the contract by the appropriate
government approving authority. All notices called for by the terms of the contract
shall be effective only at the time of receipt thereof by the successful bidder. (Section
37.4 of Revised IRR of RA 9184)

The contract has a date of notarization which is October 28, 2016, however, we cannot
assume that the same is the date of perfection and/or approval of the contract because it
is later than the term of the contract which is from October 17, 2016 to October 22, 2016
and is way later than the Notice to Proceed which is October 7, 2016. If we assume
otherwise, it will violate the provision as mentioned above that Notice to Proceed shall
be issued to contractor within 7 calendar days from date of approval of the contract.

7. The DV and/or contract are not supported by approved APP, thus the provision under
Sec. 7.2 of the Revised IRR of RA 9184 is not satisfied.

Section 7.2 of the Revised IRR of RA 9184

“No procurement shall be undertaken unless it is in accordance with the approved

APP, including approved changes thereto. The APP must be consistent with the duly
approved yearly budget of the Procuring Entity and shall bear the approval of the HoPE or
second-ranking official designated by the HoPE to act on his behalf”.

The Project Procurement Management Plan (PPMP), instead of APP, is the one
attached to the DV. The highlighted amount in the total of P4,159,500.00 in the PPMP
which comprised of various items, the mode of procurement of which is Public Bidding
and Small Value Procurement, does not coincide with the Approved Budget for the
Contract (ABC) which is P3,943,500.00 which was subjected only to Public Bidding as
the mode of Procurement. We cannot accept PPMP alone because it merely supports
the APP and should have been any inconsistencies between the two, APP prevails
because this is the one submitted to and approved by the HoPE and/or other oversight
bodies like GPPB.

8. The subject contract were not also submitted to our office (Resident Auditor’s Office) within
5 working days from its execution, thus the same were not subjected to our auditorial review
in violation of COA Circular 2009-001.

Within five (5) working days from the execution of a contract by the government or
any of its subdivisions, agencies or instrumentalities, including government-owned and
controlled corporations and their subsidiaries, a copy of said contract and each of all the
documents forming part thereof by reference or incorporation shall be furnished to the
Auditor of the agency concerned. In case of agencies audited on an engagement basis,
submission of a copy of the contract and its supporting documents shall be to the Auditor
of the mother agency or parent company, as the case may be.

The copies of documents required to be submitted shall include but

not limited to the following:
 a. Invitation to Apply for Eligibility and to Bid;
b. Letter of Intent;
c. Eligibility Documents and Eligibility Data Sheet;
d. Eligibility Requirements;
e. Results of Eligibility Check/Screening;
f. Bidding Documents (Sec. 17.1, IRR-A, RA 9184);
g. Minutes of Pre-bid Conference, if applicable;
h. Agenda and/or Supplemental Bid Bulletins, if any;
i. Bidders Technical and Financial Proposals;
j. Minutes of Bid Opening;
k. Abstract of Bids;
1. Post Qualification Report of Technical Working Group;
m. BAC Resolution declaring winning bidder;
n. Notice of Post Qualification;
o. BAC Resolution recommending approval;
p. Notice of Award;
q. Contract Agreement;
r. Performance Security;
s. Program of Work and Detailed Estimates;
t. Certificate of Availability of Funds, Obligation Request;
u. Notice to Proceed
v. Such other documents peculiar to the contract and/or to the mode of procurement and
considered necessary in the auditorial review and in the technical evaluation thereof.

Any unjustified failure of the officials and employees concerned to comply with the
requirements herein imposed shall be subject to the administrative disciplinary action
provided in (a) Section 127 of Presidential Decree No. 1445; (b) Section 55, Title I-B,
Book V of the Revised Administrative Code of 1987; and (c) Section 11 of Republic Act
No. 6713.

Upon receipt of information or discovery by the auditor of such failure by management to

comply with the required submission, an Audit Observation Memorandum shall be issued
by him calling the attention of the latter, and requesting compliance, else the transactions
covered by the unsubmitted documents be suspended in audit and the penalty prescribed
by law under 4.1 be enforced.
(COA Circular 2009-001 dated Feb. 12, 2009, Clauses 3.1, 4.1 and 4.2)

This particular observation is already raised in the previously issued AOM (AOM
No. 2017-01-(16) dated Feb. 6, 2017) which is not fully complied with by CITEM
Management, thus this reiteration.

We recommend that Management:

a. secure first the Certificate of Availability of Fund from Chief Accountant before
entering into a contract, as provided for by law, and make it a point to make the Chief
Accountant as witness to the said contract.

b. should cultivate the practice of entering the date of execution and/or approval in each
contract it is entering with outside suppliers/contractors.
 c. submit the required APP, not only the PPMP, as one of the attachment in the DV
and/or contract, highlighting the portion which is attributable to the said contract.

d. assure that every contract it is entering into must be submitted to Resident COA
Auditor within 5 working days from the date of its execution together with all the
supporting documents needed for the latter’s auditorial review of the said contract in
compliance to COA Circular 2009-001.

May we have your comments on the foregoing audit observations within fifteen (15)
calendar days from receipt hereof.

CHONA U. GABRONINO
State Auditor IV
Audit Team Leader

HENEDINA R. OTADOY
State Auditor V
Supervising Auditor

Proof of Service of AOM No. 2017-_____ dated June 31, 2017

OFFICE Printed Name Signature Date

Executive Director
BAC Chairman
Controllership