19
Nov
09

OTHER AUDIT OBSERVATIONS

OTHER AUDIT OBSERVATIONS

DISCUSSION:

Non-implementation of Executive Order No. 712 due to non-receipt of implementing guidelines.

Section 2 (1), (2), and (5) of Executive Order (EO) No. 712 dated March 11, 2008 provides that:  The DILG shall, subject to existing laws, advise LGUs to suspend, to wit:

  1. the establishment and operations of new and existing transportation terminals that charge fees and require compulsory use by public utility vehicles;
  2. the enforcement of re-routing schemes that violate the authorized route as provided for the PUV franchises;
  3. xxx
  4. xxx
  5. the implementation of local programs, projects and ordinances that have impact on the cost of operations of public utility vehicles without first coordinating and getting the approval of the DOTC to ensure that these programs, projects and ordinances do not prejudice public interest by way of higher fares.

Relevant to the impact on additional fares from the pier/town proper to the Bus Terminal, a sworn statement of two (2) regular travellers, who are personally aggrieved of the prevailing situation, have submitted to the team their notarized comments in particular are attached for record and reference purposes.

In reply to our letter dated August 6, 2008, requesting of the action taken, if there is any in so far as the above cited provision of EO No. 712, states that, relative to this:  Please be informed that the Department is not yet implementing Section 2 of the subject EO, due to non-issuance of its implementing guidelines.  Moreover, DILG and DOTC is in the process of formulating the implementing guidelines through a Joint Memorandum Circular to be issued soonest.  Immediate implementation at their level is subject to receipt of said guidelines.

Notwithstanding the certification issued by the Municipal Engineer that the construction of Bulan Common Bus Terminal and abattoir under contract with S.R. Baldon Construction & Supply and Steven Construction & Supply, respectively, has been implemented, but construction of the said projects are still on-going as of July 24, 2007, which revealed probable liquidated damages to be determined by the TAS RTSO of COA Region V, Legaspi City.

Inspite of the Certificate of Acceptance and Turn-Over issued by the Hon. Helen C. De Castro dated December 4, 2007, contract review for the Integrated Bus Terminal and Slaughterhouse has not been rendered/submitted to the team by the Technical Service Office as of this date, November 5, 2008, when the exit conference is being undertaken by the Regional Cluster Director of LGS Cluster III Sub-Cluster II of COA RV Legaspi City at the Office of the Municipal Mayor of LGU Bulan, Sorsogon with several department heads.  As regards to contract review, a final tracer under 5th indorsement dated November 10, 2008 was forwarded to the Regional Cluster Director, Local Government Sector, Cluster III, Sub-Cluster II, both of COA Regional Office No. V, Rawis, Legaspi City, requesting immediate submission of the contract review of the aforementioned projects of LGU Bulan, Sorsogon.

A reply on our request dated September 18, 2008, was received by the team on November 12, 2008 from the BIR Revenue District No. 68, Sorsogon City stating among others that our request is a violation of Section 270 in relation to Section 71 of the National Internal Revenue Code, as amended and the requesting party is not included among the enumerated exception under Section 270 of the Tax Code in so far as our request for a Certification/Statement of taxes paid due the BIR covering the Deed of Donation executed by Mrs. Aniceta O. De Castro as the donor of a parcel of land situated at Barangay Fabrica, Municipality of Bulan, Province of Sorsogon in favour of LGU Bulan, consisting of an area of ten thousand square meters (10,000 sq. m.).

Income and revenue on operations of the LGU’s Heavy Equipment as recorded in the cashbook registered the following, to wit:

2006 2007 2008
January to June
P85,000.00 P107,513.00 P35,300.00

Pending receipt by the team of monthly reports for official travel and the corresponding monthly reports of fuel consumption per equipment, the team cannot render an opinion on the recorded income, whether there was an under/over statement of income from the operation of the same.

An exit conference was conducted by Supervising Auditor, Tita B. Embestro, presided by the undersigned on November 5, 2008, with the presence of Hon. Mayor Helen C. De Castro, and other Department Heads at Municipal Hall of LGU Bulan, Sorsogon.  As a consequence of said exit conference, a final tracer was issued under 5th indorsement dated November 10, 2008, requesting immediate submission of contract review of the Integrated Bus Terminal and Slaughterhouse of LGU Bulan, Sorsogon.

Series of communication pertaining to the non-submission of contract review by RTSO, revealed that management failed to submit the required PERT/CPM of the twin projects abovementioned.  Unnumbered memorandum to this effect was issued to the undersigned by Supervising Auditor Tita B. Embestro dated February 13, 2009, but it was only on March 5, 2009, when subject PERT/CPM was received by this end, under 1st indorsement dated February 26, 2009 and March 4, 2009 from Hon. Mayor Helen C. De Castro of LGU Bulan, Sorsogon and Auditor Jose Rey Binamira of PAO Sorsogon, respectively.

On March 5, 2009, PERT/CPM of Bulan Integrated Bus Terminal was forwarded to the Regional Director , thru the Supervising Auditor, Cluster III, Sub-Cluster II, LGS both of COA Regional Office No. V, Rawis, Legaspi City, in compliance with unnumbered memorandum dated February 13, 2009.

We extend our thanks for the cooperation and support extended to us by the Honorable Mayor Helen C. De Castro, Municipal Treasurer, Accountant, Budget Officer and Other Official and Employees of LGU Bulan, Sorsogon, and the Audit Team Leader, Team I, LGS Province of Sorsogon during our special audit engagements.

Prepared and Submitted by:

(SGD.) ROSS A. OBEJAS
State Auditor IV
LGS – Province of Masbate

18
Nov
09

AUDIT OBSERVATION MEMORANDUM NO. 9

AUDIT OBSERVATION MEMORANDUM NO. 9. LGU of Bulan, Sorsogon failed to post a procurement opportunity with the PhilGEPS in violation of Section 8-IRR-A of Republic Act No. 9184.

DISCUSSION:

The Philippine Government Electronic Procurement System (PhilGEPS) has adopted a two-pronged approach to achieve the following, to wit:

  1. Institutionalization of the PhilGEPS, which will be used for the procurement of common-use items and as repository of all Government procurement information, and
  2. Use or engagement of electronic procurement service providers by the Individual Procurement Entities for procurement of non-common use items.

The Procurement System – Department of Budget and Management (PS-DBM) manages the PhilGEPS under the supervision of the Government Procurement Policy Board (GPPB).  The PhilGEPS serves as the single portal and primary source of information on all government procurement.

All Procuring Entities shall utilize the PhilGEPS, through its Electronic Catalogue facility, for the procurement of common-use supplies.  Moreover, all Invitation to Apply for Eligibility and to Bid (IAEB), notices of award, and all other procurement-related notices shall be posted in the PhilGEPS, regardless of the method of procurement used by the Procuring Entity.

The GPPB shall issue the necessary procedural guidelines covering procurement through the PhilGEPS.

The PhilGEPS shall have a centralized electronic bulletin board.  Procuring Entities are required to post the following in the PhilGEPS Electronic Bulletin Board:

  1. IAEB for competitive bidding and notices of other procurement opportunities using the alternative methods of procurement;
  2. Supplemental/Bid bulletins
  3. Contract awards, the corresponding Notices of Award, including the reasons for award of contract;
  4. Results of bidding and related information; and
  5. Other notices, announcements, information for interested parties.

Failure to post a procurement opportunity will render the resulting contract null and void.  Failure to post a Notice of Award shall render the erring government official/s administratively liable in accordance with R.A. 6713 and other pertinent laws, rules and regulations, and appropriate sanctions shall be imposed.

Posting of notices and other transactions shall be done through duly authorized personnel of the Procuring Entity.  In accordance with Section 8.2.3 of the Implementing Rules and Regulations for Domestic Project (IRR-A), the Procuring Entity shall be required to designate its personnel who will be authorized to transact with the PhilGEPS.  The internal procedures of PhilGEPS require that a Procuring Entity shall have at least one (1) but not more than two (2) such authorized personnel.  For purposes of consistency with the prescribed procurement procedures, the Procuring Entity shall designate such personnel who is a member of the BAC Secretariat or assigned to the Procurement Unit/Office.

Posting the IAEB shall follow the guidelines in Section 21 of the IRR-A, Section 2, Part 1, Vol. 2, Section 3, Part 1, Vol. 3, and Section 3, Part 1, Vol. 4 of said Manual.

The PhilGEPS shall have a centralized electronic database of all manufacturers, suppliers, distributors, contractors and consultants registered under the system.  Registration shall entail the submission of the requirements specified by the PS-DBM.  Details of the requirements may be obtained from the PS-DBM website or PhilGEPS website.

Registration with the PhilGEPS is not tantamount to a finding of eligibility, nor is it a guaranty that a manufacturer, supplier, distributor, contractor or consultant may participate in a public bidding without first being determined to be eligible for that particular public bidding.

Procuring entities without internet access may avail of the PhilGEPS Public Access Terminals which shall be installed at DBM-designated locations in the provinces and in Metro Manila.

The PhilGEPS also feature the following:

  • A Virtual Store that will enable the ordering of common-use and non-common use items online called a virtual store.  This virtual store shall be open only to registered Procuring Entities and may not be accessed by suppliers.
  • An Electronic Payment function that will allow the system to manage the generation of purchase orders and the payment of bids processed through the system.  The focus of this feature is to facilitate the electronic transfer of funds from PS-DBM to and from Procuring Entities and suppliers, and from Procuring Entities to suppliers for bids managed directly by the Procuring Entity.  This System will:
    • Generate purchase orders from a bid notice, award notice or contract;
    • Support approval process for purchase orders before any payment or fund transfer is processed;
    • Have a process to submit request for payment upon delivery of goods and/or services and the completion of the approval process; and
    • Have the ability to interface with the designated bank of the Procuring Entity and suppliers to support the electronic transfer of funds.
  • An Electronic Bid Submission that will support the implementation of e-Bid submission process, which includes creation of electronic bid forms, creation of bid box, delivery of bid submissions, notification to supplier of receipt of bids, bids receiving and electronic bid evaluation.  This facility will cover all types of procurement for goods, infrastructure projects and consulting services.

Procuring Entities may hire service providers who will provide electronic procurement systems and/or services for the procurement of non-common use supplies, infrastructure projects and consulting services.  The Procuring Entity shall conduct a public bidding for this service.

Electronic procurement service providers must meet the following minimum requirements to qualify as a service provider to a Procuring Entity:

  1. The system must comply with the provisions of R.A. 9184, its IRR-A, R.A. 8792 (Electronic Commerce Act);
  2. The system must be linked to the PhilGEPS, particularly with regard to the posting of all bid opportunities and awards;
  3. The system must allow parallel manual submission of bids to the Procuring Entity;
  4. The system must ensure that the BAC shall have the complete control of the bidding process, and that the BAC’s sole authority to open bids is strictly observed;
  5. The system must be virus-resilient and the infrastructure must provide sufficient security which is at least equivalent to that employed by the PhilGEPS, such as, but not limited to firewall and encryption devices;
  6. Must provide for use of electronic signatures and other current electronic authentication devices;
  7. The service provider must have sufficient redundant back-up facilities;
  8. The system must have provisions for linkage to the Procuring Entity’s Financial Management Information System, and other internal information systems that may interact with the procurement process; and
  9. Electronic payment facilities, if used, shall comply with all laws, rules and regulations issued by the Government.

The GPPB shall determine and certify compliance with the above requirements.  However, it may delegate this task to technically capable agencies/offices of the Government.  For this purpose, it shall issue the necessary Guidelines.

Our audit disclosed that LGU Bulan, Sorsogon failed to register with the PhilGEPS and as a consequence the following information were not posted in the PhilGEPS Electronic Bulletin Board as Procuring Entities required to post the abovementioned information to the PhilGEPS Electronic Bulletin Board.

Moreover, analysis of the comparative results of bid prices under BAC Resolution Nos. 12 and 13 for Bus Terminal and Slaughterhouse, respectively, revealed that comparative analysis results were not also posted in the G-EPS Bulletin Board for their information records and reference purposes, as shown hereunder to wit:

CONSTRUCTION OF BULAN BUS TERMINAL

Name of Bidder

Bid Price

Difference

Ave. Difference

Remarks

P11,100.00
S.R. Baldon Construction & Supply P32,984,700.00 winning/lowest bidder
BSB Construction & Supply P32,993,200.00 P8,500.00 2nd lowest bidder
CTC Builders & Supply P32,998,400.00 P13,700.00 3rd lowest bidder
CONSTRUCTION OF SLAUGHTERHOUSE

Name of Bidder

Bid Price

Difference

Ave. Difference

Remarks

P3,500.00
Steven Construction & Supply P4,991,800.00 winning/lowest bidder
Muntopar Builders P4,994,400.00 P2,600.00 2nd lowest bidder
Necen Builders P4,996,200.00 P4,400.00 3rd lowest bidder

The above cited schedule of Contractor’s Bids and analysis of the result of the Lowest Calculated Responsive Bid (LCRB) as recommended by BAC Resolution Nos. 12 and 13 revealed that, as if there was no competitive public bidding that took place or had transpired which registered the lowest average difference of P11,100.00 over the other two bidders for the Bus Terminal project while, it likewise registered the least average difference of P3,500.00 over the other two bidders for the Slaughterhouse project.

An in-depth analysis of post-evaluation activity of the bidding process was not seriously undertaken by BAC which showed that the difference of two projects bidded were minimal.  This cast doubt on the results of bidding procedures made by the BAC as shown on the table abovementioned.

COA’S RECOMMENDATION:

Require the duly authorized personnel, designated/assigned to the procurement office to explain in writing why they failed to register the Procuring Entity/LGU with the PhilGEPS that likewise resulted in the failure to post the same in the PhilGEPS centralized electronic bulletin board pursuant to Section 8-IRR-A of R.A. No. 9184.

LGU’S COMMENT:

The procurement opportunity for the implementation of the twin projects was posted in a newspaper of national circulation.  Due to the recurring technical problems plaguing the fledgling internet industry in the area at the time, posting with PhilGEPS was inadvertently omitted by the BAC.  The recent observation of the commission is a wake-up call that was immediately addressed by the LCE.  The BAC Chairman was directed to coordinate with concerned agencies for the immediate and proper training of BAC members and support personnel.  The LCE also tasked the body to immediately enrol the LGU with PhilGEPS.

COA’S REJOINDER:

The diligence of a good father of a family was not exercised by the procuring entity pursuant to Section 8-IRR-A of R.A. No. 9184.  Procuring entities without internet access may avail of the PhilGEPS Public Access Terminals which shall be installed at DBM-designated locations in the provinces and in Metro Manila.

Failure to post a procurement opportunity will render the resulting contract null and void.  Likewise, failure to post a Notice of Award shall render the erring government officials administratively liable in accordance with R.A. 6713 and other pertinent laws, rules and regulations, and appropriate sanctions shall be imposed.

13
Nov
09

AUDIT OBSERVATION MEMORANDUM NO. 8

AUDIT OBSERVATION MEMORANDUM NO. 8. Bond flotation semi-annual interest from December 5, 2006 to December 5, 2007 in the amount of P3.436 million could have been saved had the municipal government of Bulan, Sorsogon set-aside bond flotation as the mode of financing the project, although as a consequence a loan agreement made, executed and notarized on September 3, 2007 by and between LGU Bulan, Sorsogon and LBP Legaspi Branch, to refinance the same project.

DISCUSSION:

The Sangguniang Bayan of LGU Bulan, Sorsogon confirmed and ratified, ordinance No. 004 series of 2003, authorizing the Bond Flotation of the Municipality of Bulan, Sorsogon in the amount not exceeding Fifty Million (P50,000,000.00) to fund the construction and development of Bulan Bus Terminal and Municipal Slaughterhouse, represented by Mayor Guillermo O. De Castro and DPEM Inc. represented by its President Junio M. Ragrario.

  • The Municipality is hereby authorized to issue and float “Bulan Bonds” under the terms and conditions set forth and agreed upon with any person, corporation or entity for the purpose of constructing the projects abovementioned and the power and authority in negotiating the terms and conditions for the said “Bulan Bonds” and signing and executing and delivering such agreements, contracts, deeds, papers and documents necessary for the full and total implementation of the authority granted.
  • The features and terms and conditions of the bond flotation is provided in Section 2 of said ordinance abovementioned to wit:

BULAN BONDS

Bond Name Bulan Bonds
Issuer Municipality of Bulan
Amount P50 million, in staged tranches as allowed by the financial capacity of the Municipality
Issue Registered local government bonds of the Municipality of Bulan (“Bulan Bonds)
Purpose Construction of the twin projects, etc.
Offering Price 100% of face value
Term Mixed term up to ten (10) years from issue date
Denomination P1,000; P10,000; P100,000; and P1,000,000
Medium of sale 1)  Public offering; 2)  Private  placement; and 3)  Direct payment to suppliers, contractors, or project developers/proponents
Manner of Payment
Interest Semi-annual fixed or floating rate
Principal Balloon principal repayment at the end of the seventh or tenth year from issue date and/or principal payments amortized equally starting the third year or later following issues of different terms
Interest rate Interest shall be floating based on the weighted average of the 182-day Treasury Bill (T-Bill) rate
Collateral/Guarantee/Security Proceeds from revenue of project improvements and facilities funded by proceeds of the bond, and assignment of Internal Revenue Allotment
Trustee/Fiscal Agent Any government bank to be designated by the Municipal Mayor, to act as a fiscal agent, handle the sinking fund, act as fund manager, transfer agent and paying agent
Trustee fee Up to ½ of 1% per annum
Underwriting Any government or private financial institution licensed to undertake underwriting of securities as allowed under Philippine laws
Guarantor LGU Guarantee Corporation (LGUGC) or any other appropriate institution
Guarantee fee One-time fee chargeable to developers, proponents, contractors, or investors of the project

Moreover, Section 3 to 9 of the subject ordinance provides among others several conditions for the LGU, to wit.

  • To appropriate the entire proceeds of the bonds, upon its successful issue exclusively to finance the construction of the twin projects and to pay for the financial advisory fee and trustee fee and other financial obligation relative thereto;
  • To appropriate in the municipal annual budget such amount necessary to fund the sinking fund that will be created through the appointed trustee bank;
  • To designate a government depository bank to act as trustee or fiscal agent for the Bulan Bonds, to sign and execute any trust indenture agreement and deed of assignment, relative to the designation of said bank and flotation of the bond;
  • The Municipal Mayor shall appoint, any government or private institution duly licensed as underwriter to be the underwriter of the Bulan Municipal Bonds “Bulan Bonds” and to negotiate, sign and execute an underwriting with the said underwriter in such form and substance to be ratified by the Municipal Council;
  • The Municipal Mayor may designate the LGU Guarantee Corporation, a Corporation organized by the Bankers Association of the Philippines, to specifically extend guarantee on the Bulan Municipal Bonds and for this purpose the Municipal Mayor is likewise authorized to negotiate, sign and execute any contract or agreement with the LGU Guarantee Corporation pertinent to bond flotation in such form and substance to be ratified by the Municipal Council.  The Municipal Mayor, however, may undertake alternative agreements should such be necessary due to cost considerations.
  • The Municipal Mayor is authorized to conduct public bidding on the awarding of the projects to be funded through bond flotation either on a design and construct basis or on a construct basis with the developer/contractors to be paid either in the form of Bulan Bonds and/or cash proceeds from bond’s sale.  The procedure of such bidding shall be done in accordance with applicable provisions of PD 1594, usual auditing and accounting rules and regulations, relevant Municipal Ordinances and such procedures which the Municipal Mayor may deem necessary in the implementation of the municipal’s bond flotation project or projects.  The Municipal Treasurer shall issue the corresponding Certificate of Funds Availability out of the proceeds of the Bond Flotation.
  • The Memorandum of Agreement entered into by and between the Municipal Government of Bulan, represented by its Mayor, the Honorable Guillermo O. De Castro, as authorized by the Sangguniang Bayan and DPEM Inc. represented by its President, Junio M. Ragrario, for purposes of the bond flotation is hereby confirmed and ratified.

Our audit disclosed that LGU Bulan, Sorsogon have incurred unnecessary expenses of P3.436 million for two semi-annual interest from December 5, 2006 to December 5, 2007, excluding financial advisory fee, trustee fee and other financial obligations relative thereto.  Although as a consequence, a loan agreement was made and executed on September 3, 2007 by and between the LGU Bulan and LBP Legaspi Branch just to refinance the project with the corresponding promissory with assignment of Internal Revenue Allotment (IRA) and revenues from the project as collateral.

COA’S RECOMMENDATION:

Require the Sangguniang Bayan of LGU Bulan, Sorsogon to justify in writing why they resorted the bond flotation instead of direct loan with the same bank which could have avoided such incurrence of unnecessary expenses amounted to P3.436 million and proper identification of other expenses incurred in addition thereto in detail.

LGU’S COMMENT:

The administration of Mayor Guillermo O. De Castro can be credited for transforming Bulan from a backwater municipality, dark and littered with dirt and refuse.  After illuminating and cleaning the town, the then-LCE opened roads and access to even the remotest village.  Prior to 2003, it became evident that the price of development is caching up with the municipality.  By then, the premier commercial and educational center in the part of the province, congestion, overcrowding and related problems were weighing heavily on the populace.  Concerned government agencies suggested decongestion.  Transportation terminals, slaughterhouses, cemeteries and the like were all situated in and around the center of the poblacion.  Tackling the problems heads-on, the administration tried to secure financing from bank and government agencies.  With prospective fund sources unable to accommodate the LGU, the municipality opted to raise the money thru the only available option:  bond flotation.  Ironically, offers of straight loan came in droves after the flotation, entice, no doubt, by the LGU’s increased IRA-share.

The then-LCE and the then-Sangguniang Bayan were not remiss in the performance of their duties.  Doing their best, they were hampered by the circumstances such as the dearth of loan-providers.  Given the situation obtaining today, those community leaders would have opted for a straight loan.

The 8.9% Bulan Bonds cost the LGU some P3.436 million in interest payment for the period covering December 5, 2006 to December 5, 2007.  If the municipality were granted a simple straight loan in the same period at the prevailing rate of 8.53% the interest payment for the first year would have been P3.412 million or a difference of P24,000.  Indeed, the entity could have saved P24,000 on interest and on the transaction cost; but only if the situation in 2006 were similar to that in 2007.  And they were not.

In 2003, the LGU was facing a looming problem of congestion brought about by haphazard town-planning.  The municipality had 2 alternatives:  address the problem now or wait for “better” times.  With spiralling prices, “better” times would mean bigger implementing cost.  The LGU, like a good father to its constituents, addressed the problem by utilizing the best option available to it at the time to deliver the service demanded of it by its people.

The experience, though, provided the LGU with a better insight of the financing community.  In times of similar needs, the LGU can tap on its experience and be guided by other government entities such as the Commission on Audit.

01
Nov
09

AUDIT OBSERVATION MEMORANDUM NO. 7

AUDIT OBSERVATION MEMORANDUM NO. 7. Premature conversion activities were undertaken by LGU Bulan, Sorsogon of a Riceland donated by Mrs. Anecita O. De Castro to be developed into a Bus Terminal from October 4, 2006 prior to awarding of the contract to S.R. Baldon Construction & Supply on December 11, 2006.

DISCUSSION:

Premature conversion activities were undertaken by LGU Bulan, Sorsogon on the Riceland donated by Mrs. Anecita O. De Castro as the site of Bulan Integrated Bus Terminal.  As of October 4, 2006, almost half hectare (1/2 ha.) has been filled up with truck loads of soil fillers.  Likewise hollow blocks are already present within the area as a result of the ocular inspection made by Mr. Gil G. Garido, Municipal Agrarian Reform Officer of Bulan, Sorsogon.  This information was transmitted to Mr. Roseller R. Olayres, OIC-PARO II, DAR Provincial Office, Balogo, Sorsogon City, and Atty. Juan F. Zulueta, Chairman, Provincial Task Force on Illegal Conversion, copy furnished, the Regional Director and Regional Task Force on Illegal Conversion pursuant to AO No. 1 Series of 2002, and AO No. 4 Series of 2003.

With the foregoing facts and information, the Municipal Engineer and the Zoning Officer III/Project In-Charge should determine the quantity of truck loads of soil fillers in terms of cubic meters and hollow blocks and the corresponding size delivered to the project site and the corresponding computation of its equivalent money value.

COA’S RECOMMENDATION:

Require the Municipal Engineer and Zoning Officer III/Project In-Charge to quantify the alleged/actual deliveries of soil fillers in terms of cubic meters and the number of pieces of hollow blocks and the corresponding size delivered to the project site and the corresponding computation of its equivalent value in terms of pesos is likewise reiterated.

LGU’S COMMENT:

The LGU has no record of premature conversion activities of the lot donated by Ms. Anecita O. De Castro.  Pictures of proposed projects sites included in the application for Environmental Compliance Certificate would show that the particular lot was vacant and free of construction materials prior to actual projects implementation.  There is a strong possibility that the area, being vacant, was temporarily utilized by businesses in the vicinity.  It was recalled that there was, at a time, an on-going construction on the lots adjacent to the terminal.



01
Nov
09

AUDIT OBSERVATION MEMORANDUM NO. 6

AUDIT OBSERVATION MEMORANDUM NO. 6. Construction of Bulan Integrated Bus Terminal and Slaughterhouse as published on the “Philippine Star” dated September 15 and 22, 2006 issues states that funding source was through Municipal Bond Issue in the amount of P33 million and P5 million respectively, while on the contrary said twin projects was funded through a loan from LBP in the amount of P38,486,744.52 dated September 10, 2007 to refinance the same.

DISCUSSION:

The Municipal Government of Bulan, Sorsogon thru the Bids and Awards Committee awarded the construction of Bulan Bus Terminal to S.R. Baldon Construction Supply, on December 11, 2006 in the amount of P32,984,700.00, while the construction of slaughterhouse was awarded to Steven Construction & Supply dated December 29, 2006 in the amount of P4,991,800.00 in the total amount of P37,976,500.00 as against the aggregate amount of loan granted by the bank of P38,426,744.52 which revealed a difference of P450,244.52.

The contract agreement for the construction of Bus Terminal was notarized on December 31, 2006, and for the construction of Slaughterhouse was likewise notarized on December 29, 2006.  As a consequence, Resolution No. 033, series of 2007 was passed by the Sangguniang Bayan of Bulan, Sorsogon, authorizing the Hon. Mayor Helen C. De Castro for and in behalf of the LGU Bulan, Sorsogon, to apply, negotiate and enter into a contract of loan with LBP, Irosin Branch, Province of Sorsogon.  A loan agreement made and executed at Legaspi City  on September 3, 2007 by and between the LBP Legaspi Branch and the Municipal Government of Bulan, Sorsogon for the purpose of refinancing the construction of Bulan Bus Terminal and Municipal Slaughterhouse originally funded by LBP-TBG (Trust Banking Group) via issuance of Bulan Bonds while on the other hand, again a Promissory Note with Assignment of Internal Revenue Allotment (IRA) and Revenues from the project was entered into by and between the Municipal Government of Bulan, Sorsogon and the Land Bank of the Philippines (LBP) Legaspi Branch represented by Mayor Helen C. De Castro and Dept. Mgr. Hil Benedict G. Manzanades, respectively, effective September 10, 2007.

Purchase Order (PO) No. 029 and Unnumbered PO both dated October 29, 2006, were certified by the Municipal Accountant that there is funds available and approved by the requisitioning officer, the Municipal Mayor for the construction of Bulan Integrated Bus Terminal at Brgy. Fabrica, Bulan, Sorsogon and construction of slaughterhouse at Zone 7, Bulan, Sorsogon, respectively.

Our audit disclosed that analysis and verification of pertinent document revealed that the source of fund as published as of the awarding of contract on December 11, 2006 was via issuance of Bulan Bonds, while on the contrary the source of funding was through a succeeding loan agreement at LBP approved on September 10, 2007.  The project was on-going since December 8, 2006 after a lapsed of more than eight (8) months after said loan was approved and released by the bank.

COA’S RECOMMENDATION:

Require the Municipal Accountant to explain in writing, why funds availability for the twin projects were certified both dated October 29, 2006, while the loan was approved on September 3, 2007 for the purpose of refinancing the construction of the twin projects abovementioned.

LGU’S COMMENT:

The certification on the availability of funds for the projects was made on the basis of the “Underwriting Agreement” executed by and between the Local Government Unit of Bulan and the Land Bank of the Philippines on August 25, 2006.  The agreement has “authorized the issuance of bonds in the aggregate amount of Forty Million Pesos to finance the improvement, construction and development of appropriate areas . . . as the sites of a new Municipal Bus Terminal and a new Municipal Slaughterhouse.”  That there indeed were funds available for the twin projects in 2006 is further evidenced by the charges against, and releases from, the same in the ensuing month of December, 2006, and during the first two (2) quarters of CY 2007, as follows:

DATE PAYEE AMOUNT

12/17/06

Junio Ragrario/DPEM Inc.

P1,200,000.00

1/5/07

CDF

1,284,000.00

1/8/07

S.R. Baldon Construction & Supply

4,947,705.00

1/8/07

Steven Construction & Supply

748,770.00

3/9/07

S.R. Baldon Construction & Supply

15,997,579.50

3/9/07

Steven Construction & Supply

1,747,130.00

4/27/07

S.R. Baldon Construction & Supply

4,165,968.00

4/27/07

Steven Construction & Supply

1,447,622.00

6/4/07

S.R. Baldon Construction & Supply

3,340,511.70

6/4/07

Steven Construction & Supply

1,048,278.00

TOTAL

P35,927,564.20

The Thirty Eight Million Four Hundred Twenty Six Thousand Seven Hundred Forty Four Pesos & Fifty Two Cents (P38,426,744.52) loan taken out of Land Bank of the Philippines, Legaspi City on September 10, 2007, was not intended to defray expenses connected with the construction of the twin projects.  Rather, the entire proceeds were utilized to buy out and retire the “Bulan Bonds.”

COA’S REJOINDER:

The contract awarded in the amount of P32,984,700.00 registered a difference of P4,532,935.80 compared to the actual payments made by LGU Bulan, Sorsogon to S.R. Baldon Construction & Supply in the total amount of P28,451,764.20.

BAC Resolution No. 12, series of 2006 have determined S.R. Baldon Construction & Supply as the Lowest Calculated Responsive Bid (LCRB) in the amount of P32,984,700.00 for the construction of Bulan Integrated Bus Terminal.

01
Nov
09

AUDIT OBSERVATION MEMORANDUM NO. 5

AUDIT OBSERVATION MEMORANDUM NO. 5. The feasibility / investment study conducted by DPEM Inc. failed to realize what was projected and envisioned as far as financial and economic viability of Bulan Integrated Bus Terminal project is concerned.

DISCUSSION:

Executive Summary of the investment study conducted by DPEM Inc. primarily aims to provide a terminal for all buses servicing inter-provincial routes.  The proposed bus terminal will be located in a 10,000 sq. m. lot to be acquired by the municipality.  The minimum building floor area will be 2,400 sq. m. as determined by the expected number of people who will be using the terminal.  Space has been allocated for a passenger waiting area, loading and unloading bays, an administration and security office, ticket booths, spacious restroom, lounge and restaurant, commercial kiosks, call station, wash bays, and bus parking area.  An internal road network with clear, unambiguous directional sign will be provided to ensure the smooth flow of traffic.  Parking areas for private vehicles have also been allocated as well as well-defined queuing areas for jeepneys and tricycles right outside the terminal compound.

The feasibility will be utilizing single phased power supply to service the power requirements of the electrical appliances and fixtures to be utilized in the facility.  A stand-by generator shall also be provided to serve as back-up supply.  The water requirements will be served by a central deep-well water supply located within the compound.

The investment requirement for the integrated transport terminal facility is P30,956,500.  The construction cost of the building which is about 65% is the most sizable investment in the facility, followed by site development cost at 29% and the cost for equipment, fixtures and furnitures at 6% is the least of the three project components.

The pre-implementation phase will take about four (4) months.  The implementation phase will take about twelve (12) months which is well within the capability of the locally-based contractors who will be competing, through the institutionalized bidding process for the right to implement the project.

The project is owned and managed by LGU Bulan, Sorsogon as a service-oriented income generating venture and as much would be closely monitored by the Chief Executive.  Thus, in the interest of time and the LGU’s desired direction of trade and spatial development, the LGU’s investment could be justified provided that a reasonable return is realizable.

An in-depth analysis of the feasibility/investment study prepared and projected by DPEM Inc. for Bulan integrated bus terminal project revealed the following adverse condition/circumstances surrounding the issue of concern to wit:

  • The proposed bus terminal located in a 10,000 sq. m. lot was not purchased by LGU, but conditionally donated by Ms. Anecita O. De Castro with a proviso:  “That the aforementioned property shall be solely used as the site of the common terminal of the municipality of Bulan, otherwise the said property shall automatically redound back to the DONOR or her heirs.”  This is disadvantageous to the intended beneficiaries, concerned taxpayers including its constituents considering the total project cost of the Bus Terminal.
  • The building floor area of 1,519.50 sq. m. is smaller than what was projected to the intended beneficiaries of 2,400 sq. m. floor area.
  • An internal road network with clear, unambiguous directional sign to ensure the smooth flow of traffic is no longer necessary had the procured/purchased lot was alongside the national highway.
  • The facility is utilizing 25 KVA transformer instead of a 50 KVA transformer as programmed.
  • A stand-by generator was not provided to serve as back-up supply of electrical power as projected.
  • Pre-implementation expense could not be determined in the absence of bank statements or bank debit memos.
  • The investment for the construction of Bulan Integrated Bus Terminal was P32, 984,700.00 instead of P30,956,500.00 as programmed.
  • Construction cost of the Bus Terminal building at 65% as projected is 44.04% or P14,526,461.88 as implemented and developed.
  • The site development cost as projected at 29.5% is 34.13% as implemented and developed.
  • The cost for equipment, fixtures and furnitures at P1.724 million or 6% as projected of the major three (3) components is less than 1% as implemented.
  • The implementation phase of about twelve (12) months for project execution dated December 13, 2006, the date of notice to proceed with agency certificate of acceptance and turn-over dated December 4, 2007, revealed that the contract duration of one hundred eighty (180) calendar days was not totally observed, but acceptance and turn-over registered a lapse or delay of one hundred seventy one (171) days.
  • The LGU’s investment study is unjustifiable due to unrealized projected return.
  • The total actual income from the operation of the Bus Terminal from December 17, 2007 to July 31, 2008 in the amount of P1,689,707.25 and Slaughterhouse income from June 1 to July 31, 2008 of P101,345.00 or aggregate total of P1,791,152.25 is less than the interest paid for the same period in the total amount of P2,210,302.60 which registered a shortfall of P419,150.35 for interest alone excluding the principal amortization of P458,442.73 monthly and the corresponding personnel and administrative expense.  Monthly amortization starting from October 10, 2008 and maturing on September 10, 2015 with a grace period of one (1) year on principal for the first year interest from October 10, 2007 to September 10, 2008 in the total amount of P3,267,929.83.

COA’S RECOMMENDATION:

Introduce effective marketing strategies that would fast-track the projected realizable income through sales of unoccupied/available commercial spaces that will generate additional revenues or to break-even for the monthly interest alone.

LGU’S COMMENT:

The primary objective of the twin projects, namely the Bulan Integrated Terminal and the Bulan Municipal Slaughterhouse, is the introduction of facilities and provide convenience, comfort and safety to the inhabitants and those of nearby communities.  While recouping the costs of implementation and making profits out of the operations are but secondary purposes, the LGU is bent on turning these as self-liquidating and income-generating economic activities.  Available income summary of the entities as of September 2008, are as follows:

COLLECTION

PERIOD

ABATTOIR

TERMINAL

TOTAL

2007
Dec. 17 – 31

P120,328.00

P120,328.00

2008
Jan.

216,172.00

216,172.00

Feb.

230,511.00

230,511.00

Mar.

210,190.00

210,190.00

Apr.

228,516.00

228,516.00

May

255,700.00

255,700.00

June

P43,075.00

221,990.00

265,065.00

July

45,845.00

206,370.25

252,215.25

Aug.

35,250.00

224,744.00

259,994.00

Sept.

49,100.00

211,597.00

260,697.00

Total

P173,270.00

P2,126,118.25

P2,299,388.25

Indeed, the returns indicated are still below projections.  As of this writing, majority of the stalls are still vacant, not for lack of applicants but due to rigid screening procedures, and applications for transport accreditation are in the process of validation.  When all the stalls are leased out and all buses plying the route are accredited the establishments are projected to earn more income than is needed to cover amortization.

With regards to the conditional donation of the terminal lot, the LGU has sent emissaries to the donor to effect the deletion of the adverse conditions incorporated in the agreement.  While the LGU respects the generosity, it is but right for all concerned to bow to the greater and more eloquent desire of the people.  In the return and in appreciation of her manifested love for the Bulanenos, the LGU is considering the renaming of the project from “Bulan Integrated Bus Terminal” to ANICETA O. DE CASTRO INTEGRATED TERMINAL.

31
Oct
09

AUDIT OBSERVATION MEMORANDUM NO. 4

AUDIT OBSERVATION MEMORANDUM NO. 4. The Municipal Engineer of Bulan, Sorsogon failed to strictly observe and conform to the policy, standard and guidelines in the establishment, construction, improvement, and operation of Bulan Slaughterhouse/Abattoir pursuant to Executive Order No. 137 series of 1993.

DISCUSSION:

Section 1 of Executive Order No. 137 series of 1993, states that – Construction, Improvement, Expansion and Operation of Slaughterhouse shall conform to applicable local and national policies, standards and guidelines.  To prevent wastage in terms of time and valuable logistics and to maintain a uniform, high standard of sanitation in the operation and maintenance of slaughterhouses, the National Meat Inspection Service (NMIS) and the LGU’s concerned shall perform the following:

(a)    The city or municipality:

  1. shall, by ordinance, establish and operate a public slaughterhouse. In the construction, improvement, and expansion of such establishment, the city or municipality shall conform to applicable local and national policies, standards, and guidelines. For this purpose, the concerned local government unit may seek the assistance of the NMIS and other government agencies.

XXX

(b)   The NMIS shall:

  1. formulate national policies, guidelines, rules and regulations governing the establishment and operations of slaughterhouses; and
  2. exercise technical supervision over the establishment and operations of slaughterhouses with authority to recommend sanctions and closure to local chief executives for those that do not comply or meet the requirements and standards set thereof.

For monitoring and evaluation, the NMIS, in coordination with the LGU concerned, shall monitor, conduct field inspection, and require those involved in slaughterhouse operation to submit periodic and special reports to the NMIS.

Our audit disclosed that the municipal engineer failed to seek assistance to strictly observe, follow and conform to the policies, standards and guidelines in the establishment, improvement, expansion and operation of slaughterhouse/municipal abattoir pursuant to Section 1 of Executive Order No. 137 series of 1993.  The Municipal engineer was provided by the Regional Technical Director of NMIS with the floor plan of standard municipal abattoir.  The Municipal Engineer had prepared the slaughterhouse plan but did not submit any copy of the proposed plan to the NMIS.  Moreover, the Municipal Engineer was informed that a 5000 sq. m. Area for the slaughterhouse would be suitable.  However, the said slaughterhouse was constructed in a small lot with an area of 500 sq. m. under TCT No. 64061, identified as Lot No. 1043-1-3-B, PSD-05-038643 located at Zone 7, Bulan, Sorsogon.  Evaluation team from the NMIS conducted the site evaluation and revealed the following deficiencies, to wit:

  1. The project site was so irregular and the area is so small.  One tenth (1/10) of suitable site (500 sq. m. over 5000 sq. m.).
  2. Waste water facility is so small.
  3. Animal lairage cannot accommodate the number of animals for daily slaughter.
  4. Dispatch area is too narrow.
  5. Revised floor plan that the set up was disorganized.
  6. For not consulting the NMIS, the vertical beams were too low that cannot accommodate the standard height for equipment installation.

Likewise, on August 19, 2008 the same evaluation team conducted inspection on the acquired stainless scalding vat without unloading cradle, a number of stainless table, hog trolley, gambrels and installation of overhead rail that will result the carcass touching the floor.  These equipments are not complete to suffice the normal operation for an abattoir.

A letter was sent to the NMIS dated August 6, 2008 addressed to the Regional Director requesting to furnish us a copy of the inspection report conducted by that office on August 19, 2008 in reply to our request said inspection report was issued on September 12, 2008 and received by this end on September 16, 2008 as our ready reference to anchor our findings and observation.

COA’S RECOMMENDATION:

Require the Municipal Engineer to re-organize the floor arrangement re-setting the beams and columns for the abattoir in proper perspective, if possible to expropriate the lot fronting the dispatch area.  Coordinate with the City Engineering Department of Legaspi City if the waste water that they constructed at the public market is applicable in abattoir of LGU Bulan, Sorsogon.

LGU’S COMMENT:

The Local Government of Bulan, through the Office of the Municipal Engineer and other parties concerned, shall implement the recommendations put forward by the Commission.  One concern that may not be addressed sooner is the lot area.  The 800 sq. m. land was the only available at the time.  Acquisition of the adjoining areas would entail large amount and a lengthy period of negotiations.

The LGU, nevertheless, will pursue all angles to comply with recommendations provided for in this particular AOM.




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